The global automotive and transportation industry is characterized by constant innovation leading to integration of various advanced technologies aimed at increasing convenience and safety of consumers and goods. Industry participants range from raw material suppliers, automotive OEMs, distributors, assemblers, to aftermarket players providing wide range of products and technologies for LCVs, HCVs, two wheelers and cargo ships. Shifting consumer demographics from conventional vehicles to advanced connected alternatives from global automotive brands, increasing discretionary income, and rapidly increasing automotive ownership are among the major factors that will present potential growth opportunities for the industry participants.
Innovation & Technology
The last couple of decades have witnessed a rapid influx of various automotive technologies such as natural gas, electrically fuelled and hybrid engines. Intelligent cars, believed to be precursors to autonomous vehicles, have established a marked presence in the industry. This is mainly attributed to their various features such as self-braking, automatic cruise control, parking assistance, accident avoidance systems, electronic throttles and engine controls that significantly enhance user experience. Digitization of the automotive sector is at its infancy, with technologies such as connected car, advanced infotainment systems, and vehicle-to-vehicle communication still to go mainstream. The scenario though, is expected to change in the near future, with these technologies providing major growth traction for the market.
Automotive and transportation market participants have witnessed substantial volatility, intensive competition and low profit margins during the past few years. However, given the economic recovery across the globe, automakers are projected to make substantial invests in R&D to differentiate their offerings and reap rich dividends in the near future. OEMs are increasingly focusing on differentiating their offerings by incorporating advanced technologies, constantly enhancing design elements to improve aesthetic appeal, improving efficiency of manufacturing processes, and upgrading conventional powertrain models.
Automobiles account for a significant share of the global carbon emissions. Various regulatory bodies across the globe have implemented stringent regulations to curb emissions from vehicles, especially in North America and Europe. Moreover, changing regulatory scenario due to amendments in the directives by CAFE and EPA in the U.S. and by EC in Europe is expected to mandate the average mileage of vehicles to meet 60 mpg by 2025. Adoption of continuously variable transmissions (CVTs), light manufacturing materials, aerodynamic developments, and turbo engines, are among the key tactics likely to gain traction to comply with these regulations and sustain strong positions in the automotive and transportation market.
U.S. automotive sales considerable growth in sales numbers till 2015, are anticipated to witness flat trend over the following two years. Owing to regional economic cycles, increasing auto loan interest rates and increase in accumulation of used cars in the market, the regional sales is projected to witness moderate depression in 2018. However, demand in Mexico have registered considerable increase over the last few years and automotive sales are projected to surpass 1.5 million by 2021. Rising regional demand in Mexico and in international markets is expected to position Mexico as a major automotive hub in the near future. Our study projects 50% increase in the installed production facilities over the span of next five years in the country, propelling the country as a key automotive hub.
Europe automotive and transportation market size have registered significant economic recovery over the last few years. Automakers in some major Europe economies such as France, Italy, Greece, Portugal, and Spain are suffering through considerable industry fragmentation and very low profit margins. Given the low traction for certain vehicle segments in the developed market of Europe, regional players need to ensure optimal utilization of production facilities in line with consumer inclination towards other vehicle segments.
Underperformance of the automotive sector in emerging economies, which represented exponential growth potential for the automotive & transportation market is among the major macroeconomic forces. China, world’s largest auto market registered double digit growth in 2013 and 2014, however witnessed only single digit growth in 2015. Moreover, Beijeing, Guangzhou and Shangai, which are among the major cities in China have restrictions imposed on new vehicle ownerships, inadvertently inhibiting market growth. Several global brands have witnessed stiff competition from local players even after establishing joint ventures, and selling vehicles at relatively lower margins. Moreover, relatively flat growth in India in 2016 and exceedingly negative growth trends in Russia and Brazil over the last couple of years have had an adverse impact on growth of the automotive sector. Introduction of cost effective and efficient models are strategies that are expected to help regional players tap into lucrative underlying opportunities in the market.
Middle East and Africa, specifically Iran, Egypt, Algeria, South Africa and Nigeria are projected to present strong and consistent growth prospects for the automotive & transportation market segment, predominantly due to large potential of unmotorized areas, increasing car ownerships and investments from major brands that includes Renault and PSA Group. According to Coherent Market Insights research, production output will escalate by 40% in this region by 2020 as compared to that in 2016. Unique regional factors such as local trade tariffs for automobiles and parts, domestic assembly quotas, fuel preferences, possibility of dictation by regional authorities for exterior and interior features of the models are expected to be key challenges for automakers, given the presence of key emerging economies in the Middle East and Africa regions combined.
The recent past has witnessed major players opting for inorganic growth strategies in order to further strengthen their foothold in this highly competitive and lucrative sector. The year 2016 alone witnessed around 600 deals valued at over US$ 40 billion in the global automotive sector. The acquisition of LeasePlan Corporation N.V. by LP Group B.V. for a deal valued at around US$ 3.7 billion was the largest transaction of the year. The year witnessed as many as 10 deals valued at a billion dollars each. The automotive sector is expected to gain rapid traction in the following few years, with India poised to be a key growth engine. This is mainly attributed to supportive government initiatives to usher in growth of the automotive sector that contributes to 7.1% of the country’s GDP. For instance, as per stats released by India Brand Equity Foundation (IBEF)— a Trust established by the Department of Commerce, Ministry of Commerce and Industry, Government of India—the government’s decision to allow 100% FDI in the industry has led to foreign investment valued at a whopping US$ 15.7 billion between April 2000 and September 2016. Advent of blockchain technology, augmented reality to assist driver safety, 3D printing, autonomous vehicles, machine learning for enhanced cybersecurity, collaborative monetization to gain higher profits, and utilization of predictive analytics are expected to go mainstream in the following years and provide significant growth traction to the automotive and transportation sector.
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