This article, authored by Patrick Ayad and Lance Bultena, addresses, among other things, the unique transformation in the automotive and mobility industries driven by technological change, additional challenges from ESG and geopolitics, the transition from internal combustion engines to electric vehicles, and new revenue streams from connectivity, sensors, and software.
A change in technology: From ICE to EVs and software
Many have long anticipated a once-in-a-century transition of the automotive industry oriented around a change in technology.
Most industry analysts expected significant challenges with the transition away from the internal combustion engine (ICE) towards electric vehicles (EVs). Further complexity was expected with the fundamental shift in the driving experience and new sources of revenue enabled by connectivity, sensors and software.
Government policy: Geopolitics, climate change and energy security
Taking a profound shift in technology into the mainstream is always a complex undertaking, but it is particularly so for the automotive and mobility industry. The industry is massive, operates on a global scale and is economically important in all major markets.
Global scale and economic importance mean the industry is the focus of government policy and of activists. The industry does not have the luxury of focusing solely on commercial issues by “merely” working to modulate technological change and consumer acceptance in a way that reasonably ensures profitability. Instead, government policy is an increasingly significant factor for the industry.
Geopolitics: The United States and the global west versus China
Geopolitical competition between the United States and China – the world’s two largest economies and auto markets – has increased over the past several years. Increasingly, the United States and the global west (ie, North America, Europe and allies in Asia) are in tension with China (the origin of so many supply chains and raw materials).
While geopolitical tensions have grown in significance for all major industries, commercial ties remain robust. Cross-border trade between the United States and China again broke records in 2022.
The automotive and mobility industry and its supply chains are strategically valuable
These political and commercial realities are ever more in tension for the automotive and mobility industry because the industry, its core technologies and its supply chains are strategically significant.
Electric vehicles are seen as the future of mobility. Nothing is more critical to an EV than the battery. Battery technology is now seen as a strategically significant industry, essential to future economic success. China’s industrial policy has assiduously built EV battery capacity through a particularly deep interconnection between government and industry.
Batteries are not the only focus of this competition. Advanced vehicles are at the forefront of integrating sensors, artificial intelligence and software to offer rapidly advancing driver assistance and connectivity-related functions. The production of semiconductors and the development of artificial intelligence are also areas of growing geopolitical competition, and thus governmental engagement with the market.
Geopolitical issues are increasingly challenging. China is the largest single auto market and the origin of many supply chains and raw materials. The United States and the global west summed are an even bigger market and a more open one, but one that relies on Chinese supply for many components. As the global west advances rules requiring more awareness of supply chains, China has recently enhanced espionage rules that appear to make routine corporate diligence illegal. “De-risking” of supply chains will be challenging and costly.
Rapid EV transition: Climate change and ESG
EVs are also a central focus of government policy seeking to meet environmental targets contained in the Paris Agreement and for companies striving to meet “net zero” pledges as part of their ESG commitments.
While EVs now take more greenhouse gases (GHGs) to produce than a traditional ICE vehicle, over time the climate impact of EVs is less. The GHG advantages of EVs is expected to increase as battery production becomes more sustainable and energy transition advances to more sustainable generation of electricity.
AVs, advanced driving capacity, privacy and cybersecurity
Some envisioned a rapid transition to AVs with mobility services provided by “robo-taxis.” Extreme optimism has shifted to extreme pessimism.
We have long argued that for AVs, the issue is not when but where. While robo-taxis are not a near term solution, AV technology is advancing and having an impact now in off-road application in agriculture and industry. This capacity will further transform as sensors and artificial intelligence increase capacity.
As advanced driving features expand and connectivity becomes even more robust, vehicles generate ever more massive amounts of data that is economically valuable. As the value of data expands, so does concern about privacy and cybersecurity. Again, government policy is a critical factor as regulatory structures deepen.
ESG and activism: The “new” political risk
Environmental, social and governance (ESG) concerns are of increasing importance to every business. Sustainability, labour practices, governance rules, data protection, privacy and other issues have long been regulated by governments. ESG concerns, however, add more force and depth to those regulatory efforts especially as ESG disclosures are themselves increasingly mandated by regulation in Europe and the United States.
The industry is also a target for activism by private entities. The challenges from this “new” political risk will grow as geopolitical factors advance as the activities by activists in China and the global west are often in tension. Appeasing one group can create further issues in another jurisdiction.
Tension between the demands of activists is far from limited to the geopolitical realm. Often enough, there is significant tension between the goals of competing activists even within a single economy. Addressing the concerns of activists is both of increasing importance and complexity.
Choices and trade-offs but marvellous transformation, too
The automotive and mobility industry confronts challenging choices and trade-offs.
We do not want to minimise those challenges. So much of our work is directed at identifying those issues and trends so we can help those in the industry make informed choices to meet their goals.
Focusing on these challenges, however, obscures the marvellous evolution taking place in the automotive and mobility industry that is positively transforming the future, because transportation is critical to economic, social and personal development. We have expressed this optimism in other forums by discussing what we have termed “Living Mobility” – a mobility environment that is more inclusive, objective, unifying and sustainable.
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