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Wholesale Banking

Automotive innovation might be expected to stall as a result of the Covid-19 crisis, but that would be a mistake. Carmakers have everything to gain from persevering with their transformation – they might even find that the crisis has some unexpected consequences for the future of the car.

A box of toy cars

The automotive sector has been among the sectors worst-affected by the Covid-19 crisis, with demand expected to decline by 22% year-on-year (1). The impact on the supply chain is likely to be even more severe. Original equipment manufacturers (OEMs) now face a reckoning: how can they balance short-term survival with investment in long-term sustainability and new ways of thinking about mobility?

Automotive sector companies that need to lay off staff may be forced to choose between employees working on products that are currently in demand, and those working on developments that will secure long-term profitability. Jens Brokate, VP and Automotive Sector Specialist at ING, warns against taking the short-term option at a pivotal time for industry.

“Competition in the automotive sector is so high that you can’t really afford to turn your back on innovation that might be of major importance within the next 10 years,” he says. “Additionally, there are the big tech companies in Silicon Valley that are sitting on piles of cash, and they can still afford to develop their products. Progress is exponential and in 10 years’ time when OEMs turn their attention towards AI and autonomous driving again, it’ll be too late: the market will have already been divided by other players.”

Climate change won’t wait

Automotive businesses that have already been working towards long-term goals of electrification, autonomation, digitalisation and sustainability will be best-placed to emerge stronger a decade from now. But the intensive capital expenditure they need to make that transition may prove a challenge in the immediate aftermath of the pandemic.

EU and other multilateral targets for CO2 reduction are still in place, which puts the onus on carmakers to continue the pursuit of renewable, clean technology. On the bright side, demand for electric vehicles is expected to keep growing as they approach a break-even point for cost and continue to enjoy regulatory support. The IEA predicts that electric cars will fare better in 2020 than the overall global car market and expects sales in 2020 to exceed those in 2019 (2).

Kristof Vereenooghe, CEO of cleantech company EVBox & Everon, is bullish about the outlook for electric vehicle development in Europe – not only because of growing government support, but also thanks to the “wake-up call” of Covid-19, which has highlighted the importance of air quality & public health, reducing emissions.

“European countries will put in place massive programmes to push electrification even harder and to make sure that we have adoption at all levels,” he says, citing multi-billion euro programmes to develop charging infrastructure in France and Germany in particular.

That kind of expansion of the ‘right to plug’ will be important in supporting the take-up of electric vehicles, according to Vereenooghe, who says a lack of access to charging stations has been one factor holding back the market.

An electric car at the charging station

Innovation on wheels

However, electrification is only one part of the sector’s transformation, and OEMs are pressing ahead despite the pandemic.

Aram Kradjian, Chief Engineer Research at Jaguar Land Rover says, “Whilst we are still on a journey towards autonomous, connected, electrified and shared vehicles, consumer behaviour is likely to change as a result of Covid-19.“

“For example, before the virus, shared mobility was considered a popular low-cost alternative to vehicle ownership. Today, when health and wellbeing are a priority for everyone, ride-sharing could be perceived as unhygienic. We could see the renaissance of the private car as customers crave safe, clean spaces that they control.”

Kradjian expects that this will increase collaboration in the development of shared mobility technologies and services as companies will seek to pool resources, capitalise on acquisitions and build economies of scale.

The pandemic has also accelerated the development of Jaguar Land Rover in-car, in-cabin technologies such as UVC light and antimicrobial materials which will help make the car a safer environment.

Connected car features have also been accelerating. In early 2020, for instance, Jaguar Land Rover unveiled the first car on sale with dual-sim connectivity, which allows over-the-air software updates without interrupting other app connectivity (3).

“In the future, I think more services will be added to cars,” says Arlette Warmerdam, Co-founder and Product Lead at ING’s fintech start-up FINN. “Because they are literally computers on wheels.”

Innovation driven by partnerships

There is a Covid-19 consequence at work here, too. The move towards the ‘low-touch economy’ prompted by the need to stop the spread of the virus has boosted FINN’s work. The start-up has developed a seamless payment system for cars that drivers can use to pay motorway tolls, and pay for petrol and drive-through takeaways. The technology exploits ING’s experience in payment systems and associated transaction security, including user-identity management and fraud prevention – not a core area of expertise for carmakers.

Warmerdam envisages pay-per-use and Internet of Things systems in cars that do everything from boosting horsepower at the push of a button to monitoring road surfaces and communicating with home devices. Vereenooghe predicts a similar future for the industry. “Software is crucial in the new type of cars,” he says. “OEMs have to go through that learning curve to change from a traditional industry towards one that increasingly relies on software. You can’t stop that process.”

And that future will depend on collaboration that goes beyond industry lines. Banks, tech companies, engineers, and carmakers themselves all have a role to play in this transition.