Blog: Welcome to the Ice Age

Article By : Colin Barnden

As Covid-19 takes hold, forecasting the automotive market in 2020 is impossible, but let us start here: Global light vehicle sales might halve this year – anything better than that and we’re lucky.

I am a jaded and skeptical analyst, having been a market forecaster covering electronics and semiconductors for over a quarter-century. I have witnessed the dotcom boom and bust; the global financial crisis of 2007-2009; the rise of the FANGMAN (Facebook, Amazon, Netflix, Google, Microsoft, Apple, Nvidia) tech giants; the emergence of the Internet of Things (what is it anyway?); and now the bursting of the Everything Bubble caused by Covid-19.

As Yogi Berra said: “It’s tough to make predictions, especially about the future.” Experience teaches me that it is easy to make a forecast – it is getting it right that is the hard part. The future deals a bloody nose to all forecasters and futurists eventually. With experience comes the wisdom and humility to know what you don’t know, and today I simply say that any forecast is only ever lucky or wrong.

So I am very happy to report that when I returned from the Frankfurt Auto Show last September and filed a piece for EE Times called Winter is Coming, I was wrong. Very wrong. It wasn’t winter that was coming – it was the Ice Age.

The picture starting to emerge in the automotive market as Covid-19 takes hold is truly horrifying, with many automakers and Tier 1 suppliers having downed tools already. The supply chain for automotive production is long and complex so a major short-term factor will be interruptions in the flow of parts and sub-systems, either as a result of component shortages or a supplier going bankrupt and seizing the flow of goods. These problems are compounded by the prevalence of just-in-time production and significant exposure to manufacturing in China.

2020 automotive market forecast
Under the circumstances, forecasting the automotive market in 2020 is impossible, but let us start here: Global light vehicle sales might halve this year – anything better than that and we’re lucky; anything worse than that and I’m wrong.

We can see the problem: After a decade of printed money and cheap loans, auto sales have been inflated by the Everything Bubble blown by central bankers. The speed and severity of the economic reversal is astounding: According to a report from Bloomberg, a total of 3.28 million people filed for unemployment insurance in the U.S. in the week ended March 21, dwarfing previous highs in Labor Department reports published since 1967.

Airlines are grounded; malls closed; businesses shuttered; services stopped. People who have lost their income, their livelihood, their business, their savings, their home and maybe everything they own won’t be heading en-masse to auto dealerships to take out a loan on a new car anytime soon.

What I learnt from the global financial crisis, particularly as it reached its peak with the bankruptcy of Lehman Brothers in September 2008, is that companies and policy makers very quickly look beyond the short-term Armageddon and focus on the long-term big picture.

Keeping viable companies afloat is a key part of that long-term thinking and we are seeing it in many jurisdictions around the world already. When the storm passes – and it will – we need companies operating profitably and paying taxes to support a functioning economy.

In automotive, the situation has been exacerbated by the recent focus of policy makers on climate change and the influence this has had on automakers, which was to spend tens of billions of dollars on the development of electric vehicles (EVs). Mass-market EV launches were everywhere at the Frankfurt Auto Show, which is all very well and good, but no one currently knows how to make them profitably and automakers can only bleed red ink for so long.

Covid-19 has also revealed a surprising percentage of the global population to be extremely susceptible to anxiety, most notably toilet paper anxiety. The issue of range anxiety has yet to be addressed for EVs and we may well find that in the brave new world post Covid-19, mass-market consumers are significantly more resistant to the adoption of EVs than had previously been expected. Consumers may simply prefer to remain loyal to the internal combustion engine.

Automakers have also spent the last five years pouring billions of dollars into the development of “self-driving” technologies. Now locked in a battle for survival as car and truck sales plunge, automakers are highly likely to pause or abandon their investments in SAE Level 4 autonomy and focus their attention and resources onto the installation of much simpler and cheaper driver monitoring and assistance technology, which fits into SAE Level 2.

We have early evidence of the automakers accelerating their decision-making process around the adoption of driver monitoring systems, for example in this recent interview with the CEO of Australian supplier Seeing Machines and this announcement from Swedish supplier Smart Eye.

The AI Ice Age has well and truly set in for self-driving trucks, with the end of Starsky Robotics announced earlier in March and a slew of bankruptcies now likely among the more than one hundred automotive lidar suppliers.

The major chip winners from all of this sudden change are likely to be established players in driver assistance, such as Mobileye (Intel), NXP, Renesas, Texas Instruments and Xilinx. In comparison the short-term prospects for Nvidia’s high performance but power hungry SoCs – especially Xavier and Orin – look bleak. With automakers in survival mode, they will stick with who and what they know; the automotive market can be cruel like that.

The facts around Covid-19 are developing so rapidly that it seems that any information more than an hour old is now out of date. Forecasting is of little use at times like this, so I simply say stay safe, stay home and stay tuned. I wish you and your families all the best in the difficult and uncertain times.

Colin Barden, a columnist for ‘Seriously Skeptical’ at EE Times, is principal analyst at Semicast Research.

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