SWOT Analysis, Example for the Automotive Industry

 

1.         Some Figures on the Global Automotive Industry Sector

 

The global automotive market represented approximately 82 million vehicle sales for 2021. This figure was up by almost 5% compared to the year 2020. 2020 was an extraordinary year, strongly marked by the COVID-19 pandemic, the closures of non-essential stores, and recorded a sharp drop in sales of 77 million vehicles in one year.

The market is strongly impacted by the issues of rising interest rates, the war in Ukraine, shortages of semiconductors, the oil crisis, the breakdown of other energy sources, and greenwashing phenomena. In short, the industry faces multiple challenges, and the market is constantly evolving. Manufacturers must constantly adapt, develop their offers, restructure, reinvent themselves, and change consumption habits, at the same time, as mentalities.

The Volkswagen group is the world leader in automobiles and represents nearly a quarter of sales, even if the brand of the same name has recorded a decline in sales in recent years.

In terms of countries, China has recently become the world's leading car sales country.

2.         Automotive Market Forces

The global automotive market is a dynamic, mature, and long-lasting field. The supply chains are well known, and the players are well structured and well-organised. The market has limited players, but they are strong, powerful, and united. The market has indeed experienced significant concentration in recent years, with the emergence of behemoths such as Stellantis.

Furthermore, the market enjoys a major advantage: it is indispensable. Even if the alternatives to individual mobility are constantly multiplying, the global automobile market is a structuring market and necessarily sustainable, at least to a certain extent.

Moreover, the market is dynamic and generally adapts quickly and well to its environment. In just a few years, the global automotive market has undergone profound changes. New players have emerged, new modes of communication, products, and modern technologies. All the players evolve as the market progresses, demonstrating a significant capacity for evolution.

All car manufacturers devote a large part of their resources to research and development, which generates a mature, dynamic market which gradually integrates numerous innovations.

The market integrates a significant part of second-hand sales, and the trend continues as it goes.
 

3.         Weaknesses of the Automotive Market

The automotive market, on the other hand, is very dependent on other players, which can weaken it. Indeed, the global auto market is strongly impacted by the supply difficulties of semiconductors, for example. It cannot do without these precious, expensive components, produced mainly in Asia, which delays the entire production chain when they cannot get delivered on time.

Moreover, the automotive market is a mature market, as we have mentioned. It cannot completely reinvent itself, undergoing a kind of inertia linked to thermal cars and traditional technologies, as well as to the customs and habits of users.

In addition, the automotive industry is highly dependent on petroleum energies, which are constantly becoming scarcer, and are doomed to disappear in the medium term.

4.         Automotive Market Opportunities

The automotive market benefits from many opportunities. The first concerns the development of environmental awareness and the limitation of waste. This represents both a threat to the market and a real opportunity. Indeed, the global automotive market has been saturated in terms of thermal vehicles for several decades now, but the rise of electric vehicles is revitalising this global market. The electric vehicle segment is growing exponentially. This even pushes manufacturers to opt for vertical integration of the production chain, such as TESLA buying a producer of electric batteries to sustain supplies and make them more reliable.

The automotive sector also benefited from good momentum in financing through long-term leases. This means of financing reassures users, allows them to know their costs with certainty, and can encourage them to take the step of buying or leasing a vehicle when they had been hesitant until then. The dynamism of the long-term lease financing segment represents a real opportunity for the global automotive industry.

5.         Automotive Market Threats

The automotive sector has suffered enormously during the COVID19 pandemic. Closure of borders and supply disruptions with some Asian countries were very penalising factors for this sector. This continues to weigh on the global automotive segment, even though the threats relating to COVID are easing over time, they are still not completely gone.

The global automotive industry also sees strong regulatory constraints weighing on it. The creation of low emission zones (LEZ), the ever-increasing pressure to reduce emissions, and the phenomenon of greenwashing, are all threats weighing directly on the industry as a whole.

The market is also strongly impacted by the war between Russia and Ukraine that began in February 2022. The trade war with Russia is indeed a threat that weighs heavily on the sector, in particular, through potential disruptions in sources of energy and oil. The sector as a whole is very dependent on oil and is, therefore, threatened by a crisis linked to the global energy crisis that we are heading towards in the coming years.

Rising inflation is also a threat to the global automotive market. Indeed, the automobile is not an absolutely necessary product. At least its renewal is not always essential. An inflationary trend such as the one we encounter in 2022 can encourage households and businesses to postpone their purchases of vehicles, new or used. Manufacturers are impacted by the rise in raw material prices, which forces them to reduce their margins, as they cannot pass on all the component price increases to the end customer.

Likewise, an anxiety-provoking, uncertain context, despite doubts related to the global economy, is also a potential threat to the global automotive market. Finally, a rise in interest rates such as the one we have observed in recent months increases the cost of vehicles financed through mortgages, and can, therefore, and limits purchase intentions using this means of financing.

 

The global automotive sector is a mature sector but, nevertheless, very dynamic and constantly changing. The sector benefits from good dynamic, well-studied strategies and groupings of major players. The investments are colossal, particularly in terms of R&D. The sector is nevertheless very concentrated, hit by major supply difficulties, and by a green revolution which can penalise them severely. The sector benefits from significant opportunities but also faces far-reaching threats, such as the war in Ukraine, inflation, economic slowdown, or tighter pollution regulations. It will be essential in the future, more than ever, for manufacturers to remain dynamic, chameleons adaptable to the perpetual evolutions of the industrial sector.

Sources: Ifpenergiesnouvelles, Coface, Auto forever