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How the mobility sector is re-emerging in a post-COVID-19 world
In this episode, Akshi Goel, EY Global Advanced Manufacturing & Mobility Analyst, shares her insights about the key themes discussed by mobility sector leaders during the third quarter earnings calls.
In the second quarter, mobility companies were grappling with the impact of the COVID-19 pandemic on supply chains, trying to ascertain its longer-term ramifications. Now in the third quarter public earnings calls, mobility companies have come to the realization that to stay relevant into the future, they must be equally bold about the depth and pace of their transformation.
Key takeaways:
Business reorganization: companies are restructuring core processes to suit digitalization initiatives, and leveraging digital to drive cost reductions and increase efficiency for long-term success.
Competitive positioning: mobility peers are planning to enhance their competitive advantage in a recovering market as they strengthen their product mix going forward.
Change in financial outlooks: despite a gradual recovery in major markets across the globe with more relaxed regulations and economic activity restarting, automotive peers are expecting low sales in 2020.
For your convenience, full text transcript of this podcast is also available.
Announcer
Welcome to the EY Advanced Manufacturing and Mobility Business Minute podcast series, where EY professionals explore the critical business issues impacting our industry today.
Moderator
Here with us, for this episode of the Mobility Quarterly Update, is Akshi Goel, EY Global Analyst, for our Mobility sector.
By way of explanation, the Quarterly Update is a review of the top 10 themes discussed by leaders of mobility sector companies during public earnings calls. Included in our analysis are sector companies from passenger vehicles, commercial vehicles, airlines, logistics, automotive suppliers and retailers.
For today’s discussion, we’ll be delving into third quarter earnings calls.
Let’s get started with a warm welcome to Akshi who joins us today to share her insights.
Akshi Goel
Thanks Bhavini, it’s great to be back and I’m happy to share insights from third quarter earnings calls.
Moderator
Akshi, this year has been extraordinary to say the least. Will mobility companies emerge leaner and stronger or to too weak to survive the post-COVID-19 crisis?
Goel
Bhavini, we are seeing demand is recovering in most of the key markets, which is a positive sign. However, these past few months of lower performance can bring out in the open the weaknesses of the industry in terms of supply chain resilience and financial stability.
Earlier in the year, by the end of the second quarter, mobility companies were in a dire situation as the crisis had intensified supply chain issues in an already complex ecosystem. Companies were grappling with the impact — trying to ascertain its longer-term ramifications. Following up on this trend, in the last quarter there were indicators that the global automotive industry continues to face sub-optimal capacity utilization and therefore it could be a rough road ahead for manufacturing companies.
Nevertheless, organizations that want to stay relevant into the future are being equally bold about the depth and pace of their transformation. They are not letting this downturn go to waste. We are hearing companies are ramping up production to meet demand, they’re reducing operational costs, they’re increasing localization, driving efficiency across business areas and also maintaining a very strict cash conversion cycle.
Moderator
Interesting insights Akshi and thanks for summarizing those for us. From your analysis of the 33 mobility sector companies that were analyzed for third quarter, can you share some deeper insights that were top-of-mind for sector executives?
Goel
Sure, Bhavini.
As several markets are showing signs of revival, mobility leaders are exhibiting confidence with robust investments and launch plans and are geared up to jump into action when the time arises.
While some companies were reporting that they are emerging leaner and stronger on the back of cost reduction initiatives, many are facing declining margins. In fact, a select few refused to provide an outlook update, most likely because of the difficult operations estimated for the remainder of the year.
Further we’ve seen there is a vast and rapid shift in the value for e-commerce — business leaders are making sure that organizations are continually consolidating their product strategy to meet digital customer demand. These unprecedented times we are living through are deeply challenging, but on the other hand they are also full of new opportunities to serve the customer.
It is also worth mentioning that the transformation in customer behavior is really significant. It's almost a year since the first COVID-19 cases were recorded and it’s clear that this period of acute uncertainty will be with us for some time. Even as new waves of infection surge globally, we have observed that consumers are moving away from the initial shock of the pandemic and they’re moving more towards an acceptance that “this is how things are for now.”
