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What lies ahead of the Auto Industry? Catastrophe, or a brave new world?

If you have not noticed, things are getting hotter for the automotive industry worldwide. The recent round of its crisis began in September 2015, when the United States Environmental Protection Agency (EPA) issued a violation notice against the Industry behemoth, the Volkswagen Group. It accused the corporation to have intentionally programmed their turbocharged direct injection (TDI) diesel engines to trigger certain emission controls only when the car was tested for emission rate. It, dubbed ‘emissiongate’ and ‘dieselgate’, soon snowballed into perhaps the biggest emission scandal in the history of the automotive industry. It amounted to hoodwinking the government and the consumers into believing that their car is approved under the current emission norms, while the car kept chugging unacceptable amount of pollutants into the atmosphere!
It reminded the people the essentially conservative nature of the auto giants, who still cannot take the climatic concerns seriously. It has hurt the trust and goodwill factor of the industry badly: why would the consumer trust their claims anymore when it comes to emission limits and environment-friendliness, when s/he has already been admittedly taken for a ride! It did not help that in a matter of months, world leaders from 97 countries met at the Paris Climate Summit, and vowed to limit global warming to 2° C of the mean global pre-industrial temperature. This vow was as much crystallized by the scandal as by any other climatic concerns. Since then, developed and developing countries have been increasingly acting upon the pledge they took at Paris. None of them seem to bring good news to the Auto Industry.
Surprisingly, the most radical of these proposals come from China and India, both not exactly known for controlling pollution effectively. China has prepared a draft regulation that aims to ensure that 8% of all the cars sold by any company in China must be electric; any violation of the quota will attract hefty financial penalty. The Chinese market is huge, and any foreign company that does not have an electric vehicle (EV) fleet ready will be in trouble in this market. The NITI Ayog in India has put forward the dramatic proposal of ensuring all the cars sold in the country will be electric by 2032. This proposal wants to leapfrog the hybrid technology altogether in its goal to cut down its oil import bill by half. This leaves the auto giants with even narrower options in a market that is growing at an exponential rate. Let us not mince words here: any loss in these two markets will hit the industry very hard.
The developed world looks grimmer. In the United Kingdom, where the government has put the onus of improving air quality on the local city councils, Manchester’s transport authority has proposed the radical move of demarcating ‘clean air zones’; any polluting car that enters into these zones will attract a heavy monetary fine. California already heavily subsidizes users of hybrid and electric vehicles, while a similar proposal has been put forward in Oregon. The German Environment Agency has proposed a quota for low-emission vehicles (LEV) in the lines of China. The European Union is pondering over a car emission test reform, which, if passed, will impose as much as an EUR 30,000 file per vehicle on the manufacturer. The old and persistent problem of lack of infrastructure, especially of charging stations, for the LEVs is being aggressively tackled by the developed countries. Many are developing charging station, and even allowing the consumers to charge their car for free. Soon, the abundance of these charging stations will make long-distance travel with electric vehicles viable.
If this is not a catastrophe for the fuel-chugging, smoke-belching, noisy image of the traditional auto industry, then what is?
But the crisis is the midwife of innovation. Ask Toyota or BMW, and they will certainly agree. Just months before the Paris Summit, BMW CEO Harald Krüger made the big announcement that the BMW i3, one of the world’s most popular all-electric cars, would be armed with a larger battery (33 kWh), giving it a longer range. Krüger was trying to cash in on the convergence between the global concern about climate change and the LEV market segment. But is that convergence enough to become a sustainable basis for the industry?
A startling recent market analysis by Mordor Intelligence, predicts that the LEV segment was geared to witness a CAGR of 21.79% by 2022. We are not just talking about a probable long-term trend, we are talking about an actuality. European Automobile Manufacturers’ Association (ACEA) shows a 38% year-on-year boost in new EV registrations during the first quarter of 2017 across 32 European countries.
In short, a section of the auto industry, and especially the low-emission vehicle (LEV) segment, seemed to be uniquely positioned to reap the benefits of the Paris Pledge and the new, upcoming regulations. They expect major growth in the LEV sector, which will be fueled in part by the growing convergence between environmental concerns and automotive technologies, and in part by the more stringent norms and innovative strategies we mentioned above. But perhaps the biggest game-changer is the fact that common people are, for the first time, beginning to actively demand climate actions.
Global warming is no longer a theoretical threat. People have felt it worm into their everyday life for the last one decade. The pressure of this popular concern is beginning to tell on the politicians of the world as well. In the United States, the Toyota Prius has become the latest status symbol of political correctness, where celebrities and effluent people often buy the car to showcase their commitment to the environmental cause. Part of the industry, like Toyota, BMW and Tesla, recognize this. They are now betting heavily on innovative LEV technologies and strategies. After all, can you imagine a sector to not grow when it is backed by popular demand, government support and action, and technological innovations?
The LEV sector is experiencing astonishing innovations on a seemingly daily basis. In 1997, when Toyota launched its long-serving Prius, it introduced a revolutionary new range of plant-derived ecological bioplastics, like kenaf and ramie, which have now become standard in other EV cars like Toyota i3. It is abundantly clear that the LEV sector now spearheads innovation in the automotive sector, and is well on its way to further increase the cost-, fuel- and weight-efficiency of its models.
While industry elders in the United States seem to have convinced President Trump to relax the existing norms of emission tests, it might be a repetition of Trump presidency’s unfortunate tendency to plug itself out of a world that is increasingly becoming plugged-in It is difficult at this moment to conceive any factor that might definitively reverse the growth of LEV. It may very well prove to be the case that the industry actors who are still battling against emission tests and standards have already lost their war to companies like Toyota and BMW, the advanced guards for the electric revolution in the automotive industry.

The post What lies ahead of the Auto Industry? Catastrophe, or a brave new world? appeared first on Mordor Intelligence | Knowledge Center.



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