6 minute read 14 Dec 2020
Aerial cityscape view of the city of leiden netherlands

How mobility companies are preparing to emerge stronger post-pandemic

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.

Contributors
6 minute read 14 Dec 2020

With markets showing signs of revival, sector leaders are exhibiting confidence with investment and launch plans.

In brief
  • Strict cost control and progressive execution of restructuring activities resulted in a noticeable reduction of costs for most companies.
  • Mobility companies are strengthening their product mix and improving accessibility to customers with an extensive mix of both new and used vehicles.
  • Despite gradual recovery in major markets, automotive companies are expecting lower sales in 2020 compared to 2019. 

Mobility companies remain focused on strengthening their core fundamentals. As several markets are exhibiting signs of revival, mobility leaders are exhibiting confidence with robust investment and launch plans and are geared up to jump into action when the time arises. COVID-19 is in its truest sense transforming consumer behavior. While the automotive sector is witnessing a significant shift toward personal mobility, increasing in demand for both used and new cars, it has only partially offset the significant drop in vehicle sales around the world. There is also a significant increase in e-commerce activity across sectors. Mobility companies continue to adopt digitalization and automation at a much faster pace than ever before.

The Mobility Quarterly report analyzes the top themes discussed by 33 mobility peers during the public earnings calls with analysts in October and November 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 three themes for this quarter are:

  • Business reorganizing or restructuring moved up the list as the top theme. Strict cost control and progressive execution of restructuring activities resulted in noticeable cost reduction for most peers. Companies are restructuring core processes to suit digitalization initiatives, and leveraging digitalization to drive cost reductions and increase efficiency for enabling long-term success.
  • Competitive positioning is the second theme. Mobility peers plan to enhance their competitive advantage in a recovering market as they strengthen their product mix going forward. At the same time, they also look to improve accessibility to customers with an extensive mix of used and new vehicles. Companies are increasing prices to drive margins in the high-growth vehicle segment.
  • Change in financial outlook emerged as the third theme. Despite gradual recovery in major markets across the globe, with more relaxed regulations and economic activity restarting, automotive peers expect lower vehicle sales in 2020 compared with the previous year. However, the recent growth in demand has caused an upward revision in vehicle sales forecasts.

We have delved down deeper to analyze the top themes for each of the mobility subsectors.

Top five themes observed during the quarter are discussed in detail for each subsector:

  • Transportation (airlines, logistics and shipping)

    1. Development in end markets
    • Logistics and shipping companies are witnessing an unprecedented increase in e-commerce activity across sectors, and strengthening supply chain solutions to support pharma and health care sectors.
    • Airlines are focusing on connecting customers through core hubs and operating more cargo flights.
    2. Business reorganizing or restructuring
    • Logistics peers are refining their business models to cater to the spike in e-commerce demand, and optimizing network utilization and portfolio mix with a higher share of business-to-business (B2B) customers.
    • Airlines are simplifying fleets by retiring less-efficient aircrafts and aiming to achieve a higher-gauge fleet with lower seat cost.
    3. Change in financial outlook
    • Logistics peers are confident of meeting future financial targets and are expecting a strong cash position by the end of next quarter.
    • Airlines are witnessing a gradual improvement in demand; however, demand is expected to plateau at about 50% until an effective vaccine is widely distributed.
    4. Changes in production rates
    • Logistics companies are rethinking operations by expanding timing for operations and delivering all days of the week.
    • Airlines are restructuring order book to reduce aircraft purchase commitments in the coming years. Operating more cargo flights is resulting in a higher share of revenues from cargo.
    5. Competitive positioning
    • Logistics and shipping peers are building a strong portfolio of e-commerce services and digital solutions.
    • Select airline peers have started new travel programs by eliminating change fees, and adding digital capabilities and other services. 
  • Automotive (passenger vehicles, commercial vehicles, component suppliers and automotive retail)

    1. Business reorganizing or restructuring
    • Peers have begun to realize the benefits of cost reduction and austerity measures from 1H20 in 3Q20.
    • Original equipment manufacturers (OEMs) continue to focus on restructuring the organization and processes to befit digitalization and electrification initiatives.
    • Suppliers are streamlining portfolios to focus on high-growth areas, such as charging infrastructure, battery management, electrical distribution and connection systems.
    2. Competitive positioning
    • Process variable (PV) and control variable (CV) OEMs have set up a strong product pipeline with a focus on electrified mobility and digital features.
    • Suppliers are strengthening their electrified and intelligent component portfolio by partnering with technology players and increasing investments in emerging markets.
    • Dealers are building used vehicle inventory by actively purchasing from individual buyers as new vehicle inventory is running low while demand has started recovering.
    3. Change in financial outlook
    • Many automotive companies are witnessing improved financial results with sales revival across geographies.
    • However, a number of peers remain cautious in their financial outlook and select peers are refraining to comment on the outlook, given the uncertainties.
    4. Sustainability initiatives
    • Stringent emission targets are driving companies to focus on sustainability.
    • OEMs are setting targets to reduce the carbon footprint across products, manufacturing and organization; a few are launching a green recovery plan aimed at zero net emissions.
    • The CV industry is experiencing a shift toward electric and hydrogen fuel-powered vehicles with continued focus on decarbonization and sustainability.
    5. Development in end markets
    • The automotive sector is witnessing a significant shift toward personal mobility, resulting in an increase in demand for both used and new cars.
    • Automotive dealers are optimistic about demand as personal mobility is increasingly preferred; factors, such as lower interest rates, are also likely to support sales in the future.
    • Suppliers are witnessing recovery in original equipment (OE) demand volumes with vehicle inventory restocking by the OEMs in Europe, and favorable fiscal policies and improved vehicle demand in China.

Summary

Companies are ramping up production to meet demand, reducing operational costs, increasing localization, driving efficiency across business areas and maintaining a stricter cash conversion cycle. They are also looking to mitigate short-term cost adjustments, weave in a resilient supply chain and reshuffle capital allocation to high-margin businesses. 

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.

Contributors