KPMG survey highlights auto industry in time of transition

Recently, KPMG issued its 24^th Global Automotive Executive Survey, involving over 1000 executives across the automotive and adjacent industries worldwide. The survey comes at a time when the industry is addressing critical questions about its future, in particular the transition to electric vehicles, as well as the economic uncertainties which have affected the global economy as a whole in recent years. 

Overall, the survey shows a fall in confidence in the potential profitable growth of the industry over the next five years, driven largely by concerns over the state of the global economy and rising costs, but with differing levels of optimism in different regions. For example, in Western Europe, 24 percent of respondents said they were extremely confident (compared to 31 per cent in the last survey), while in the US, 43 percent were extremely confident (a fall from 48 percent). Japanese auto executives were the most pessimistic, with only 10 percent saying they were extremely confident (down from 32 percent), while in China the proportion who were extremely confident grew from 28 percent to 36 percent. There was a pronounced fall in those who were extremely confident among suppliers surveyed- 23 percent compared to 56 percent in the last survey. 

The survey also shows a greater consensus among respondents as to the likely development of electric vehicles (EVs). When the question was asked three years ago as to how much share of the market EVs might have in 2030, estimates varied wildly. Now, the range of estimates has narrowed. The mean consensus estimate in Western Europe for penetration of battery electric vehicles is a 30 percent of sales in 2030, a rise from last year’s survey when the mean consensus estimate was 24 percent. In the US, the estimate likewise rose- from 29 percent to 33 percent- while in China it went up from 24 percent to 36 percent.  

Another key finding of the survey was that auto executives perceive that customer experience is a key differentiator. While performance is still considered to be the most important selling point, a seamless and hassle-free customer experience has moved up to second place. The emphasis on a smooth customer experience extends from buying the car to having effective operating software in it, but the latter is a challenge for manufacturers. The car’s hardware is usually reliable, the software may be less so. Moreover, while the software-defined vehicle provides an opportunity to supply all sorts of driver applications, consumers are not likely to sign up for software subscriptions if the products are not compelling. In this year’s survey, Original Equipment Manufacturer (OEM) executives, (i.e those from companies which produce vehicle components) in particular are less confident than in previous years that they can generate subscription revenue.

Supply chains remain a worry for auto executives, and the survey shows that “just in case” is becoming the norm in supply chain management rather than “just in time”. A total of 46 percent (outside China) said they were extremely concerned about access to lithium, cobalt and other battery components. There is, nevertheless some evidence of increased optimism- 63 percent of OEM executives were very or extremely concerned about lithium supplies compared to 78 percent in 2022. Concerns about supply chains can, however, be expected to continue as a result of ongoing geopolitical tensions. 

In the latest survey, automakers indicated that they feel less prepared than the previous year for advanced technologies, such as artificial intelligence, digital twins, and advanced robotics. Only 12 percent of auto executives said they felt extremely well prepared, down from 22 percent the year before.

The change is likely associated with the rapid advances in artificial intelligence, particularly generative AI, which is expected to bring automation to white-collar jobs. Automakers are going to have to train more workers to take advantage of AI in all its forms. Indeed, automakers will be competing with each other and with companies across industries for talent with AI skills. As noted in the recent KPMG report, “Future of work”, companies that master AI quickest will likely have a significant competitive advantage.

The Romanian auto industry is a major contributor to the economy, representing approximately 13% of GDP, while vehicles are one of our country’s most important exports. The challenges and opportunities for the auto sector in Romania are similar to those faced by auto manufacturers worldwide, such as staying ahead of the curve in the transition to electric vehicles. As in other countries, the industry has had to take greater care to ensure its supply chains in a time of geopolitical instability and has also had to face lower purchasing power from a population affected by inflation and high interest rates.

Nevertheless, the Romanian auto market was strong in 2023, with registrations of new vehicles up 10.17% compared to 2022 according to the Association of Romanian Automobile Constructors (ACAROM) with local producer Dacia by far the most popular brand. Moreover, in the first ten months of the year, production in Romania was approximately equal to the same period in 2022, which was a record year. Romanian factories have recently begun producing new models of the Ford Transit and the Dacia Duster - one of the best-selling SUV in Europe.

The auto industry is currently facing an unprecedented period of change, with many challenges but also opportunities. New players are emerging, and the established ones will need to stay ahead of the curve to stay competitive. The KPMG survey provides an interesting insight into the thoughts of auto executives at this critical time.