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How did Covid-19 impact digital transformation of the Auto industry?
How did Covid-19 impact digital transformation of the Auto industry?

June 21, 2021

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We live in a VUCA world – Volatile, Uncertain, Complex, and Ambiguous. Since last year, the Covid-19 pandemic has had a drastic impact across the world and across various sectors. The automotive industry has been one of the most impacted. In India, the sector witnessed zero sales in April last year. The passenger vehicle segment bore the worst brunt, witnessing a fall of over 90% in its domestic sales in May 2020. Even before the pandemic, it was already witnessing a growth slowdown due to slowing demand and regulatory changes, and the pandemic only intensified the situation.

With the lockdowns imposed, production was halted, the supply chain was disrupted, and structural changes were encountered too. This led to a lasting impact with a significant shift in demand patterns, customer preferences, and investments.

With the looming threat of Phase 3 of Covid and another lockdown, it is imperative for automotive players to prepare in advance for any exigencies. There has been a tremendous impact on consumer demand due to continuing lockdowns and work-from-home situations. OEMs and Tier 1 suppliers are diverting most of their R&D funding towards daily operations till sales improve in a sustainable fashion. As a result, there has been a significant shift in strategic priorities across key automotive megatrends.

 

How have Automotive megatrends changed after Covid vis-à-vis pre-Covid?

  1. Connected Mobility – Pre-Covid, IoT adoption was increasing across auto components and large investments were deployed towards the development of connected vehicles and solutions.
  • Post-Covid, however, the situation has changed at least in the short term. While the long-term story remains intact, in the short term, companies are facing liquidity crunch and hence these strategic investments may have been put on hold.
  1. Autonomous Vehicles – Pre-Covid, many OEMs were making substantial investments towards this initiative. Not just auto OEMs, even players from other industries were actively involved.
  • Post-Covid, it is unlikely that the same pace of development would be followed in the near term due to shifting R&D budgets. Governments across the world are focussing on bringing the economies and businesses back on track. Therefore, legislative approvals for testing of autonomous driving might take longer.
  1. Shared mobility – In recent years, there has been a growing approach towards “renting and leasing” rather than “buying and owning”. This has been one of the driving factors to shared mobility. However, post-Covid, the magnitude of the shift will depend on pre-Covid habits.
  • With the onset of Covid, people are practicing physical distancing and want to minimize exposure. Though, with the vaccination drives increasing and the crisis slowly waning, the concerns might come down and the shared mobility services might resume.
  1. Electric mobility – Governments across the world have passed legislation on emission and the growing focus on sustainability has created a need for the automotive industry to shift towards clean mobility.
  • Post-Covid, companies have been facing a liquidity crunch. While in the short term, companies are focusing more on boosting the sales of their core products. However, in the long term, the commitment remains intact, as witnessed by the growth of Tesla, which continues to grow and become more valuable than before. EV investments are expected to go back to the pre-Covid levels with the ongoing continuing focus towards clean mobility, stringent emission regulations and attractive incentives.

 

In the aftermath of the pandemic, priorities have shifted in the automotive industry across the globe.

 

New Priorities of Automotive OEMs

 

Strategic initiatives being prioritized by leaders include -

  1. Industry 4.0 and automation – It is not surprising to learn that Covid has accelerated digitization and automation in the automotive sector to make itself resilient against future disturbances.
  2. Shop floor redesigning – The pandemic has exposed the vulnerabilities in production and supply chain. With a focus on reduction of spread of the infection, there is an imminent focus on employee safety, social distancing, rotational shift schedules, new SOPs, etc., post covid shop floors are expected to look a long different than before.
  3. Focus on personalized data-enabled safety features.
  4. Increasing shift towards online sales and contactless strategies – Digital purchasing has clearly gained traction during Covid. OEMs and dealerships are focused on providing the online experience and many customers are even willing to pay even extra for contactless services.
  5. Remote working and collaboration – With the ongoing lockdown, work from home continues. Remote working and collaboration have been the way of life for over 1 year. Many organizations have embraced the online mode and continue to find ways to stay connected and collaborate.

In the post-covid era, companies continue to reimagine and reorganize themselves to insulate themselves against future uncertainties and stay competitive. We are already witnessing an accelerated adoption of digital technologies and a surge in investments focused on the digital transformation of the enterprises, which otherwise would have taken longer. The automotive sector continues to play a vital role in the Indian economy and the automotive companies continue to reinvent and reorganize themselves. Companies can use this opportunity to rethink their strategies and build differentiated capabilities, leading to agile and future-ready organisations that will create a lasting value, not only for the customers but for the country as well.

 

 

To read the other blogs of this series, click on 

1. https://community.nasscom.in/communities/gcc/how-are-gccs-driving-digital-transformation-india

2. https://community.nasscom.in/communities/digital-transformation/need-digital-transformation-automotive-industry

 

To read more about how the automotive industry is undergoing its digital transformation and the role of GCCs thereof, download our report “Digital Transformation in AUTOMOTIVE and the role of GCCs” from the links below.

NASSCOM website - https://nasscom.in/knowledge-center/publications/digital-transformation-automotive-and-role-gccs

NASSCOM Community - https://community.nasscom.in/communities/digital-transformation/digital-transformation-in-automotive-and-the-role-of-gccs.html


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Vandhna Babu
Principal Analyst - Research

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