QAD Inc.

03/18/2021 | News release | Distributed by Public on 03/18/2021 10:38

One Year Later: COVID’s Long-lasting Impact on the Auto Industry

As we reach the one-year anniversary of the global shut down due to the pandemic, most of us are wondering when things are going to go back to 'normal'. Well, if you work in the auto industry, the answer could be never.

In an industry already at the mercy of major disruptions, COVID-19caused even more shake-ups for automotive companies, impacting everything from supply chainand operations to capital spending, loans and long-term strategies. While some of these impacts have since evened out, many have left their scars, dramatically changing the future of automotive.

Here are some of the ways the pandemic has directly and indirectly impacted the auto industry's long-term projection.

Employment Impact

The most significant impact COVID had on the automotive industry, as it was with virtually all industries, was the economic impact. While it didn't turn out to be the armageddon that was previously predicted-thanks to a shared absorption from suppliers, banks, automakers and employees-the financial fire heavily impacted the automotive workforce who shouldered the heaviest part of the financial crisis.

Many employees took pay cuts and accepted shortened work schedules to avert industry-wide bankruptcy, while even more faced layoffs. While some employees have already returned to work, and many can expect to return eventually, there is still a large portion of workers who aren't likely to get a call to return to work.

The move to electrification was already predicted to cause amajor shift in employment needs, eliminating mechanical engineers and roles tied to the powertrain while creating new openings for electrical, chemical and software engineers. Now, COVID sped up that process, causing that transfer of skill sets to happen sooner than expected. Of course, not all employees tied to the internal combustion engine will lose their positions just yet, but as the market becomes increasingly electrified, it's only a matter of time.

Fall of Autonomous Vehicles

When automakers were forced to prioritize their capital projects due to COVID's major economic impact, autonomous vehicle (AV) technology took a back seat to other pressing advancements, such as electric vehicles (EVs). Target dates for Level 3 and 4 vehicles, which were previously targeted for as early as 2022, have been pushed back several years. Many companies chose to divest in their AV programs and divert funds and resources into EVs.

Volvo, which originally planned to present a fully-autonomous Level 4 AV system by 2024, has pushed back the Level 4 target date to 2027 and will now aim to present a Level 3 AV model around the same timeframe as they had originally planned for a Level 4. Argo and Ford also delayed their robo-taxi and AV programs while committing an additional $28 billion to EV.

While the financial fallout of COVID played a major role in the delayed timeline, the realization that AV technology and the obstacles it presents are more complex than previously expected also played its part when automakers were forced to decide between competing programs. This means that we may have to wait several more years before we begin to see true driverless vehicle technology on the road.

Decline in Ridesharing Demand

Robo-taxis and ridesharing technologies also took a slump when COVID hit. Prior to the pandemic, many companies were investing in ridesharing and robo-taxi capabilities-the perceived future of a shared economy. However, as the need to social distance, sanitize, and protect your personal space became a safety and health priority, many consumers thought twice before turning to a ride-hailing program.

In 2020,Uber lost $6.7 billion, and Lyft saw a decrease of $1.8 billion in revenue. While this dip in demand may seem like a short-term fall, the ridesharing market will likely continue to meet hesitation and suffer from decreased rides. Uber recognizes the long-term impact and has since responded by diverting its energy into its delivery services and selling off its autonomous vehicle and aerial taxi divisions.

Another impact of this decrease in ride demand could mean a slight increase in private vehicle ownership. COVID has caused many consumers who previously relied on a shared economy to change their perspectives and find the value in owning their own vehicle-an unexpected shift in previous trends.

COVID and the Rise of Electrification

One of the most notable outcomes of COVID was the increased investment in electrification. When automakers were faced with financial strains, they were forced to prioritize which programs capital dollars went into-and electrification was a clear winner. In response to the lean budget, many automakers rolled back autonomous vehicle plans, cut out ridesharing investments, and poured all of their money and resources into EVs. In many instances, automakers even pulled their EV plans ahead and announced more aggressive target dates amidst the pandemic news.

Ford promised a complete battery-electric vehicle (BEV) line-up in Europe by 2030; GM committed to ending the production of the traditional internal combustion engine (ICE) by 2035; and Jaguar and Volvo declared all of its vehicles will be electric-powered by 2030.

While COVID helped to narrow focus, the main reason EV took priority was due to mounting legislative pressure across the globe. Despite COVID's economic impacts, lawmakers remained mindful of the other global emergency-climate change-and continued to call on automakers to invest in cleaner technologies. Many major economies evenaccelerated their timelines in 2020and set forth more aggressive targets for automotive companies to hit.

With major disruptions to a market already under disruption, it's more important than ever for key players in the automotive sector to pay attention to the changing tide. Companies must reevaluate their strategies, yet again, and adjust for the long-lasting impacts of COVID if they want to remain competitive in the ever-changing market.