The aftermath of the dreaded COVID-19 and its variants on economies worldwide left little to the imagination. Amid the scene of devastation that followed the pandemic, there was a massive bedlam in the global industrial arena. The onset of the coronavirus was particularly destructive for sectors such as F&B, aviation, electronics, and automotive. The automotive industry, pre-pandemic, was a remnant of numerous disruptions such as electric mobility, ridesharing, and the like.
All was not lost, as the world soon found out. According to OICA, the vehicle production during 2023 globally was nearly 20.5% more than in 2020, suggesting a positive turnaround in the industry. When the pandemic was at its peak in 2020, the automotive sector seemed to be in one of its worst phases. Already faced with many problems, like environmental issues due to emissions and changing consumer requirements, automakers had to deal with further issues as COVID-19 spread, like slumping car sales and political uncertainty.
While the sector has witnessed an improvement and an influx of major technology trends, it still has to face many challenges. The following paragraphs comprise a gist of some existing and new concerns facing the automotive industry, to help understand the present scenario in the vehicle manufacturing and servicing space.
Top 5 Challenges in the Automotive Industry
1) Sustainability Targets Influence Policies
The automotive market stands at a critical juncture as sustainability targets are exerting a significant influence on regulatory policies, driving organizations towards greener initiatives. The European Union, for example, has set ambitious goals to reduce greenhouse gas emissions from new cars by 55% by 2030, compared to 2021 levels. The move is a part of the large strategic vision to achieve a climate-neutral economy by 2050.
The legislative changes will force automakers to bolster their R&D efforts, particularly in electric vehicle (EV) technology, to meet the stringent standards. For instance, Volvo Cars has pledged to become a fully electric car company by 2030, a move that not only aligns with regulatory changes but also sets a precedent for the industry. Furthermore, the global push for sustainability is not restricted to emissions alone but extends to the quest for circular economy practices, as evidenced by Nissan’s commitment to using recycled materials in up to 30% of its new cars by 2030.
As the industry sets out to bring in electric vehicles (EVs), manufacturers face the formidable task of overhauling their product lines and production facilities. This transition requires substantial investment in new technologies, charging infrastructure, and consumer education on electric mobility.
2) Technological Disruptions & Consumer Demand
Consumer preferences and market dynamics are evolving rapidly in response to technological disruptions. The auto sector is experiencing rapid developments, including electric vehicles (EVs), ADAS, and advanced connectivity features. Keeping up with these innovations requires substantial investment in research and development, infrastructure, and workforce training. Citing an example, in January 2024 BYD revealed its plans to spend over USD 14 billion on ADAS technologies for its smart energy vehicles. It is just one instance of how companies have to boost investments to keep up with rising consumer awareness about modern automotive features.
Further, as the EV era is upon us and consumers want to strengthen the fight against emissions, BEVs and hybrids will soon become the norm. As per the IEA, China recorded an 80% increase in EV sales during 2022 as compared to 2021, while the overall trend across APAC was also notably uphill. For an effective transition from ICE vehicle production to EV and related component manufacturing, tremendous investments are needed to transform the production lines and supply chains while maintaining profitability.
In 2023, JLR said it will shell out more than USD 18 billion over the next 5 years to realize its plans of becoming an electric-first, modern luxury carmaker by 2030. It demonstrates the significant costs involved in R&D, production, and material procurement for companies to transition fully toward EVs.
Recently, Mercedes-Benz announced that its electrification plans are delayed by 5 years, which means now it expects BEVs and Hybrids to make 50% of total sales by 2030, as compared to a previous forecast of 2025. As per the company, production strategies will be adjusted as the EV demand lags behind actual investments made in capacity expansion and technology development.
The above instances clarify how the electric vehicle disruption phase is complicating the plans and finances for even the major automakers.
3) Labor Shortage to Impact Costs
Europe is home to four of the world’s top automotive companies, and the industry provides more than 4 million jobs across the region. However, a shortfall in skilled professionals is a standing problem in EU countries, not only for major automakers but also for other organizations involved in the sector. According to a supplier survey by the German Association of the Automotive Industry, over 75% of companies faced severe labor shortages as of 2023.
A study by ECI Software revealed that due to a gap in manufacturing skills, an estimated 2.1 million jobs in the U.S. could remain unfilled by 2030, and the automobile sector will be impacted too. A dearth in skilled labor can lead to longer production cycles and inflated costs. The convergence of technological abilities and skilled workforce is imperative for fulfilling a consistent demand and the integration of emerging vehicle technologies.
