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Because the automotive sector is a disrupted sector

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Because the automotive sector is a disrupted sector

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2023 ended rather well for the automotive sector: volumes recovered by 9% globally, 83 million vehicles sold, Europe grew by 17%. For the third year, manufacturers are posting double-digit margins, and suppliers are partially recovering the cost increases of previous years. So everything is fine? Not too much, if we look ahead. Between 2023 and 2027, the expected growth in vehicle volumes is limited: 1% in Europe, 2% in the USA, 3% in China. The picture therefore remains complex and disrupted: geopolitical instabilities, a lackluster economy in Europe and China, the return of production overcapacity, and the regulated advent of electrification that is still economically unsustainable (defined as a possible “bloodbath” by Tavares). In fact, the automotive sector remains one of the most disrupted industries. According to our AlixPartners Disruption Index 2024, the level of disruption has fallen slightly compared to 2023, but remains higher than the values ​​of 2021. It is therefore not surprising that 94% of top managers believe that their business model must change in the next 12 months, considering cost containment, strategic investments and focus on advanced customer requests essential. The equation is difficult to solve. Many traditional manufacturers are already trying to respond to the low growth in demand and the attack of Chinese players who dominate technology and offer qualitatively competitive products at lower costs. And while we try to recover lost ground, here are new disruptions on the way, such as the Software Defined Vehicle: much more impactful than updating a simple infotainment or navigation software, because the goal is to change the customer experience on a product already left the factories. Many have announced it among their strategic objectives, but 70% foresee it in over three years, and 77% with returns of less than 10% compared to huge investments. So? In addition to protecting the industry (or not burying it further) with specific laws, manufacturers and suppliers, imitated for years by Chinese challengers, need to take inspiration from their approach: definition of the product, new “tech-driven” pluses (styling, connected and intelligent technology), and a change of mentality. In other words, they must transform from “defender”, with their own distribution network and consolidated business model, to “newcomer”: less risk averse, with short execution times and competitive costs, to renew with frequencies similar to consumer products . In the end the disruption will be driven (or transported) by smartphones on wheels.

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