Consumers are adopting digital solutions and e-commerce at a faster pace than ever before. This seems like the new normal, and it’s safe to say that COVID-19, is in a true sense, transforming consumer behavior.
Moderator
Akshi, we highlight 10 key themes, please can you share with us other themes that were of importance.
Goel
With the ongoing global pandemic, it is no real surprise that business restructuring became the top theme. We also heard some important updates on competitive positioning and changes in financial outlook.
So, let’s talk about business reorganization, it was on the boardroom agenda last quarter and it appeared this quarter as well. We observed that mobility companies are restructuring core processes to suit digitalization initiatives and leveraging digital to drive cost reduction and increase efficiency for long-term success. Strict cost control and progressive execution of restructuring activities in the past few months have resulted in a noticeable reduction of costs for many peers this quarter.
The other important theme we heard about is competitive positioning. Mobility peers are planning to enhance their competitive advantage in a recovering market as they strengthen their product mix going forward. Automotive companies are looking to improve accessibility to customers with an extensive mix of used and new vehicles. Many peers also reported having increased prices to drive margins in this high-growth vehicle segment.
And if we talk about the third theme, change in financial outlook, despite a gradual recovery in major markets across the globe with more relaxed regulations and economic activity restarting, automotive peers are expecting lower sales in 2020 as compared with the previous year. However, the recent growth in demand has caused an upward revision in sales forecasts.
Moderator
Akshi, those were great insights. We’ve touched on these top three themes from third quarter, can you share additional observations that were churning or cause for concern?
Goel
Sure, Bhavini.
Developments in end markets have emerged as an important theme as it was the key market force driving company responses.
We heard automotive companies call out that the sector is witnessing a significant shift toward personal mobility, which has resulted in an increase in demand for both used and new cars. On the logistics side, we’re seeing that logistics and shipping companies are witnessing an unprecedented increase in e‑commerce activity across their customer sectors. They’re also strengthening the supply chain to support the pharma and health care sectors. If we talk about airlines, they’re focusing on connecting customers through core hubs and operating more cargo flights.
Overall, we also heard companies announcing plans to focus on sustainability, which is a result of heightened regulatory activity and stakeholder concern around sustainability.
We’ve seen that there are stringent CO2 emission targets that are driving companies to focus on sustainability. OEMs are now setting targets to reduce their carbon footprint across products and manufacturing, and in their overall organization. Select peers are also coming up with a green recovery plan aimed at zero net emissions.
Several companies are evaluating renewable energy adoption along with electric vehicle development.
Moderator
Those were great insights Akshi, thanks for sharing with us. As third quarter has now closed, can you share any additional observations that we can share with our audience? And of course, we look forward to a deeper dive once fourth quarter analysis is completed.
Goel
Sure Bhavini.
Governments are intervening more – they are becoming more creative and agile. We are seeing examples of policy interventions for faster adoption of an emission-free drivetrain. The EV and related components market is poised for growth on the back of stringent regulatory norms and ambitious electrification targets of automakers.
The medium and long-term prospects for the electric vehicle market have become more positive than the pre-COVID-19 levels given that there is a renewed interest in EVs with new incentives launched in several markets and a likely greater environmental consciousness among consumers.
We believe that the combination of regulatory compliance and the accelerated pace of change resulting from the COVID-19 pandemic has brought us to the edge of a potential tipping point in EV sales. It will be interesting to see what transpires in the next quarter on the electrification front.
Also, the last quarter of the year will be pertinent in terms of an outlook update. With the COVID-19 vaccine information in the background, we look forward to hearing what companies have to say in 2021.
Moderator
Akshi, thank you for your time and valuable insights, and we look forward to having you back in the new year to share with us what was top-of-mind for executives in the mobility sector.
Goel
Thank you for having me today Bhavini and I look forward to the next podcast.
Announcer
Thanks for listening to today’s EY Advanced Manufacturing and Mobility Business Minute podcast. We hope you found it engaging and informative. To listen to other Business Minute podcasts, you can find them at ey.com/ammpodcasts.
