Trends Disrupting the Auto Industry - Electric Vehicles

Global car sales in 2021 were expected to grow by 18.7%. Global electric vehicle sales were expected to grow by 89.5%, with the total number of electric vehicles expected to exceed 900,000 units. In 2021, domestic small SUV models actively sprinted towards their annual sales target, but in 2022, with fuel consumption regulations coming into effect, some models will be discontinued or their prices will rise. Car replacement tax subsidies and the recovery of the economy will stimulate consumers to purchase cars, and drive sales in Taiwan.

The rapid development of the electric vehicle market:

Electric vehicles have seen strong annual growth rates in some Asian and world markets; 28 percent in South Korea, 76 percent in China, over 40 percent in the U.S., and even over 100 percent in some European markets. The auto industry is expected to have a double-digit, compound annual growth rate over the next decade.

The growth of electric vehicles, especially pure electric vehicles, will lead to major changes in the automotive value chain and pose significant challenges to incumbent automakers and their profitability. Many established companies of traditional automobiles will face the problem of reduced core business revenue. On the other hand, suppliers with a diverse product and customer base, and those that focus on essential components for electric vehicles, such as batteries and traction motors, will be more resilient than some OEMs and better able to respond the challenge of this wave of disruptive innovation.

With the introducing of various technologies into the automotive industry such as the Internet of Vehicles, the penetration rate of “connected” cars has risen the fastest. The main reason is that 5G technology promotes the accelerated application of the Internet of Vehicles. Consumers can expect more convenience to be introduced by the Internet of Vehicles.

Trends in the automotive industry: transition to electric vehicles

1. Improve the bargaining power of suppliers:
   The number of components required for pure electric vehicles is estimated to be 30%-40% less than that of internal combustion engine vehicles, and the manufacturing process is more simplified and involves fewer suppliers. The supply chain is less stratified and well-established suppliers should have more bargaining power than small OEMs.
2. Low-profit margins for legacy OEMs and new businesses focused on EVs:
   The price of batteries and traction motors will likely continue to drive up EV manufacturing costs in the short term. EVs may not be as profitable for OEMs as they are for EV battery makers and their suppliers of specific components.
3. Further industrial integration:
   With the increasing integration between suppliers and traditional OEMs, some suppliers that focused on internal combustion engine vehicles are going out of business. However, EVs have lower barriers to entry and allow competition from OEMs that put less focus on internal combustion engine vehicles and hybrid vehicles. Some Korean automakers and Chinese OEMs are starting to focus on electric vehicles, and new, pure-electric vehicle producers are expected to enter the market.

The transition to electric vehicles:

The growth rate of the electric vehicle industry is expected to vary by market, driven by regulation, government subsidies, infrastructure, energy-fuel mix, local advantages, and customer preferences. In countries such as Japan, where cars are most used for short trips, hybrid electric vehicles perform well in energy-saving and will be favored by consumers. During the transition between petrol and electric vehicles, if the fuel mix used by power companies is still heavily skewed towards non-renewable energy sources, hybrid electric vehicles are currently the greener option.

Another factor affecting the transition and adoption of electric vehicles is government policy, with some governments offering incentives to discourage the development of internal combustion engine gasoline vehicles. For example, the South Korean government is committed to supporting local automakers to develop the eco-friendly vehicle market, especially pure electric vehicles. Therefore, electric vehicles can gain market share faster. While the Chinese government is offering strong policy incentives for electric vehicles, auto OEMs have largely shifted their production capacity to hybrid electric vehicles, driven by consumer preference. The U.S. government is also promoting electric vehicles, including reinstating the electric vehicle tax credit. Driven by European governments, CO2 emissions targets and enhanced controls on particulate matter, nitrogen oxides, and carbon monoxide emissions, conditions will continue to be favorable for the development of the electric vehicle industry.

Autonomous driving:

In the self-driving market, in 2020, 45% of new global vehicles will have at least L2 (partially autonomous) or higher self-driving levels, and it is estimated that by 2030, this proportion will grow to 79%. According to the estimates of the Society of Automotive Engineers (SAE), by 2030, 20% of new car sales in the EU are expected to have self-driving levels above L3 (conditional automation), 11% in the US market, and 11% in China, showing that autonomous driving is still in its early development phase. Consumers expect L5 (fully autonomous) self-driving cars to appear around the early 2030s. Consumers are willing to pay a 20% premium for autonomous driving services.

Taiwan's auto parts industry should accelerate transformation and alliances

With the trend of vehicle development gradually moving toward smart applications and electric vehicles, Taiwan has benefited from the advantages of the information and communication industries. Taiwan has established its own unique niche in automotive electronic components marketplace, becoming a key part of the international automotive manufacturing supply chain. The total output value of Taiwan's auto industry in 2019 reached NT$606.1 billion, of which nearly 40% was from automotive electronics.

Taiwan has established a presence in the global electric vehicle market, especially in the production of related components. The demand for electric vehicles in the Taiwan market is also expected to increase. Recently, more companies have formed alliances with domestic and foreign automakers to jointly invest in the development of electric vehicle platforms, which shows that Taiwanese manufacturers attach great importance to the future development of the electric vehicle industry. It is suggested that enterprises should rethink their investment strategies and business models, accelerate the pace of transformation and alliances, and master the new trends in the global automotive industry.