The year of 2022 promises to be a bustling period for the automotive industry. The sector has long embarked on a full-on transformation that promises to leave no stone unturned and this year will see a continuation of this disruptive path. To this, we add COVID-19, which will still be an influencing factor, mostly in the form of supply chain disruptions.
Major changes don’t happen from one year to another and, for that reason, it should be no surprise that some of this year’s main automotive trends are a continuation from last year. Some other trends are the beginning of something major that, despite not creating main repercussions in 2022, will eventually do so in the long run.
Automakers to re-imagine sourcing
The microchip shortage has hit automakers heavily, which made it impossible not to extract precious lessons from it. As some build closer ties with chipmakers (which are traditionally Tier 3-4 suppliers), other automakers build in-house microchip design capabilities, as others are starting to update the technology level of their microchips to bring it close to that seen in consumer electronics. All these actions are, per se, already major in the realm of automotive. However, it won’t end there. The need to maximize the value of software has already prompted automakers to look for the best tech and hardware, consequently breaking heavy dependency from their traditional partners. We will see more and more of this in 2022, as automotive manufacturers will go farther in looking for the best of technology and having a greater say in defining the technology that goes into their products rather than just taking what their main suppliers/vendors offer. This is, for instance, what VW has already started doing with their North Star project. The consequences entail it will become harder for automotive suppliers/vendors to survive mostly on relationships – the pressure is higher than ever to provide the best of technology.
Supply chain disruption is here to stay
We will see a progressive re-establishing of normality on microchip supply possibly as from the second half of this year. However, microchips won’t be the only supply chain worry for automakers. Many raw materials have seen supply disturbances last year and these will continue this year. To this, we will add plant closures that might still be caused by COVID. In short, these disturbances will leave automakers scrambling to secure stable supply and commodity price hedging – something that will play a role in deciding the market winners and losers of 2022. Given the very much short term nature of this crisis, agility will be the key factor to success rather than technology itself.
Battery recycling gains traction
Lithium will eventually be one of the raw materials affected by supply chain disruptions, to which we have to add a major increase in demand due to the fast pace of transition towards EVs. Adding to this, new EU regulation will mandate that automakers recycle up to 65% of their EV battery content by 2025 (up from 50% today). These two factors will lead to an increase in announcements and investments made in EV battery recycling throughout 2022.
EVs: greater focus on user convenience and services
As 2020 and 2021 were years of major EV frenzy – with most automakers putting on the market as many EVs as possible – 2022 will see a greater focus on the deployment of services aimed at EV users. This doesn’t mean the EV launch frenzy will come to an end – much on the contrary. The difference is that as automakers were previously too focused on developing EV technology, this meant they couldn’t equally focus on other areas. However, in 2022 there will be more focus on other aspects of the EV ecosystem. As EV vehicle tech has evolved fast, the EV ecosystem remains still basic and quite clunky from a user perspective. These shortcomings are business opportunities some companies will leverage. The aim is to bring much greater convenience to EV drivers, mitigating their current pain points. In addition, some automakers will move forward with the creation of energy services, with the purpose of offering better and cheaper charging to their customers while, in parallel, expanding their scope beyond the car itself.
Chinese EV makers go global
We have already heard news of Nio and Xpeng selling in Norway – a very small market, but an EV stronghold. SAIC – using its MG brand – is also setting foot in Continental Europe. The truth is that Chinese carmakers are using EVs as a main opportunity to tackle main foreign markets. While several have seen Chinese cars as not so safe and not that great in terms of quality, the truth is that this is changing quickly. EV proliferation is a major opportunity for them, as they leverage the fact that China started their EV revolution some years before Europe. Besides that, EVs mean emission regulations are no longer a problem in different markets and also it becomes easier to achieve a good crash test performance since EVs don’t have a bit lump of metal (aka engine) at the front. As Nio is intended to start operations in the US this year, Xpeng has made public they want to sell at least half of their volume overseas. Both of them are starting their expansion in Europe, where soon you will be able to buy one on countries with higher BEV penetration.
Main markets like the US and especially Europe are not easy nor particularly kind to newcomers, so this is a major hurdle Chinese EV markets will have to overcome. However, a bit like Tesla, some of these Chinese EVs features advanced technology in terms of powertrain, connectivity and ADAS. As such, local carmakers will have to prepare and in some cases step up their technology in order to fend off these new incumbents.
