Highlights:
- Automotive leaders in China buck global trend, as the only country to report growing confidence in sector
- Growing consensus on growth expectations for EV market
- Industry 'less prepared' for future complex technology challenges
KPMG's 24th Annual Global Automotive Executive Survey
Bangkok, 6 February 2024 - Auto executives around the world are entering 2024 with less confidence that the industry will achieve more profitable growth over the next five years, according to the latest KPMG Global Automotive Executive Survey.
Now in its 24th edition, the survey of more than 1,000 senior executives in thirty countries and territories reveals a dip in optimism as the sector deals with concerns over the global economy and rising costs. Overall, just 34 percent of executives said they are extremely confident versus 41 percent in the previous year. In Japan, the share of executives surveyed who are extremely confident dropped from 32 percent last year to 10 percent in the latest survey. Meanwhile, in Western Europe, extremely confident respondents dropped from 31 percent last year to 24 percent and fell from 48 percent to 43 percent in the US. Only in China did extreme confidence rise, moving from 28 percent to 36 percent. Among suppliers, extreme confidence fell from 55 percent to 23 percent.
Executives have a more mature view of the EV transition
Executive expectations about the shift to electric powertrains continue to mature. In the past, when KPMG asked executives across the industry about how they expected EV penetration to trend in their markets, the responses varied widely. Now the range of estimates has narrowed, a sign of greater realism. Even so, the mean estimates for penetration rose in this year's survey. In Western Europe, for example, respondents last year estimated that battery-electric vehicles would account for 24 percent of sales in 2030; this year the consensus estimate was 30 percent. In the US, the estimate went from 29 percent to 33 percent and in China the estimate jumped from 24 percent to 36 percent.
Despite the flurry of new models by established brands, KPMG's Global Automotive Executive Survey respondents still expect Tesla to remain on top. The opening of the Tesla Gigafactory near Berlin in March 2022 is helping the car maker gain share and heightening awareness about the global competition among European executives.
"A year ago, we said that automotive executives sensed the future was theirs to seize. In the latest survey, more than 1,000 executives in 30 countries again said they see enormous opportunities. But they are becoming more sober in their assessment of market prospects. Having committed more than half a trillion dollars to the EV transition, the industry is asking when companies will see a return on the investment. Right now, almost all automakers are losing money on their battery-electric vehicles, possibly presaging a shakeout among EV manufacturers and suppliers..
Our 24th annual survey examines in detail how executive sentiment is changing and the concerns and challenges that make global automotive leaders more cautious. The upshot: to help ensure companies end up as winners, not losers, executives should rethink their strategies and ask themselves some difficult questions about potential shifting consumer habits, especially driven by a cost-of-living crisis, the possibility of fewer government subsidies, and how the industry can potentially vertically integrate, creating more efficient operating systems.
Finding the right answers to these and other strategic questions will help determine how companies succeed in the coming years. We believe that a dazzling future for the automotive business—with amazing products, more delighted consumers, and a positive impact on the planet—is still in view. But getting there will require overcoming near-term challenges."
Gary A SilbergPartner - Global Automotive Sector LeaderKPMG in the U.S.
Customer experience is a key differentiator
While performance remains 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 seamless operating software in it, but the latter is a challenge for manufacturers. The car's hardware is usually reliable, the software less so.
The software-defined vehicle provides an opportunity to supply all sorts of driver applications. But consumers are not likely to sign up for software subscriptions if the products aren't compelling. In this year's survey, OEM executives in particular are less confident than in previous years that they can generate subscription revenue. How good is cybersecurity? Widely publicized breaches have raised concerns about automotive cybersecurity. In our survey, executives are still confident that auto makers provide adequate cybersecurity and customer data protection, but they may be over-confident.
Just in case is overtaking just in time
After the disruptions of the past few years the new norm in supply chain management is becoming "just in case," rather than "just in time." Companies are pursuing a wide range of strategies to build resilience and things are far better than two years ago. Still, there is a high level of concern about the continuity of supply for many commodities and components over the next five years. But not in China. As we saw across the survey, in many important areas, China is different. This was particularly true in supply chain. Chinese executives are considerably less worried about continuity of supply, likely because the country has been setting much of the supply of key commodities, particularly raw materials for EV batteries.
The technology challenges grow more complex
In the latest survey, automakers indicated that they feel less prepared than in 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 and must compete with other industries to hire people with the requisite skills.
When it comes to powertrain technology, this year more companies seem to be hedging their bets. Hybrid technologies have jumped from fourth to second place overall in technology.
Faced with so many challenges and opportunities, executives should recalibrate strategies—and act. KPMG's Global Automotive Executive Survey team has outlined four key priorities for top leaders to better position them in the altered automotive business:
- Manufacturers should hedge their bets about the trajectory of both the internal combustion engine (ICE) and all the alternatives. However, if they spread themselves too thin they risk losing to competitors that more successfully predict the future and focus more narrowly. The answer, then, is to entertain heretical theories, employ a diverse array of talent with different perspectives, and make your best bets.
- Generative AI has captured the imagination of business leaders across industries and is vastly expanding access to AI. We believe AI technology will likely touch virtually every aspect of the automotive business, from the way autos are designed and manufactured to how they are sold and driven. The critical question for auto executives, then: Is your AI strategy sufficiently comprehensive and forward-looking?
- Car manufacturers have tended to go it alone when it comes to developing automotive technologies, often with unspectacular results. Given the array of business opportunities and the limited pool of skills, auto companies have little choice but to look outside for the ideas and know-how they need to supercharge their R&D operation.
- The EV transition highlights important differences in national auto markets. Demand for electric vehicles is soaring in parts of Europe, the US, and China. In other big markets, such as India, Latin America, and Africa, the growth of electric cars will be slower, hampered by low incomes and poor infrastructure. Global automakers cannot afford to ignore these regions because of their growing populations and diverse needs. At the same time, automotive companies must continue to build resilience to ongoing geopolitical turmoil and changes in the global economy that affect supply chains and markets.
"With the automotive industry facing challenges and opportunities, particularly with the EV transition and AI technology adoption, it is important that automakers constantly revisit their strategies. In the current global situation, adapting to regional differences in demand, and preferences, and addressing challenges in keeping up with and reaping the benefits of AI technology, are essential for success."
Tidarat ChimluangHead of Industrial ManufacturingKPMG in Thailand
"Although global automotive executive confidence dropped from last year's survey (34 percent compared to 41 percent in the previous year), the mean estimates for EV penetration rose in this year's survey. Technology also has significant implications, as consumers are more concerned about cybersecurity in software-defined vehicles or smart cars, while car manufacturers need to equip their people with AI and advanced technology skills. The survey results reflected that only 12 percent of auto executives felt extremely well prepared, compared to 22 percent last year.
In Thailand, our team of professionals with experience in the automotive industry are dedicated to supporting our clients to adapt now and thrive in the future."
Charoen PhosamritlertChief Executive OfficerKPMG in Thailand, Myanmar and Laos
Source: KPMG in Thailand