Automotive OEM Market Trends

Growth Drivers

• Transition to green transportation and COVID-19 aftermath: The automotive OEM market is pivoting toward a sustainable future driven by the intensification of green policy initiatives including the Paris COP-21 agreement, which aggressively moving toward zero tailpipe emission target dates. 195 parties, including the EU have joined the Paris COP-21 to date and this has set a global standard decarbonization framework for OEMs. This has triggered the development of essential policies targeting greenhouse gas (GHG) emissions in the U.S. and EU, making it a central plank in government regulations.  
  
  In the post-pandemic era, governments grappled with unprecedented adjustments in their fiscal balances, with an emphasis on supporting low-GHG growth strategies. The COVID-19 outbreak has significantly accelerated EV adoption as part of an overall sustainable solution. OEMs have actively embraced this trend and 2030 is expected to bring in the tipping point post which EV sales will rise exponentially. Massive government and private spending is seeping into equity markets. In April 2021, Tesla’s capitalization of USD 675 billion emerged as more valuable than Volkswagen (USD 162 billion), Toyota (USD 215 billion), Daimler (USD 97 billion), BYD (USD69 billion), and General Motors (USD86 billion- all five key OEMs combined.
  
  Also, the special purpose acquisition companies (SPACs) are increasingly absorbing entrants such as Lucid, Reev, Fisker, and Arrival, with an aim to further consolidate the automotive OEM market.Growing environmental consciousness and pro-green regulations are driving consumer interest in electric and hybrid automobiles. In response to this shift, OEMs are increasing the range of EVs they provide. IEA stated that the sales of electric vehicles increased by 3.5 million in 2023 compared to 2022, a 35% annual rise. Additionally, there is a growing demand for personalized vehicles that cater to the preferences and requirements of consumers. In response, OEMs are offering an expanded selection of trim levels and customization options to meet this demand.

• Surging transition to data analytics: Automakers are introducing exclusive, specially designed in-car operating systems, placing software at the center of the driving experience and enabling frequent, large-scale feature updates. For instance, in February 2023, Mercedes-Benz unveiled its plans to serve as the creator of MB.OS, as its operating system will launch alongside the new MMA platform (Mercedes Modular Architecture) in the middle of the decade.
  
  Compared to other companies, Tesla began this process far earlier and has a larger volume of high-quality data. Their core view of themselves as a software and data business, rather than a manufacturing, contributes to their supremacy in this field. Furthermore, environmentally conscious car buyers are shifting toward cars with lower emissions, better fuel economy, and more eco-friendly components, encouraging the original equipment manufacturers to incorporate sustainable vehicle components.

• Growing technological innovations: The automotive OEM market is anticipated to expand due to the quickening pace of technological advancements, which will raise demands for batteries, filters for diesel-powered cars, and innovative automotive parts made possible by skilled and knowledgeable technical staff. In 2023, the International Energy Agency (IEA) reported that the demand for EV batteries had surged to over 750 GWh, marking a 40% increase compared to 2022. Periodic maintenance of motor vehicles is necessary; accessible parts for these services include cleaning, lubrication, battery servicing, and tire replacement.

Challenges

• Compliance with strict regulations: Regulation adherence is often linked to technology disruption; examples include modifications to emissions regulations and safety legislation about driverless vehicles. OEMs are under more pressure to comply with these regulations, which complicate and raise the cost of vehicle development and manufacture. It could be difficult for traditional OEMs to adopt new technology by updating their antiquated infrastructure and processes, which may hamper the growth of the automotive OEM market.

• Increased technological disruptions: Technical innovation may advance more quickly than OEMs can adjust, which could disrupt the industry and cause slower-moving companies to lose market share. Research and development (R&D) costs associated with integrating new technology into vehicles are high, making it challenging for OEMs to balance R&D expenditures with profitability, particularly during economic uncertainty or cost pressure. Therefore, growing technological advancements may impede the automotive OEM market from growing.