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Why auto executives are optimistic about long-term profits
Automotive News

Why auto executives are optimistic about long-term profits

Eleanore Beatty November 30, 2021 Article

Most auto executives are optimistic about the industry’s long-term profitability and the adoption of electric vehicles, even as they remain concerned about short-term problems such as the tight labor market and microchip shortage, a new survey of industry leaders found.

According to KPMG‘s 2021 Global Automotive Executive Survey, 53 percent of respondents said they were extremely or somewhat confident that the industry would achieve more profitable growth over the next five years, compared with 38 percent who said they were concerned. KPMG surveyed 1,118 executives around the world in August, ranging from CEOs to department heads at automakers, suppliers, startups and other companies.

“With all of the massive changes expected to happen in our industry, there is this sense of dynamism in the industry that I feel like is there now,” said Gary Silberg, global head of automotive at KPMG International.

Executives in the U.S. and China appeared to be the most optimistic about profitability moving forward, the data showed. Silberg attributed the optimism among American executives to the growth of EV and mobility startups around the country and investments in those areas by traditional automakers.

“You see a big delta in the views of the world around optimism and profitability when you get into Europe, India and elsewhere,” he said.

Semiconductor, trade concerns

The profit optimism comes even as executives signal major concerns about various issues in the short term. The vast majority of executives said they were concerned about supply continuity for semiconductors and commodities such as steel and aluminum, as well as rare earth elements, lithium and other components needed for batteries.

At the same time, 57 percent of executives said they expected the cost and complexity of tariffs, trade rules and regulations to significantly or somewhat increase over the next five years, compared with just 17 percent who expect them to decrease.

“There is definitely concern on the supply chain moving forward,” Silberg said. “That was the dichotomy for the industry: long-term optimism but near-term concern.”

As the industry navigates the semiconductor shortage and the COVID-19 pandemic, 82 percent of executives said they believed their companies were at least moderately prepared for the industry’s next major crisis, compared with 15 percent who said they were slightly prepared or 3 percent who were not at all prepared. American executives again signaled more optimism than the rest of the world, with KPMG saying there was a 58-point disparity between those who said they were prepared and those who said they were not.

EV adoption

As the industry prepares to roll out dozens of electric vehicles in the coming years and as governments implement EV mandates and targets, auto executives on average say they expect the EV market to take off worldwide over the next decade.

On average, executives said they expected 52 percent of all new vehicles sold in the U.S., China and Japan to be electric by 2030. Western European EV sales are expected to make up 48 percent of the market by then, compared with 41 percent of sales in Brazil and 39 percent in India.

Still, Silberg said views from executives on how big of a share of the market EVs will gain varied wildly, with answers ranging anywhere from 5 percent to 90 percent.

“It’s all over the board,” Silberg said. EV market share will be “up, but there is no consensus on what it might end up being.”

Most executives (77 percent) said they believed EVs could achieve “widespread adoption” within 10 years even without “government intervention,” though 91 percent said consumer subsidies for EVs were helpful.

Still, they pinpointed a potential roadblock in EV adoption: charging times. According to the survey, 77 percent of executives think consumers will be willing to wait only 30 minutes or less for a charge of 80 percent or better.

Achieving that would require the installation of more DC fast-charging stations, Silberg said. Fewer than 20 percent of EV chargers in the U.S. today are fast charging, according to KPMG, and they can cost as much $100,000 to install.

Direct-to-consumer sales
Industry leaders expect automotive retail to continue evolving. The survey found 78 percent of executives think the majority of new-vehicle purchases worldwide will be completed online by 2030.

At the same time, 46 percent of executives think 60 percent or more of all new-vehicle sales will be by automakers directly to consumers in their home markets by 2030. Another 28 percent think between 40 and 59 percent of sales will be direct to consumer, and just 3 percent of executives think fewer than 1 in 5 sales will be direct.

About 74 percent of executives said they think a “seamless and hassle-free” experience will be very or extremely important to consumers looking to purchase a vehicle in the next five years, outpacing factors such as driving performance (71 percent) and brand or image (64 percent).

“There’s a sense, globally and not just in the U.S., that if you go to the dealer, people are fed up with that experience,” Silberg said. “You see it in this data. Those that can give a seamless, great experience are going to win in the marketplace.”

KPMG said one-third of the survey’s respondents were CEOs, presidents or chairmen, while 29 percent were C-level executives. The rest was made up of the heads and managers of business units and department heads. About three out of four respondents were from China, the U.S. or Europe, with companies ranging from less than $100 million in annual revenue to more than $10 billion.

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Tags: auto, executives, longterm, optimistic, profits

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