The global automotive industry has entered a transitionary stage. The market is mature and auto sales have been declining since 2018. China, the largest auto market in the world, has also suffered, with sales declining by 4% in 2018 and 8% in 2019. Additionally, increasingly stringent emission regulations and government requirements for energy efficiency have brought challenges to automobile suppliers.
However, the electric vehicle market continues to grow and take market share from ICE vehicles. This creates challenges to traditional ICE auto suppliers and tier 1 players. In response, companies are investing more in electrification and alternative propulsion technologies to survive in a rapidly evolving industry. For example, Volkswagen recently acquired half of China’s Anhui Jianghuai Automotive, which is the parent company of JAC motors, for €1 billion. Volkswagen has also obtained a 26% stake in Shenzhen listed EV battery maker Gotian Hightech for approximately €1.1. billion, becoming its largest shareholder.
The return on investment for these research and development activities is uncertain. For example, despite the permanent magnet motor being the prevailing solution for electric drivetrains, companies in industry are still trying to develop alternative solutions with AC induction motors and switched reluctance motors, due to the rare earth supply challenge. Additionally, autonomous driving introduces the application of LIDAR sensors, but there is no certainty whether rotating or solid state will become the industry standard.
Most companies must bet on both sides in this kind of situation and thus their already declining profit margin is feeling the additional pressures from soaring expenses in research and development. Many companies choose to acquire small players from the industry to gain these technologies, skipping the time-consuming research and development process. BorgWarner has been an active buyer in recent years, of which the most recent deal was closed with Delphi Tech in May 2020.
The downturn of the automotive industry has accelerated consolidation activities, as small companies need to join big players to survive. The trend of acquiring small players with technology in the industry will certainly accelerate this consolidation.
Emission control and energy efficiency improvements are major drivers for automobile electrification. Electrification enables automotive applications to operate better with easier control under optimistic conditions and higher energy efficiency. This trend will continue to make electric motor, motor drive, and power semiconductor suppliers more prevalent in the automotive industry.
The growth of the electric motor market will be driven mainly by increasing the number of motors per vehicle and increasing the number of applications that require motors per vehicle. For example, a recent trend is for automated doors used in uber taxi cars so the driver could open the doors for customers without getting out of the vehicle.
As functionalities in cars become increasingly complex, the market for electric motors in automotive applications is expected to continue expanding. Autonomous driving technologies will be the next driver for the electrification. Firstly, autonomous driving requires a sensor system attached to the vehicles, including LIDAR and other safety applications. These new applications will provide more adoption of electric motors. Secondly, autonomous driving will accelerate the penetration rate of electric vehicles into the auto market, as the simplified structure of electric vehicles are a better fit to autonomous driving than traditional ICE vehicles.
Alternative propulsion technology will provide the highest revenue increment during the forecast period with around 50% CAGR as electric vehicles and hybrid electric vehicles continuously penetrate the automobile market in the next five years. The biggest driver for the EV penetration will still be the incentives from government and consumers’ awareness in the consideration of energy and pollution.
Although electrification’s progress is promising, the electric motor market is still expected to decline with the automotive market in the near term.
The COVID-19 pandemic has not only heavily disrupted the automotive supply chain, but also impacted consumer confidence. Soaring unemployment and declining consumer income suggest that the automotive market is expected to plummet notably despite the reopening of automotive factories.
Emerging markets, such as South Asia and South America, have been attractive for auto suppliers in recent years with continuous market growth and promising market size. However, the expected recession caused by the COVID-19 pandemic will stunt the growth of emerging markets in the near term.
Omdia expect the global electric motor market revenue for automotive application to decline by roughly 11% in 2020, before rebounding in 2021 as the demand for traction motors increases.