Even before the coronavirus hit the world and turned into a pandemic, the automotive industry struggled to improve its production and sales. Truth be told, the automotive industry didn’t recover from the 2008-09 recession the way it should have been. Many factors contributed to the automotive slowdown, from the popularity of ride-sharing solutions to stress over low carbon emissions and inflation. As if the existing woes weren’t enough, COVID came and wreaked havoc across the industrial and manufacturing spectrum, and the automotive industry was no exception. The virus brought factories to a screeching halt, closed down the dealerships, pushed the automotive stocks on a downward spiral, and disrupted the near-future bookings and sales. The worst of the pandemic is over (we hope so), and industries are getting back on their feet again. The automotive industry is also in that restorative phase and getting ready for the post-COVID era. For now, there is no clear-cut way to tell how things will pan out for the industry. Will general commute go down as more organizations and employees have realized the effectiveness of work-from-home? Will more people avoid traveling in public transport and transit and use their cars to avoid crowds? We are yet to find definitive answers to such questions, which are also strongly linked to the automotive industry’s fate. Nonetheless, there is still a way to work out the industry’s outlook for the present and future through the available data, observations, and expert conjectures.
Factory Closures and Struggling Small Car Companies
As mentioned earlier, automakers were in a tight spot even before the coronavirus. Many automotive factories already had more capacity than they needed in pre-COVID times. The virus has widened this capacity even further. The silent and stock-still manufacturing spaces with minimal sales have been just a recipe for tremendous outlays faced by automakers.
Even though things are not as bleak as they were in May/June, experts believe that the nasty COVID hit will push many carmakers to shut down their underutilized auto manufacturing factories. Companies that make small cars will have to make this decision more soon because their units boast small profit margins. Companies like Renault, Fiat, SEAT (Volkswagen’s subsidiary) may have to make difficult decisions in this regard. However, there is also a silver lining for small car manufactures amid the dark clouds of financial uncertainty. Pandemic has turned social distancing into a common element of our lifestyle. Many people have well adapted to this need of the time. Since we still don’t know when the vaccine will be ready, these COVID safety protocols will remain here for some time. It is also believed that many will keep those protocols intact even after the pandemic ends. This in-the-making situation will certainly promote individual commute, which could be a game changer for small cars.
More Acquisitions and Mergers Are On the Cards
Automotive stocks have been underperforming for the last couple of years. The pandemic has pushed them to the rock bottom. The valuations across the board have been dipping, making the industry tempting for all those investors who don’t mind investing in low-valuation ventures with high-risk and nominal profits. Let’s take the example of Renault. It has experienced a more than 70% reduction in its share price in the last two years. Today, it is valued at around $6 billion, which is even lesser than the individual worth of many billionaires. Chinese investors are supposed to be more interested in buying those struggling European and American carmakers. However, the acquisitions won’t be easy due to political and diplomatic strife between countries. For instance, France has passed legislation that will make it harder to process foreign acquisitions. Germany is also expected to pass similar legislation. The trade tension between the USA and China might also fend off investors from getting into foreign car company buyouts. Nonetheless, the pandemic-driven economic turmoil may push countries not to resist foreign investment and acquisitions for job preservation and growth.
Besides buyouts and acquisitions, the abysmal balance sheet can also push struggling carmakers to do mergers. Like Volkswagen and Ford, we can see more partnerships coming along in the next few years. Car manufacturers will try to consolidate their unique strengths under one banner to turn around their financial woes.
The Future with Electric Cars
Car dealerships witnessed an interesting phenomenon at the beginning of the lockdowns. During March, when the entire European gasoline and diesel-powered car market was struggling due to plummeting sales (almost in half), the registration of electric cars spiked by over 20%. The complete lockdowns eventually hit the electric car sales too. They fell by 31% in April against the whopping 80% drop in traditional car sales. We still don’t know what instigates the hike in battery-powered cars sales and why their market didn’t get as severely affected as gas cars. However, it has become evident that the electric future is not far away. We are already closing in on 2021, and many countries have pledged to cut down their greenhouse emissions in the next few years. Therefore, governments will surely facilitate carmakers in producing more battery-powered cars. The mass production of electric vehicles perhaps also slashes their existing expensive price points. Besides environmental regulations and goals to meet, another interesting element can rev up electric car sales, i.e., changing consumer preference. This lockdown has made many people realize how tailpipe emissions contribute to environmental pollution. Social media was filled with pictures showing how lockdown has helped improve the visibility index and air quality in bustling downtowns worldwide. This real-life demonstration of a world without carbon emissions may convince more people to invest in electric cars. The rising popularity of electric cars may also encourage more auto startups to enter the market and challenge the well-established big gasoline players in the industry. The above discussion suggests that the automotive industry will continue its bumpy ride for the next few years. However, the electric turnaround changing the gasoline-driven status quo is one thing to look forward to. It may give rebirth to the automotive industry and make battery-powered vehicles a standard means of road transportation.
