Fuel For Thought

There is a clear focus on new revenue sources in the automotive industry, as mobility, electrification, autonomy, and connectivity continue to democratize for a post-COVID world. Connected services are one way automakers can grow revenues, yet many still see it as a cost, not a profit center. In many cases, automakers see paltry renewal rates from 15-30% post trial, which is neither sustainable nor profitable. In a recent IHS Markit study, six premium brands in the US market were evaluated and indexed, investigating the intersection of consumer opinions and competitive metrics on connected features. Tesla and Cadillac indexed above the average, whereas BMW, Audi, Mercedes and Genesis indexed below. These results illustrate that the top two brands have a deeper integration of connected services across their organizations that drive higher customer satisfaction and revenues. As the industry works to recover the sales and revenue levels it enjoyed before the pandemic, those with a structural focus on connected services will find a competitive advantage amongst the market. I'm Mark Boyadjis, with an IHS Markit Minute.

October is National Cybersecurity Awareness Month! Connected cars provide ample motivation to implement cybersecurity measures. But the expansion of automated driving gives further reason for safeguarding the vehicle. IHS Markit forecasts that more than half of all new vehicle sales globally in 2022 will have some automated vehicle control feature. In recognition of these growing risks, automakers are responding with best practices in cybersecurity, and regulators across regions are taking action as well. Japan will be first to adopt new cybersecurity requirements for all new vehicles sold after January 2021. The European Union will do the same in July 2022, alongside the adoption of new requirements for active safety and automated driving. We estimate that solutions to manage cybersecurity threats will produce annual revenues of more than 400 million US dollars globally in 2022. I'm Jeremy Carlson with an IHS Markit Minute.

A Closer Look at One SUV Category The sub-compact SUV category is one of the smaller SUV segments, based on market share, but it has contributed to the remarkable success of SUVs in general. Sub-compact SUVs' share of the U.S. market has grown from 3.4% at the start of 2016 to 4.6% now, and while this may not seem like much, it's a 34 percent increase – which ranks second among all mainstream SUV segments. Also, sub-compact SUVs continue to act as a "feeder" segment to both compact and midsize SUV categories, with 24% and 8% of consumers moving up to these two segments, respectively. In fact, households with a sub-compact SUV in their garage move up to a compact SUV more often than they move to any segment other than their own. Lastly, households with a sub-compact SUV in the garage are exceptionally brand loyal; their brand loyalty of 55% in the first seven months of 2020 is higher than overall industry-wide brand loyalty and second among all mainstream SUV categories. I'm Tom Libby with an IHS Markit Minute.

Melanie Erff, Mike Wall and Tanja Linken talk about how the COVID-19 pandemic has impacted the global automotive retail with respect to challenges faced by dealerships and customers' expectation in their purchase process and future interactions.

The automotive industry has been working at a fever pitch since late May when we emerged from the COVID-19 driven output closures. The combination of depleted vehicle inventories and a strong sales pace has equated to the industry's inability to return to normal inventory levels until early next year. Even with a 2-month break, we will still build approximately 13 million light vehicles in North America for 2020. Outside of these short-term market disruptions, smarter suppliers are still looking past next quarter to the future. Our industry is in the midst of significant structural shifts surrounding vehicle electrification, autonomous driving system content and a changing vehicle value equation. If you are a supplier, strategic questions surround your future risk profile, financial performance and how these changes impact future competitiveness. Does one benefit from these shifts, suffer a declining market or in some cases – are you agnostic? Whatever the perspective, these shifting industry dynamics call for a Supplier Strategy Reset. This has been Michael Robinet with an IHS Markit Minute.

A recent analysis of IHS Markit new light vehicle registrations through July this year finds sport utilities account for 50% of all new vehicle registrations, up from 31% ten years ago. If today's mix continues for the remainder of this year, it would mark the first time in recent history that one body style has captured half of the U.S. new vehicle industry. Market share for mainstream pickups has also grown, driven in part by intense competition among the domestic manufacturers that dominate this space. Through July, pickups account for 19.9% of all new vehicle registrations in the US, outpacing sedans for the first time in recent history. With SUV/CUVs and pickups now accounting for more than two thirds of all U.S. new vehicle registrations, manufacturers need to ensure that their product portfolios align with this new paradigm. I'm Tom Libby with an IHS Markit Minute.

So you're looking to purchase a new car in the state of California in 2035? Well, you can have any powertrain you want, as long as it's electric! California Governor Gavin Newson signed an executive order setting a goal of requiring all new passenger cars and trucks sold in the state to be zero-emission vehicles, which are battery electric or fuel cell, by 2035. Now all of this comes as California remains locked in a legal battle with the Trump administration. The state is suing over to reinstate a waiver that allows it to set its own fuel economy standards that are separate from the federal government's. If Donald Trump is re-elected, we expect the battle to be decided in the courts. But if Joe Biden is elected, we expect California to have its waiver reinstated. So you may be asking, "Can automakers just choose not to sell cars in California if it does not want to invest in an entire fleet of electric vehicles just to fill a dealership?" Sure, but California is the biggest light vehicle market in the United States, representing 11% of total US sales last year. That really makes it a state that can't be ignored by the automotive companies. I'm Devin Lindsay, with the IHS Markit Minute.

US-based NVIDIA announces intent to acquire UK-based Arm for $40B. You may not know Arm by name, but the company's intellectual property is shipped in tens of billions of integrated circuits every year. In automotive, four out of every five processors in infotainment and driver assistance are based on Arm architectures—including those from NVIDIA. Both Arm and NVIDIA have long lists of ecosystem partners and a growing footprint in Autonomous Driving. But the combination of Arm expertise in scalable CPU design, plus NVIDIA expertise in GPUs and software, could create a one-stop-shop for anyone looking for automotive processors. The open nature of Arm architectures gives freedom to automotive engineers to develop and deploy scalable solutions from today's driver assistance to tomorrow's autonomous mobility… pending regulatory approvals, of course. I'm Jeremy Carlson with an IHS Markit Minute.

Kristen Balasia, Anoop Desai and Thomas Libby talk about how the COVID-19 pandemic has impacted global emissions and fuel regulations, and how regional markets and manufacturers respond to this.

North American auto production is expected to drop to 12.9 million units in 2020. However, the need to replenish inventories and more robust pace of sales is indicating the recovery is stronger than expected. IHS Markit expects North American production will reach 15.2 million units in 2021.