This week, voters in the U.S. will decide on a number of Senate seats, the entire House of Representatives and who will lead the country for the next four years.
The two major parties have different views and those views often become policies. An administration’s policies can have a significant impact on the automotive industry in the U.S., and the implications can reverberate across the globe.
It is not fully possible to understand how the recovery from COVID-19 will progress, just as it is not clear how quickly industry-specific developments such as the rate of technology improvements in battery performance/costs and autonomous vehicle development will be achieved.
In a world where the only constant is change, the best solution is to be adaptive in your strategy, people, processes and underlying enterprise systems.
One of the greatest disruptions in the automotive industry since Henry Ford’s assembly line is the transition from internal combustion engine-propelled vehicles to those propelled by electricity. This election season could be followed by regulation that attempts to speed that transition. Changes in regulations could affect any of the following:
1. Corporate average fuel economy standards
If vehicle mpg requirements are raised, automakers and their suppliers may choose to speed up investments in EV technology. Inversely, if CAFE standards are frozen, or even relaxed, it could slow the transition to EVs.
Increased mpg standards force the auto industry to employ additional technology to meet those standards, and that investment in technology is likely to increase the cost per vehicle. Automakers may also decide to speed the introduction of EVs rather than sink cost into ICE vehicles if new regulations support that move.
If companies need to increase R&D for either type of technology, then this may lead to additional acquisitions or speeding up existing ones if businesses need to acquire the technology, manufacturing output or both.
2. Air quality/emissions standards, carbon footprint, Paris Accords
Policies may be enacted that raise air-quality targets and that could lead to the adoption of the Paris Accords or similar standards. This could improve air quality but also could result in a per-vehicle increase in cost to pay for the additional technology needed to reduce emissions.
Because automakers could see the spend to meet new air-quality standards as sinking investment into a nontarget technological area, it could have the effect of speeding the transition from ICE to EVs. Greater emphasis on carbon emissions, which require some automakers to purchase carbon credits from EV manufacturers, may increase the speed of the transition from ICE to ACES (automated, connected, electric and shared vehicles).
This is evident in the case of Fiat Chrysler Automobiles purchasing $2 billion in credits from Tesla, for example. Greater emphasis on carbon credits would also increase the funding of pure-play EV companies and drain investment from legacy automakers, making it harder for them to compete in the EV world.
Each of these decisions will benefit different subgroups of suppliers, affecting their manufacturing footprint, merger-and-acquisition activity and a number of other areas that also drive system needs.
Alternatively, policy may go in the other direction toward lower air-quality standards, which may slow the transition to EVs.
This could lead to new state regulations that impose higher air-quality standards, in the vein of the recent California emissions standards. A difference between state and federal air-quality regulations means multiple targets that automakers have to address, which would prevent potential scale in purchasing.
3. Lithium ion recycling/disposal
There has not been a lot of discussion of lithium battery recycling or disposal. However, lithium ion batteries do need to be handled as a hazardous material. Pro-EV policy could lead to an increase in EV sales, which would generate a higher volume of battery disposal down the line.
Once this disposal effort becomes an issue, it’s likely the same sustainability sentiment behind pro-EV policy decisions will drive regulation of battery recycling and disposal.
This increase in regulation could increase the per-vehicle cost if additional technology is required to streamline the recycling process. Policies around sustainability could act to either accelerate or slow EV adoption.
Immigration and employment policy can significantly impact the automotive industry, specifically the enterprise system and its management.
It’s highly unlikely that immigration laws and enforcement will remain the same after this election. If there are additional restrictions on H1B, L1 and other visas, and the numbers of visas — either those now held or those going to be offered — are substantially reduced or even eliminated, this could have immediate effects on the employment pool for engineering and information technology talent, and on other areas.
The auto industry supports the most complex supply chain in the world. Components and commodities move all over the world, and some are imported into the U.S. to be used in final assembly. When these goods cross borders into the U.S., they can incur tariffs.
Tariffs raise the cost of imported goods, which increases the cost of manufacturing commodities and components. In response to higher tariffs, the design of the supply chain could change.
For example, if certain goods imported from China become subject to tariffs, the producing company may move operations out of the Chinese mainland. Some businesses have moved their operations from one country to another in response to tariffs, while some have repatriated operations to the U.S. The overall number of both types of companies is statistically small but not insignificant.
All of these changes cause businesses to spend more time and investment on managing tariffs, and the impacts of those tariffs on their businesses, through trade management and demand management solutions.
This election season will affect your business drastically, regardless of the outcome. Global companies cannot afford to continue to use monolithic, static and expensive systems to cover the complex requirements of today’s ever-changing environment. Automotive manufacturers need systems with agility, adaptability and speed to value to survive and thrive.