Microchip production took a hit due to the COVID-19 pandemic and the lack of skilled people is hampering the capacity expansion plans of giant chipmakers such as Intel and TSMC. For its planned USD 31 billion facilities in Germany, Intel has teamed up with universities to help build the required workforce talent. In addition, a consortium of 18 universities, manufacturers, and other groups secured over USD 4 million worth of EU funding to establish the European Chips Skills Academy. It showcases the strong realization of automotive suppliers about the need to tackle labor shortfall.
Data-driven forecasting suggests that a proactive approach, combining investment in vocational education and advanced robotics, can serve as a stabilizing force against this labor shortage tempest. The industry’s capacity to innovate and propel forward hinges on its adept handling of this evolving workforce conundrum.
4) Geopolitical Tensions Disrupting Supply Chains
The onset of COVID-19 brought about an immediate halt in component production, disrupting supply chains the world over. China, which was impacted by the pandemic at the outset, had almost two-thirds of its vehicle manufacturing affected due to the nationwide lockdown. Auto supply chains are often spread across geographies; with every country imposing its own protocol post-pandemic, supply chain management took a massive hit, emerging as one of the most vital challenges faced by the automotive industry during COVID-19.
Today, a bigger challenge for automotive part supplies and semiconductor manufacturers are geopolitical tensions across Europe and the Middle East regions. The Russia-Ukraine War which started in 2022 caused substantial problems for oil export, vehicle demand, and transportation systems. Oil price volatility was among the leading issues from the onset of the war. The Israel-Hamas conflict, going on since 2023, also has brought significant disruptions across the global supply chain.
How does a conflict in any part of the world hamper automotive production?
The volatility resulting from the conflict may necessitate adjustments in shipping routes and maritime operations, to mitigate risks and ensure continuity in logistics. Re-routing can have consequential impacts on delivery schedules and cost structures within the automotive industry. Wars in oil-producing or exporting nations most times lead to a surge in crude oil prices, destabilizing fuel prices worldwide.
With globalization, the development and production of components for leading automakers is spread across several countries. War conditions force these companies to alter their strategies and augment spending needs. Israel, for example, has been a key region for chip production for companies such as Intel and Nvidia. The Israel-Hamas conflict might have a considerable impact on production timelines due to disruption in chip development.
Vehicle demand is hit across regions witnessing an ongoing war, invariably influencing production plans, employment, and financial stability of companies. Millions of people working closely with the automotive sector are indirectly affected due to a lack of customers during a conflict, severely impacting local economies.
Geopolitical tensions pose numerous challenges to the automotive industry, from supply chain disruptions and increased production costs to impacting consumer market dynamics and complicating the shift toward sustainability.
5) Arising Threat of Cyber Attacks
With fast-advancing technology and increased digital connectivity, the automotive industry finds itself grappling with an escalating threat of cyber-attacks. Integration of digital interfaces, autonomous features, and interconnected systems represent opportunities for cyber vulnerabilities. Recent statistics underscore the urgency of the situation: according to a report by Upstream Security, the automotive sector witnessed a 250% increase in high and massive-scale attacks in 2023 than in 2022, underscoring the critical need for robust cybersecurity measures.
Where do hackers pose the most risk in the automotive sector?
Cyber attackers can exploit weaknesses in a vehicle’s infotainment system, gaining access to vehicle controls and sensitive data, such as location and personal contacts.
Telematics transmit diagnostic and performance data. An attack might compromise the privacy of owners by tracking their movements or manipulating the functionality of the vehicle remotely.
Hackers can target critical vehicle control systems like brakes and steering. Vulnerabilities in these systems could lead to loss of control over the vehicle, endangering the safety of occupants and other road users.
Keyless entry systems could be hacked to unlock and start a vehicle without the key fob, leading to vehicle theft.
EV charging station hacking could leave open chances to access customer data such as credit card info and simulate excessive charging demand to ensure services are denied to consumers, among other threats.
As automakers work to navigate this digital quandary, the implementation of cybersecurity in vehicular technologies requires meticulous attention. The integration of telematics, vehicle-to-everything (V2X) communications, and the onset of 5G connectivity further expand the necessity for comprehensive security frameworks. For instance, the progression towards fully autonomous vehicles introduces a multitude of new attack possibilities such as sensor spoofing and algorithm manipulation.
The aforementioned challenges represent a sector at the center of a technological revolution and global socio-economic shifts. Industry stakeholders are urged to foster resilience and foresight in their responses. Intelligence-led strategies, commitment to sustainable development, geopolitical risk assessment, and an investment in human capital will be instrumental in steering the automotive sector through these transformative times. As the industry evolves, opportunities will undoubtedly emerge for those poised to adapt and innovate, bolstering the sector’s role in industrial advancement and economic growth.