Navigant Research Blog

Dwindling Smart Sales Spark All-Electric Shift

— February 17, 2017

I first observed the smart car while traveling through Italy in 2006. Later that same year, the Da Vinci Code debuted back home in the United States, with smart deftly taking a page from Mini Cooper’s marketing playbook (playing starring roles in the likes of The Italian Job and Bourne Identity) by nabbing prime advertising space as Sophie Neveu and Robert Langdon’s escape vehicle. At the time, I considered the idea of this car revolutionary, in that it provided the space savings of a motorcycle partnered with the safety and comfort of a car.

Though the car didn’t seem right for me at the time, I figured if I was in a city my perspective might differ, and I wondered why that car wasn’t yet available in the United States. Two years later, in 2008, smart arrived and netted nearly 25,000 sales. That year was the company’s best in the United States, its second being the year immediately following. However, since 2009, sales have bobbed laggardly between 5,000 and 11,000. In 2013, smart joined the modern plug-in vehicle movement with the electric drive (ED) version of its offering. The ED has done relatively well, accounting for 17% of the brand’s sales since its introduction in the United States. Fast forward to the near future and the ED will likely account for 100% of the brand’s US sales, as Daimler is discontinuing the gas powered version of the vehicle in North America for the 2018 model year.

Gas Power Not So Smart Anymore

For the brand, sales are likely to retreat further. A refresh of the fortwo ED along with the expected range increase will probably encourage greater sales of the ED in 2017 than were witnessed in 2016. But the range increase isn’t substantial next to 2017’s new competitors like the Chevrolet Bolt, the Tesla Model 3, and more. Therefore, sales are unlikely to recapture smart’s small 5,000-11,000 sliver of the market unless a serious range increase or dramatic price cut is on the way for 2018.

Though the move will result in initial losses for the brand, it will likely benefit the parent. To start, sales of the gas-powered smart have receded, with a compound annual growth rate of -14% since 2012. The current low oil price environment isn’t going to change the trajectory here. Add to that the ever increasing range and affordability of plug-in powertrains in the microcar segment, and it was only a matter of time before the gas version could not find any willing buyers.

Additionally, canceling the gas-powered version while there is still some demand will increase the effect the ED has on the Daimler’s Corporate Average Fuel Economy and Zero Emissions Vehicle program compliance efforts. The regulations, designed as both stick and carrot, penalize automakers for noncompliance and reward others for overcompliance. Up to 2025, both programs’ sticks will become increasingly sharp, making the share of plug-ins relative to other powertrains a vital metric by which automakers maintain viability through their highly profitable, less fuel efficient offerings.

 

Interest in Electric Trucks Is on the Rise

— May 31, 2016

Electric TruckElectric vehicles (EVs) have been making steady progress in technology and popularity since the Nissan LEAF was introduced in 2010, bringing all-electric drive to the high-volume production car market. Ford debuted the all-electric Ford Focus Electric in 2011, Tesla made another step toward becoming a volume manufacturer in 2012 when it launched the Model S, and a year later, BMW introduced the i3. These are just some of the highlights, and now pretty much every major manufacturer has all-electric vehicles in their product portfolio either now or planned for the near future.

Batteries and Charging

Hybrid technology is also continuing to grow in popularity, and in some regions of the world, plug-in hybrids are selling well. Lithium ion batteries have become the preferred onboard energy storage option, and demand for the batteries from automotive producers is driving investment in new production facilities and bringing unit cost per kilowatt-hour down.

Another sign of progress supporting the growth in popularity of EVs is the development of fast charging and wireless charging. This is particularly important for fleet operators with vehicles in use all day and not parked during work hours; consumer vehicles can often be recharged slowly while not in use.

A recent Navigant Research report, Transportation Forecast: Medium and Heavy Duty Vehicles, identifies which vehicle types are more likely to adopt a variety of alternative powertrains. For the first time, this report looks at the differences between buses and trucks and between medium and heavy duty vehicles. Trucks are a significant contributor to global emissions, and governments in many countries are beginning to look at tightening legislation and setting more stringent targets.

