BERYLLS INSIGHTS

AUTOMOTIVE CRISIS AGENDA.

Munich, 25 June 2020 | Topic: Covid-19

THE COVID-19 CRISIS ADDS TO AND INTENSIFIES THE AUTOMOTIVE INDUSTRIES’ EXISTING STRUCTURAL PROBLEMS.

COVID-19 has caused a global demand shock and has brought personal mobility to a sudden halt. However, even before COVID-19 emerged as a global pandemic, investors already doubted whether traditional OEMs had a sustainable business model. Now, anxious customers and an uncertain economic outlook have made car sales plummet across the globe. As a result, the financial markets’ trust in traditional OEMs’ business model has declined further, while non-traditional players such as Tesla have fared a lot better.

 

From our perspective, automotive CEOs must build their crisis agenda around 6 fields of action:

The customer is the key determinant on the road to economic recovery: How customers change their purchasing behavior will determine both the timing and the scale of the economic rebound. The crisis’ regionally uneven impact adds further uncertainty and complexity.
While the crisis has bolstered connectivity and digitalization, it has also pushed many traditional OEMs to postpone their plans to introduce level-5 automated driving. As cities everywhere struggle to stem a potential resurgence in private car usage, the crisis is also altering the terms of shared and electric mobility.
Profitability levels were already low before the pandemic. Now, many traditional automotive companies are forced to issue profit warnings and scale down their investments. Especially suppliers, who were already stretched thin in the run-up to the crisis, are now experiencing severe liquidity shortfalls.
The crisis has accelerated the digital transformation of the workplace but has also put a lot of stress on automotive organizations. Traditional OEMs are pushed to speed up delayed digitalization initiatives while simultaneously transforming and future-proofing their operating models.
Most pending M&A transactions were put on hold during the crisis’ onset. M&A activity has since picked up again. Strategic and financial investors alike are now scanning the market for opportunities. This includes distressed asset transactions.
Capital markets’ response to the COVID-19 crisis has been varied as investors are struggling to size the impact of the pandemic on automotive portfolio companies. Traditional OEMs especially have been struggling to reassure investors and demonstrate how they plan to weather the crisis.

AUTOMOTIVE CEOS MUST FIND THE RIGHT ANSWERS:

Automotive CEOs must understand how COVID-19 has affected customers’ mobility needs and purchasing behavior. Without a clear view of what drives customers in this crisis, they will not be able to plot a course toward economic recovery. They must also understand resulting delays in technology adoption or structural business model changes and recalibrate organizations to focus on profitability. Where this is financially possible, M&A can be used to add scale or build new competencies. Finally, CEOs need to work with investors not merely to better understand their expectations but also to look for new ways toward managing risks and liquidity.

Our customer insights study will be published shortly – Stay tuned!

AUTHORS

Dr. Jan Burgard
Executive Partner
jan.burgard@berylls.com
Andreas Radics
Executive Partner
andreas.radics@berylls.com

CONTACT

Berylls Strategy Advisors
T +49-89-710 410 40-0
info@berylls.com