6 minute read 7 Sep 2020
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How technology will guide mobility companies during ongoing crisis

By

Randall Miller

EY Global Advanced Manufacturing & Mobility Leader

Passionate about manufacturing, mobility and disruption. Champion for women and diversity & inclusiveness in the Advanced Manufacturing & Mobility industries.

6 minute read 7 Sep 2020

The sector is adopting digitalization and automation at a faster pace than planned due to the COVID-19 pandemic.

In brief
  • Logistics companies are using cost reduction programs and technology to drive efficiency, such as increasing delivery density.
  • To optimize the customer experience, automakers are prioritizing the convergence of online and physical car buying.
  • Mobility peers discussed financial preparations for a second wave of the COVID-19 pandemic.

The COVID-19 pandemic poses a major threat to the automotive and transportation industries, worsening supply chain issues in an already complex ecosystem. Customer behavior is witnessing a transformational shift to online living due to drastic restrictions in movement, proving economic activity is defined less by where it takes place and more by what can be achieved digitally. A long-term focus on digitalization, automation and analytics is indispensable now, to not only achieve success but to remain viable.

The Mobility Quarterly (pdf) analyzes the top 10 themes discussed by mobility peers during public earnings calls with analysts in July and August 2020. This update tracks the movement of these themes from quarter to quarter to provide a perspective on shifts in the sector landscape.

The top 10 are:

1. Operating costs

Gains or losses related to operating costs include raw materials, currency, energy and talent. Widespread layoffs and furloughs related to the COVID-19 pandemic are leading companies to optimize costs while preparing a foundation for sustainable growth. Manufacturing companies are facing heightened costs as they set up safe production environments, while efficiency is declining due to social distancing protocols. Logistics companies are using cost reduction programs and technology to drive efficiency by increasing delivery density. Due to drastic declines in passengers, the airline industry will likely shrink.

2. Geographic developments

Vehicle production declined steeply in North America and Europe due to shutdowns and the slow restart of operations in May. While retail demand is improving, production remains volatile due to supply chain disruptions. Vehicle sales are steadily recovering in China, and OEMs are operating at near pre-COVID-19 levels, but demand remains volatile due to the challenging economic environment. In Europe, logistics companies reported robust demand as they maintained essential services. E-commerce growth fueled demand in the US, while Asia-Pacific outbound average daily volume grew substantially, fueled by a PPE demand surge.

3. Financial initiatives

Automotive companies are utilizing prolonged credit facilities and increasing credit provisions for stronger financial flexibility to withstand and prepare for the pandemic’s second wave. Companies are also limiting their capital expenditures and retaining balance sheet flexibility for compelling transaction opportunities. Automotive retailers are using their cash to deleverage and are suspending share buybacks, delaying unessential capital expenditures and dividends. Airlines are raising additional liquidity through debt offerings, secured note transactions, stock issuances and the CARES Act Payroll Support Program.

4. Product and service innovation

Passenger and commercial vehicle companies are on track to meet the new emission norms, supported by the growing portfolio of electric vehicles (EVs). While a few peers delayed new launches, others used virtual modes to launch vehicles, with a heavy focus on electrified and connected vehicles. Automakers are adopting platform consolidation to reduce vehicle complexity for internal combustion engines and EVs. Electric engines will likely witness a higher reduction in complexity. Supplier peers are developing new products in more profitable and growing segments, with a focus on electrified vehicles, 5G connectivity and software.

5. Working capital and cash flow management

Automotive companies are demonstrating discipline in working capital management and liquidity position while holding incremental inventory to protect the enterprise from risks of liquidity crunch and supplier disruption if industry conditions worsen. OEMs are aiming to normalize liabilities and effectively manage their receivables as the business is starting to stabilize. Airlines are trimming operating expenses with fuel and volume-related savings led by capacity reductions and deferring nonessential expenses.

6. Evolution of mobility

Passenger and commercial vehicle peers are looking at connected mobility solutions to digitalize the customer experience and improve resiliency. Automakers are assuring stakeholders that while investment in autonomous vehicle technology might have taken a back seat for the initial part of the year, it is expected to recover shortly. Passenger vehicle peers are continuing their electrification plans, aiming to keep pace with emission norms and global sustainability goals. Suppliers are expanding their electrification portfolio with onboard chargers, wiring and connection systems, and developing advanced driver-assistance systems to improve automated driving features.

7. Customer connectivity

Customer experience tops the priority list for automakers, aiming to converge online and physical car buying experiences to create an omnichannel experience for customers. OEMs are collaborating with dealers to implement new business models, such as contactless sales, doorstep delivery of sanitized vehicles and spare parts delivery directly from warehouses to help business continuity. Logistics companies are simplifying return processes with paperless returns and expanding their retail convenience network. They are also improving the experience for small and medium businesses by reducing time in transit and by providing an end-to-end network.

8. Developments in end markets

The truck and bus markets were already in a cyclical downturn when the pandemic hit, which further worsened the situation. An uptick in airline passenger volume is driven mostly by domestic leisure travel or essential flying; business travel has yet to recover. For logistics peers, the pandemic accelerated e-commerce adoption while detrimentally affecting the business-to-business segment.

9. Inorganic growth

Mobility peers are considering bolt-on acquisitions, as they are much less capital-intensive, while providing new revenue streams that can be leveraged with the same overhead structure. Passenger vehicle and supplier companies are finalizing the strategic alliances to strengthen their capability in electric and self-driving vehicles.

10. Business reorganizing/restructuring

Passenger and commercial vehicle companies’ focus on safety has extended to the supply chain, working directly with suppliers and logistics providers to minimize disruption. In a push to build resiliency during this crisis, major airlines are streamlining and simplifying their fleet structure, and many have decided to retire several aircraft this year. Select mobility companies are launching a green recovery plan by introducing a new corporate social responsibility committee to fulfill the goal of zero net emissions.

  • Scope, limitations and methodology

    This analysis examines key themes among 28 global mobility peers, including passenger vehicle (PV), commercial vehicle (CV), airlines, logistics automotive suppliers and retailers — during public earnings calls with analysts in July and August 2020. This update tracks the movement of these themes from quarter to quarter to provide a perspective on shifts in the sector landscape.

Summary

As in many industries, the global pandemic has brought rapid, profound change to the mobility industry. Companies are adopting digitalization and automation at faster-than-anticipated rates and are realizing the need for a focus on these areas in the long term. As the demand environment remains volatile and supply chain issues are causing additional challenges, mobility companies are securing financial stability and preparing for future disruptions.

About this article

By

Randall Miller

EY Global Advanced Manufacturing & Mobility Leader

Passionate about manufacturing, mobility and disruption. Champion for women and diversity & inclusiveness in the Advanced Manufacturing & Mobility industries.