New Options for Fleet Managers

Hybrid and electric drives offer OEMs and fleet managers options to lower their emissions and run cleaner vehicles. Systems have now been tested for many years and there is a lot of data available on reliability and long-term costs, but it is also clear from these tests that the suitability of any powertrain is highly dependent on the work duty cycle and must be optimized for a particular purpose. The longevity of commercial vehicles means that sales growth of these alternative powertrains will remain slow in the short term.

More government incentives to encourage fleet renewal and subsidize the necessary infrastructure would help to accelerate the rollout of cleaner powertrains for commercial vehicles. Lower prices for conventional fuels have had a negative effect in recent years. However, future increases in oil prices are expected to produce more incentive to electrify where it makes sense. Fleet managers would be well-advised to begin planning for the introduction of new technology now.

 

Key Automotive Trends Are Driving Acquisitions

— May 2, 2016

DashboardAs a new Navigant Research white paper on transportation is published, it is interesting to note that the trends identified are already influencing merger and acquisition (M&A) decisions in the automotive world today. Transportation Outlook: 2025 to 2050 takes a long-term view of how the automotive vehicle market may change over the next 35 years. As with all long-term forecasts, there are many unknowns that could influence the end results, but it is a useful exercise to think about where current trends could lead.

The study identifies four major trends in automotive technology today and extrapolates into the future to speculate about how the global marketplace might change. The four technologies are:

  • Connectivity
  • Autonomous driving
  • Car and ridesharing
  • Electric drive

It is interesting to observe some recent M&A activity that acknowledges the significance of these technology developments for the future. Although they have evolved independently, the key to long-term success is integration.

Recent M&A Announcements

While one aspect of acquisitions is always economic and looking for efficiency improvements from shared overheads and broadening of product offerings, some are more about strategic factors that consider long-term goals.

NXP and Freescale: This merger was announced in March 2015 and completed by December. NXP wanted to increase the proportion of its automotive business and was attracted by Freescale’s growing business supplying OEMs with processors for powertrain and safety systems, particularly advanced driver assistance systems (ADAS).

Intel and Altera: Completed in December 2015, Altera expanded the Intel product line into field-programmable gate array technology, which makes it easier to customize processors and upgrade them while in service. While generally useful for the Internet of Things, one possible application may be for secure chips to control safety and autonomous driving systems. Updating software remotely is a topic covered in more detail in a recent blog from my colleague Sam Abuelsamid.

Intel and Yogitech: Acquired in April 2016, Yogitech specializes in fault-tolerant integrated circuits. With concerns about hacking and interference growing as more cars become connected by wireless communications, safety is an important factor for automotive OEMs.

General Motors (GM), Lyft, and Sidecar: In January 2016, GM acquired the employees and technology of Sidecar, a ridesharing service that shut down in December 2015. At around the same time, GM made a major investment in Lyft, the largest U.S. competitor to Uber. The automaker does not want to get left behind in the on-demand mobility stakes. For more detail, see another blog from my colleague Sam Abuelsamid.

General Motors and Cruise Automation: In March 2016, GM announced it was buying Cruise Automation (founded in 2013) to accelerate development of autonomous driving functionality for its vehicles.

Harman and TowerSec: Once known mainly for audio and infotainment systems, Harman is expanding its product line into connected and autonomous vehicles. TowerSec provides important extra safety via cyber security capability.

ZF Friedrichshafen and TRW: When ZF Friedrichshafen AG acquired TRW Automotive Holdings Corp. in May 2015, it added key expertise in radar and camera sensors to its offerings, among other things. TRW is now a new division within ZF called Active & Passive Safety Technology. The Tier One supplier can now offer complete ADAS capability from sensors to activation of steering and brakes.

Also in 2015, Audi, BMW, and Daimler got together to acquire HERE from Nokia. This was covered in a Navigant Research blog at the time by Lisa Jerram.

This is a quick overview of recent activity in the automotive world; there will surely be more to look forward to in the near future.

 

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