The automotive industry, relative to other sectors like tech and healthcare, has not changed much since the 20th century. And like any great empire, it was due for a change.
When the “novel coronavirus” arrived in 2020, every aspect of the car business was disrupted. Showrooms, factories, and freeways went quiet. Sales departments were forced to temporarily shut down, manufacturers paused production sending thousands of employees home, and in places like Los Angeles and Salt Lake City, traffic plunged by more than 70 percent as the nation went into lockdown.
With the future uncertain, new cars were no longer a hot commodity, and car sales in the U.S. dropped over 40 percent in one month. Retail forecasts were grim with J.D. Powers predicting a decline as high as 80 percent. In anticipation, manufacturers canceled orders of semiconductor chips – a mistake that would prove detrimental in the coming months.
Forced to quarantine inside, Americans made the best out of a hard time and purchased laptops and smartphones at record rates. With nowhere to vacation, a significant drop in takeout dining, and an influx of government aid, many people, in a surprising turn of events, skyrocketed their personal savings accounts. Now with money to spend and temptations from historically low-interest rates, demand for cars bounced back quicker than anyone expected.
But when it came to browsing the lots, most consumers were met with skeleton fleets. Dealerships that used to host hundreds of cars at any given time dwindled down to 50 at most. Automotive giants inadvertently shot themselves in the foot when they canceled orders of semiconductor chips. Those chips, which take about 6 months to make, were bought in large by tech companies like Apple and Android who needed them for the increased demand for digital products. Automotives, now returning too little too late to the game, suffered.
To make the most of limited supplies, some manufacturers like General Motors temporarily removed features that require additional chips, such as heated seating and their Stop-Start system. Others opted for analog odometers rather than digital.
The pandemic gave wind to an already shifting industry. Before the coronavirus, factors like new emerging technologies, changing consumer preferences, and a push for sustainability policies were all leading automotives down a road of digitization – but the pandemic certainly floored the gas pedal.
Nearly two years since the start of the pandemic, a casual glimpse over the automotive industry suggests it has returned to normal. But under closer inspection, it’s clear that it is anything but. Though new car sales plummeted in the early months of 2020, the need for vehicles returned quicker than expected. Rental companies who offloaded their fleets due to travel restrictions had to buy back new inventories, drivers with money in the bank sought out upgraded models, and many were eager to get back on the road as restrictions were lifted. Factories slammed with chip shortages and COVID-19 guidelines that hindered production, struggled to meet demands.
The halt of vehicle production in 2020 created a pent-up demand for new cars in the millions. It’s estimated that there are 2.5 million fewer vehicles at dealerships compared to pre-pandemic years. Even with initiatives to pump out record-high production rates, it will still not make up for the deficit of cars. Eventually, the supply and demand will return to “normal,” but not anytime soon.
These unusual circumstances have been a catalyst for change in the car business. It’s given new ways to do business, altered consumer behaviors, and accelerated the biggest shift in the industry in over 100 years.
With demand so high, there has been an opportunity for manufacturers to limit incentives. Whereas incentive budgets used to be in the hundreds of millions, now they are down to nothing. The reality is that they do not need to incentivize drivers right now meaning they can eliminate some of the benefits or bonuses of buying a certain brand. At the same time, we’re also seeing shoppers prioritize less. While there was a much larger focus on price and technology a few years ago, drivers are now just happy to get a car that’s on the lot. For dealers, cars are being sold before they even hit the ground.
The pandemic has also boosted the popularity of emerging technologies. Consider car buying; most shoppers use their smartphone or laptop when purchasing a vehicle. Before the pandemic, there was a growth of price shopping online, virtual walkthroughs, and 360-degree views of the cars. When showrooms shut down, this technology proved invaluable. Today, shoppers have the option of getting a vehicle delivered to their home to test-drive or purchasing a car without stepping into a brick-and-mortar location.
Within the last decade, there’s also been a radical focus on sustainability. New research on climate change and efforts to reduce carbon emissions grew companies like Tesla to unforeseen heights. And despite all obstacles that might prove otherwise, the pandemic drove electric car sales to grow over 40 percent in 2020.
When it comes to the future of automotives, the biggest shift will be from gas to electric. We are already seeing this change in some regions. For instance, in California, Tesla’s all-electric Model 3 is the current second-best-selling car.
Without a doubt, the automotive industry is moving towards electrification. Stricter emission regulations, lower battery costs, and government initiatives are helping pave the way. Our current administration, for example, has goals of 50 percent of car sales being electric by 2030.
Some of the largest manufacturers have flagships that mirror this as well, such as Nissan’s Ambition 2030 and Toyota’s Beyond Zero. Others, like Audi and Infiniti, have taken it a step further and promised fully-electric lineups in the same time frame.
But unlike California’s infrastructure, which is suitable for EVs like the Model 3, the same cannot be said for rural areas where off-road-ready trucks dominate the dealerships and charging stations are few and far between. Going electric may sound like a straightforward path, but there will be a few roadblocks the automotive industry must overcome to have a truly sustainable, electrified future.
From a consumer perspective, the roadblocks are small. Many drivers worry about range or whether an electric vehicle can tackle challenging weather conditions and terrain. These shortcomings will be an easy fix compared to the large-scale issues at play.
The biggest obstacle facing electric vehicles is infrastructure. Currently, there are not many places to charge electric vehicles, and there’s even less with fast charging. If you’ve ever tried to get gas at 5 p.m. after a workday, you can see where this might cause issues for vehicles that need 15 plus minutes to get enough juice.
Similarly, if we are to expect widespread adoption of electric vehicles, we have to consider the infrastructure supporting these charging stations. Some power grids do not have the capacity to generate enough power to support a surplus of electric vehicles. Texas’s power crisis last year also highlights an achilles heel that must be considered if we are to expect an electric future. In the event of power shortages, we must have backup support to keep society functioning.
There’s also another problem obstructing the path: the batteries themselves. Lithium, the metal used to create clean technologies like EV batteries, is a finite resource. If we are to look at electric vehicles as a long-term solution for climate change, using a non-renewable resource raises the questions of energy security. According to many experts, current EV batteries are not designed to be recycled. Putting them in landfills defeats the purpose of green energy, and cutting the batteries to recycle poses the risk of combustion and the release of toxic fumes. Fortunately, millions of dollars are being spent on research to design recycling programs that are efficient and safe.
Besides electrification, the automotive industry is also driving towards autonomous vehicles. Our current advanced driver-assistance systems (ADAS) are preparing drivers for the future of self-operating cars. With the rate of development from companies like Tesla and Luminar, it would not be unreasonable to expect fully self-driving cars by 2030.
Current trends also point towards ride-sharing possibilities. Increasingly our society is moving towards goods and services being delivered rather than fetched – think Amazon, DoorDash, InstaCart, etc. If automotives follow a similar path, we can expect vehicles to be an on-demand service too. Rather than having a vehicle that sits in your driveway, you can order fully autonomous cars to pick you up and drop you off at your destinations. Enormous fleets would be available 24/7, charging themselves as needed and bringing themselves to shops for maintenance as required.
The future of automotives may also rely heavily on artificial intelligence. Interconnected vehicles will be able to communicate with each other, passing on intelligence, helping shape safer and more efficient roadways. This type of technology is already being worked on by mass-market brands like Nissan.
Ultimately, it’s impossible to be certain of the future, even with trend indicators. New ideas are continuously evolving that shape the fate of automotives and mobility. Even with a clear roadmap, the unpredictability of the world can alter our course of action to new, possibly better, ideas at any time. As the saying goes, “The only thing you can count on is change.”
