Motor manufacturers are getting jammed between the conflicting expectations of drivers and regulators. Customers want cheap driverless cars and fuel-hungry SUVs. Authorities want to be sure the technology is safe and emissions are low. Carmakers' profit margins, already suffering from fierce price competition, could get crunched.
With driverless cars, regulators are beginning to insist on the development of automatic accident-reporting systems and automatic emergency brakes, which will improve safety but raise costs. Meanwhile, a poll by McKinsey shows that three-quarters of German drivers like the idea of driverless cars, but only if the overall price stays about the same.
With emissions, electric cars are key for the industry. It risks missing Europe's tight 2021 emissions targets and hefty fines could ensue.
Many of the technological eye-catchers evident at the Frankfurt Motor Show are electrically powered vehicles. Volkswagen, Europe's largest carmaker, said it would launch 20 new electric vehicles by 2020. Porsche unveiled an electric concept car boasting 600 horsepower and a range of 500 kilometres.
But customers are yet to be convinced. Roland Berger data shows that electric cars have a market share of 0.4 per cent in China, 0.5 per cent in Germany and 0.7 per cent in the United States. Over the last 18 months, BMW has sold six times as many motorcycles as its i3s, an all-electric car which cost between euro 2 billion and euro 3 billion to develop.
The SUV boom exacerbates the problem. SUVs are heavier and less aerodynamic than sedans and burn about 25 per cent more fuel. Yet researchers at IHS Automotive, the consultancy, foresee the SUV share growing to 25 per cent, up from 20 per cent now. Rolls Royce, Bentley and Jaguar all unveiled a new class of gas-guzzling super-luxury SUVs in Frankfurt.
Profit margins at mass-market carmakers are already thin. Renault, Peugeot and Volkswagen eke out a measly three per cent to six per cent at the operating level, though premium brands like Mercedes, BMW and Audi get 10 per cent to 12 per cent. All are frantically trying to win economies of scale and cut costs. The best investors can hope for is that productivity gains are big enough to counter the technological and regulatory headwinds.
