Automotive Industry Analysis
The five forces model helps determine the competitive nature of an industry, including its quality and the level of competition. The automotive industry is highly competitive, with companies constantly striving to create better automobiles than competitors. In fact, companies in the automotive industry spent $99.8 billion on research and development (R&D) in 2018. This means that new entrants would have a difficult time gaining market share in this highly competitive industry. Another factor that makes this industry so competitive is customer loyalty.
The automotive industry is experiencing transformations that have not been seen since the early Model T Ford. As new technologies and regulations take hold, traditional automotive OEMs are spending more money to address these trends. Interested investors have already spent between $115 and $200 billion on electric vehicles and automotive hardware since 2010.
A key driver of this change is the increase in vehicle connectivity. As more vehicles are connected, the focus on service revenue will increase. Typical aftermarket services will move into direct digital interactions with customers. New vehicles will present novel revenue opportunities throughout the vehicle’s life cycle, including charging, mobility as a service, and data monetization. As the automobile industry transitions to this new growth stage, it is critical to understand the impact these changes will have on the industry’s revenue growth.
As a cyclical business, the automotive industry is particularly vulnerable to recessions. A shortage of cash may delay a car purchase. While real GDP growth generally declines during recessions, the automotive industry experience more volatility than the overall economy. During recessions, real motor vehicle output has fallen by up to 12 times more than the economy as a whole. In addition, car sales are likely to be higher during economic times when consumer confidence is high.
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