The global truck manufacturers Daimler, Traton, Volvo and Paccar have achieved record sales, revenues and profits in 2022. They have earned cumulated 12.3 bn Euro in 2022 – more than ever before. This equals an average return on sales (RoS) of 8.5%. Main drivers were substantial price increases, excellent after sales revenues as well as favorable exchange rates. 

There is a clear benchmark in performance and profitability: U.S. based Paccar group with its subsidiary DAF in Europe. The German players Daimler and Traton are well above pre-crisis level, but still far less profitable than their peers. While Daimler suffers from below average profitability of their Asian business, Traton still has homework to do regarding the turnaround of MAN. 

Market outlook for 2023 is positive, but ongoing industry transformation requires significant cash flow from the operative business. Focus must be on portfolio management of the increasing zero-emission product offering including comprehensive e-mobility services. 

Check our FY 2022 Review and reach out to the team for more details. 

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The US EV customer: They say it’s all about the money – but is it really?

TOP 3 CUSTOMER PURCHASE CRITERIA 

(by country, general customer)

Incumbents and new entrants face a US EV customer that is significantly different from its European and Chinese counterparts. An international survey of customers shows that while US customers only cite ‘economic’ reasons as their top three purchase criteria, Chinese customers also place a premium on safety and sustainability while German customers love the thrill of driving. While US customers generally have an affinity for digital channels during the research and vehicle configuration stages of the customer journey, they still have a stronger preference for dealership visits when interacting with salespeople and completing the purchase or leasing of a vehicle; Only 58% of US customers are interested in contacting salespeople online².

EV SALES FORECAST BY COUNTRY (US, CHINA, EU5)

(2021-2030, in thousands of units)

Never since the switch from horse-drawn carriages to Diesel-powered trucks, has there been such fundamental change for the industry. Technologies are being replaced and value pools are being reallocated. But also, the daily use of trucks by their operators is changing: battery charging and range limitations heavily affect the usage and scheduling of electric vehicle fleets.

Batteries replace Diesel engines as being the most valuable single component of a truck. On a long-haul tractor with 600 kWh battery capacity, the energy storage
accounts for 60% of the total product costs. Even though this share will gradually
decrease because of improving economies of scale and evolving battery technology, batteries have a massive influence on the value of electric trucks throughout their life cycle. And here another difference to Diesel trucks comes into play: lifespans of vehicles and major components like the battery will increasingly be out of sync.

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This means reducing their carbon footprint, but also their raw material and resources consumption, and making their operations and business model more sustainable (not focused solely on selling more and more cars). In response, OEMs are starting to put in place Refurbish, Remanufacture, Reuse, and Recycle (R4 or the “4Rs”) strategies to maximize their reuse of valuable materials.

Vehicle condition becomes an essential part to ensure it can be used in as many types of offerings as possible, reducing the turnaround time between customers

This year could see the first inflation-driven global economic crisis for 40 years, as the combined impact of the COVID-19 pandemic and the war in Ukraine continues to disrupt supply chains and force up prices. The hopeful news is that most economists expect inflation rates worldwide to fall during 2023, as bottlenecks ease and energy prices come down. Nonetheless, even if a global recession is avoided, the cost of living will still be far higher for billions of consumers than before the pandemic struck.

Against this background, the automotive industry confronts a series of formidable challenges, all of which are exacerbated by inflation. Manufacturers and suppliers must cope with raw material shortages and price rises as they implement ambitious restructuring programs to keep pace with the transition to electric mobility. At the same time, the massive boost to online shopping triggered by COVID-19 lockdowns has created a new breed of digitally savvy but financially hard-pressed car buyers who are far choosier and less loyal to brands than before the pandemic.

Our report sets out how industry players can turn the current inflationary storm into an opportunity to gain a lead over competitors that cannot navigate the headwinds. The last global financial meltdown in 2008 and its aftermath offered agile, imaginative automotive companies precisely this kind of opening to seize the advantage. Consider, for instance, how Korea’s Hyundai Motor Group increased its North American market share from 5.3 percent in 2008 to 9.1 percent in 2011 by targeting customers who would not have considered buying a Hyundai or a Kia before the US subprime mortgage crisis.

The challenge today is to apply the same creative thinking in a market buffeted by inflation, where both consumer behavior and the automotive industry are evolving at unprecedented speed. After analyzing the industry’s response so far to the current inflation-driven slowdown, we make the following key recommendations for 2023 and beyond:

• Increase supply chain and manufacturing flexibility
• Adapt value propositions at speed to keep pace with changing customer expectations
• Enhance digital customer experience journeys and “moments”
• Review products against EV transformation and software-defined vehicle trends
• Recruit digital software talent, taking advantage of the ICT industry’s current attrition
• Develop M&A strategies to capitalize on higher valuations and lower financing costs after 2023

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To stay ahead of the increasing number of new competitors, as well as long-established rivals, companies should adopt an approach that uses data analytics to identify pain points and optimization potential to create a customer-friendly sales journey at every stage of the route.

The approach is divided into two integrated Diverge and Converge phases. The first identifies data relating to customer needs which is collected during the explore phase and classified during the define phase (see Figure 1 below). Using this processed data, solutions can then be identified and implemented during the following develop and deliver phases.

Figure 1: Led by customers, driven by data – the right approach for building customer-friendly journeys  

Smooth transition: seamless multi-channel customer journeys

Based on the different stages, we then derived cross-channel customer interactions via detailed micro journeys that illustrate the customer journey target picture for each use case (see Figure 4):

Figure 4: How the customer interacts with the different sales channels

In total, 23.6 million passenger cars were sold, a year-on-year increase of 9.5 percent. This included the record-breaking figure of 6.5 million new energy vehicles (NEVs), a year-on-year rise of 94.3 percent, reinforcing China’s critical role in the worldwide shift to electric mobility.

Repeating their success in 2021, Chinese players proved the big winners in the NEV market, accounting for more than 80 percent of total NEV sales. Meanwhile, established foreign OEMs lagged behind.  Even premium brands which in the past could depend on success in China struggled to cope with intensifying competition from domestic manufacturers as the transition to e-mobility accelerated.

The next international phase of this battle has now begun in earnest, with Chinese automotive companies taking on major global markets, focusing especially on western Europe. In 2022, China’s total vehicle exports reached another record high of 2.5 million passenger cars, a year-on-year increase of 56.7 percent.

Looking forward, market conditions in China will remain challenging for foreign OEMs, as more new Chinese players ramp up production and sales amid rapidly changing customer tastes and shifting government priorities. Nonetheless, there are still areas such as sustainability and the metaverse where foreign players can gain a competitive advantage, as we explain in this report.

The growth paradox

75 percent of companies are unable to grow profitably over the long term., according to Sebastian Raisch, Gilbert Probst and Peter Gomez, authors of Wege zum Wachstum. One of the main reasons for this, is called the “growth paradox”, which describes companies chasing growth in a way that creates complexity, which actually inhibits growth.

Many executives say that it is not the complexity of external market conditions that causes them problems but the control of complexity within their own organization. Internal processes and administrative structures build up as the company grows, making it difficult for executives to maintain direct contact with their business and customers. As a result, they lose the essential focus on developing the potential for success.

This is where the Viable System Model (VSM) developed by the cybernetician Stafford Beer can help organizations make their complexity controllable and embed the important principle of self-organization.