Regular autonomous vehicle services start, challenges to follow
The new autonomous vehicle (AV) regulation to be enforced in Germany as from this year is a major step forward for level 4 autonomy. For the first time ever, roboshuttles will be allowed to operate as regular services on public roads and without a shadow driver . This represents a major step forward for autonomy, as this is the first time a whole country permits some sort of regular (non conditioned to trial or pilot) AV service within its whole territory. For that matter, it unlocks tremendous opportunity for AV technology – in total, over 50 roboshuttle services are slated to operate in Germany within this year with more to come in the future. As such, the eyes of the AV world will be looking carefully at what’s happening in this country.
This great breakthrough is also a moment of truth for AVs. On one hand, it allows a much faster and broader proliferation of the technology. On the other, it doesn’t test or directly regulate the safety performance of vehicles. As such, and given the fact AV L4/L5 technology still requires more maturing, there is still a considerable risk for accidents. These may lead to a critical point when regulators need to decide what to after an accident happens. Independently of what the outcome will be, precious lessons will be learned on the long road towards the widespread adoption of L4/L5 AV tech.
Hopes for hydrogen dominance in road vehicles are shattered
This year will bring much greater clarity on the race between BEV and hydrogen in the area of road vehicles. As the main hydrogen advocates amongst automakers are now making major investments in BEVs, they don’t have enough resources to make similar bets on hydrogen, which will lead to a lack of competitive hydrogen-powered passenger cars on the market in comparison to BEVs.
The situation will not be so black-and-white in what comes to heavy-duty vehicles. However, as the hydrogen refueling infrastructure struggles to build scale (for any type of hydrogen, never mind green hydrogen), partnerships between main truck makers (like Volvo, Daimler, Scania) to boost charging infrastructure are a key sign that BEV may also top hydrogen in trucks. The rollout of the new MCS charging standard for heavy-duty vehicles also promises to heavily slash charging times, something that is crucial for the operational efficiency of fleets operating electric trucks.
In short, 2022 is not the end of hydrogen for road vehicles – not at all. However, this year will become clear that its chances of building a visible market penetration in relation to BEVs are minimal.
Legacy automakers start monetizing OTA
Inspired by the success of Tesla in connected car monetization, several automakers have, in recent years, given a new try to their connected car programs, in an attempt to turn them from a loss-making activity to a profitable one. However, things have not been easy for many of them, as roadblocks posed by their corporate culture slow down the rate of change and hamper success. As some legacy makers have already started to offer OTAs to their customers for free, this year we will see successive attempts to start monetizing those, a bit like Tesla has shown us since several years. They will also roll out new digital services but the ability to deliver true customer value will remain a struggle for several players, who are often caught in the trap of ‘feature fatigue’ and gimmicks. These companies need to take a new approach to market research, as consumers cannot yet grasp the concept of OTA. Automakers need instead of what the future will be in terms of customer value and then use OTA to fulfil this vision.
Car-as-a-Service models to progressively merge
During the last decade we have seen a proliferation of car-as-a-service (CaaS) models, like ride hailing, car sharing and subscription – in addition to the traditional rental and leasing. If ride hailing has proved to be a successful model, exactly the opposite can be said about car sharing (in most situations). Subscription has met a revival in 2020 due to new independent incumbents (non-automakers) but its success depends heavily on execution. The rental model has also suffered heavily with the pandemic and some players arising from the ashes are now in a position to try fresh new approaches – a clear contrast to the heavily conservative approach we became accustomed to.
As such, these factors open the door to a progressive merge of CaaS models, focusing on greater customer centricity and much greater utilization of the fleet. Whether a customer needs a car for an hour, a day, a month, a year, the needs and the model have a lot in common. Leading players in personal mobility will realize this and will progressively move in this direction.
Manufacturing overhauling focusing on speed
EVs are much simpler to produce than an ICE. Tesla realized that very early in the game and focused on developing manufacturing processes that take advantage of that fact. Legacy automakers have been slower in that process, as they constantly juggle priorities between ICEs and BEVs. A clear example of that is portrayed by the fact that several automakers still use platforms shared between ICE and BEV, something that makes it much harder to optimize those platforms towards BEV. Moreover, the transition towards electrification is expensive and, hence, cost reduction is an absolute must – this means, more than anything else, increasing manufacturing efficiency.
As automakers progressively move towards BEV-only platforms and notice the innovations Tesla has rolled out to increase the speed at which it manufactures their vehicles, the pressure to overhaul manufacturing processes also increases. VW’s Project Trinity is one of the first signs of the changes starting to happen within legacy automakers, as the manufacturer is building a new EV platform it promises will be substantially faster to produce through a reduction in complexity. This trend also comes hand in hand with the roll-out of new technologies in the production line.
This is a trend that will not come to fruition in 2022, as it will take several years until we see its real impact. However, this year we will see more and more talk around manufacturing efficiency and manufacturing speed (which often also come hand-in-hand with layoffs), triggered by the BEV transition.
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