Over the last few years, the automobile industry has experienced new levels of success. Sales in the US have seen record highs, while business in China and Europe also gained strength.
Record low fuel prices, increasingly attractive financing options and new impressive vehicle launches have been the primary drivers of new automobile sales. The automobile sector contributed around 2% to the total S&P 500 earnings in 2016, a nearly double its 1.1% market cap weight in the index at the observed time.
Incredibly, this level of success has come during a time where notable safety recalls have threatened to hinder the growth of many companies within the industry. These include Volkswagen’s emission scandal, General Motors’ ignition switch defect and Takata Corp’s defective airbag inflators.
However, despite this success, the automobile industry is entering a new age that will likely see a shake-up of its the major players and could bring about monumental changes across several countries and industries.
Companies from Daimler to Nissan are placing a significant portion of their investments into electric cars. With an increased emphasis on sustainability, many see electric cars as the future of the industry.
China has rapidly grown to become one of the world’s major markets for automobiles. As Chinese automobile original equipment manufacturers continue to increase their global footprint and international automobile companies increase their presence in China, the Chinese consumer will have a major role in shaping the types of cars produced.
Thus, it is important to note that in Beijing, a driver wishing to purchase a vehicle with an internal combustion engine must first enter a lottery and can wait up to two years before receiving a license plate. Licenses, however, are much easier to get for people who buy state-approved electric vehicles. This kind of government incentivised push towards electric cars will likely have a global trailing effect.
However, no conversation on electric cars can be complete without mention of Tesla, the most compelling producer of electric cars. Having recently announced the launch of their Model 3, Tesla is committed to the current production output at a higher level than ever before, with the hope of getting the mass-market Model 3 electric sedan to buyers in 2017.
To achieve this, Tesla has sustained a cash flow hit of $970m in the last quarter of 2016 alone. Furthermore, the company has aggressively undertaken a pursuit to raise capital (attracting $1.8bn from Chinese technology company Tencent). This signals Tesla’s apparent intentions, and many industry observers will eagerly anticipate the sales figures of the upcoming release.
Though Toyota is the clear global leader in electric car technology, unlike Tesla, it is yet to make a pure electric vehicle. The world’s biggest automobile producer for the last four years remains unconvincing, complaints exist of the battery range being too low, charging taking too long and the prospect of dramatic improvements to the battery technology being remote. These factors mean that electric cars simply will not be able to meet the needs of several consumers.
Toyota’s solution is the Mirai, a hydrogen-powered car that only emits water. Currently only manufactured by hand and in small numbers, the Mirai is not yet able to significantly impact the market. However the Mirai’s chief engineer, Yoshikazu Tanaka believes that by 2020, production will increase ten-fold, up to 30,000 vehicles a year.
The biggest advantage for the Mirai is also currently its biggest problem. Quicker to recharge and able to drive longer distances, hydrogen cars are more like gasoline-powered cars than electric ones. This makes them a more easily accepted replacement for the majority of car owners. However, they also require refuelling stations very similar to gasoline-powered cars.
Energy companies would have to invest in completely new infrastructure at extraordinarily high costs in order to provide the required hydrogen refuelling stations. However for this to become profitable there would need to be considerable government subsidies.
The automobile industry is in a period of relative growth considering the last 15 years has seen a general stagnation in the industry primarily due to saturation. However, with the growth of production and technology in renewable energy cars, it appears the most exciting times for the industry are very much in front of it.
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