The term hypercar usually indicates a vehicle sitting at the very top segment of the market in terms of pricing, performance, and customer experience. As one could expect, it is a market reserved for a really small crowd of wealthy. This market niche has become quite crowded in just a few years though.

Many new companies are entering this niche despite the Automotive industry being notoriously a sector with really high entry barriers. The reasons for this are various, along with the general direction of the mobility sector and environmental regulations. The nature of the EV itself lowers these barriers. As a product requires less engineering complexity and makes it easier to achieve eye-catching performance and numbers.

*Lotus Evija

Whenever one says ‘Blockchain’, the first thing that comes to mind is usually Cryptocurrency. This technology whose applications have been studied for several years now, especially in the financial sector, has the potential to change much more. It could become crucial now that our society, limited by lockdown and health risks, as I discussed in my previous article, will look for digitalised solutions to improve processes’ efficiency and simplicity.

WHAT IS THE BLOCKCHAIN, WHAT ARE ITS MAIN APPLICATIONS AND DRAWBACKS?

The blockchain is a virtual distributed ledgercomposed by blocks (hence the name). Each block is distinct from all the others and linked to the previous one by a unique set of data defined by a cryptographic hash which works as a ‘fingerprint’. So, along with the specific information recorded about a transaction and about the people involved, the hash is what makes each block unique and really difficult to tamper with. Not only because any change would affect the hash, but because by being decentralised, every other member of the network would know if any data has been interfered with. If the block does not receive the consensus of the majority of the network, it gets rejected.

As mentioned, the blockchain has first become well-known thanks to its application in the cryptocurrency transaction structure. Unfortunately, due to numerous scandals affecting this new branch of finance, the name itself is often attached to potential unreliability.

For this reason, doubters raise questions about its applicability as well as the assumption of ‘no need for trust’ mentioned as a basic advantage of this technology by its proponents.

Discussing the issues of trust among parties involved in a transaction is a complex subject that would require a much longer discussion. This is why my argument will not consider it in terms of trustworthiness but take the perspective of efficiency and business streamlining instead.

Also, all the further analysis and conclusions are based around the fact that with the blockchain, digital data become unique assets with real value and not just copies shared through the internet as it happens right now.

IS THERE MORE TO THIS TECHNOLOGY THAT OTHER INDUSTRIES CAN LEVERAGE?

So, what other processes can be managed through the blockchain along with financial transactions? Two important ones are the creation of smart contracts and unique records to store any historical data.

So, can this technology benefit the luxury automotive industry?

SUPPLY CHAIN

The management of the supply chain, that regards all automotive manufacturers (low-volume luxury automakers too), could be expanded beyond raw materials sourcing verification. For instance, the organisation of the long and complex value chain that each automaker oversees around one common ledger. Having a single record that is constantly updated and clearly visible by all participants would arguably make the whole production process more streamlined and less prone to errors. Collateral consequences of this model are also savings from a ‘paperless business’ and enhanced productivity.

A 2018 annual report of the Business Continuity Institute referenced by Zurich’s Global Supply Chain Product Leader Nick Wildgoose shows how 69% of participants do not have full visibility of the supply chain. The subsequent lack of preparedness when coping with the unexpected disruption caused, according to respondents, financial, logistic, and brand reputation impacts.

PERCENTAGES OF RESPONDENTS WHO EXPERIENCED ISSUES CONNECTED WITH SUPPLY CHAIN DISRUPTION

*62% Financial Disruption, 54% Logistics Disruption, 54% Reputation Disruption

Source©BCI Supply Chain Resilience Report 2018

Similarly, having a single document shared through a distributed network would improve speed and efficiency as well when transmitting information about new technologies or product updates to the entire network. The reduced fragmentation is especially important in this digital era, where products, even in the automotive industry, have a shorter life cycle.

New applications are also exploring the possibility of maintaining private certain transactions within the distributed chain when necessary. For instance, if two parties have a smart contract in place with a special pricing agreement that they do not wish to share with other participants in the supply chain.

INSURANCE AND OTHER SERVICES

Insurance is another field in which the blockchain is already being adopted. In the luxury segment, it could be even more relevant both because customers are more demanding, and because the services are more expensive than those for regular vehicles. Estimates vary quite a lot, but the luxury vehicle usually commands at least a 20% premium over a regular one.

Data recorded in a blockchain can provide a more detailed and comprehensive picture of such a limited customer base, which translates into better insurance products. The same data record could help not only insurers but also manufacturers with vehicle servicing efficiency and general improvements on other exclusive initiatives for clients.

VEHICLE’S SERVICE HISTORY

With high luxury cars, a relatively high-mileage, 20,000 to 40,000 miles can translate into a £10,000-30,000 depreciation.

By creating a network between owners, dealers, and manufacturers, the information would be easier to access and to control, benefitting all parties involved as well as potential new customers.

CONCLUSIONS

Despite having been around for quite a while now, blockchain technology is still in its infancy in terms of adoption and development in many industries. Detractors criticise the assumptions that trust is not needed with such a secure system and that each individual should be able to personally check the reliability of this data which is hard work. Taking into consideration all these factors, the blockchain still has the potential for relevant evolutions in specialised environments, like it is happening for IBM investment in the Hyperledger project.

In the luxury automotive industry, a large share of the customer’s journey revolves around the close relationship with the manufacturer, the dealers, and other parties involved at different levels. This process does require trust as much as it does require human interaction. The two things are not mutually exclusive though, and regardless of the ‘trust’ factor, the technology application can favour both parties in different ways. The change in customer data could also significantly impact companies’ marketing strategies in the long term, along with the other aspects mentioned before.

Finally, the benefits of this technology in several business areas are evident and being explored by numerous players in this space. In the luxury automotive segment, the widespread application of blockchain could still take time, but it should have a role in the increasingly digitalised and data-based market.

The automotive industry has been one of the most affected by the Covid-19 outbreak so far, starting from China back in January. Sales have already suffered a sharp decrease in the mass market, and everyone is trying to assess what the situation is going to look like in a few months. What will be the impact on the luxury performance automotive market? Will there be a substantial difference between the two? And if so to what extent?

*Photo by©McLaren Automotive

The start of the crisis in China has been already a hard blow for the industry. Not only as the country is, and has been for quite a while now, the largest market in the world, but because numerous OEMs’ supply chain relies, at least partially, on Chinese manufacturers. Even more, a sizable share of these is located in Hubei province, which was the most affected by the Coronavirus outbreak.

In 2020 the global automotive industry also comes out of the second year in a row of a global slowdown. Started in 2018 mostly due to Chinese domestic market stagnation, the trend worsened in 2019. The overall global sales of passenger and commercial vehiclesdecreased by almost 4% last year, once again, due in large part by decline in China.

2020, due to the impact of Covid-19 saw an even sharper decline in the first 3 months. According to CAAM (Chinese Association of Automobile Manufacturers), in January and February only, a total of 1.831 million passenger cars were sold, a year-on-year decrease of 43.6% of which 1.6 million were sold in January.

GLOBAL AUTOMOTIVE INDUSTRY SALES OF PASSENGER AND COMMERCIAL VEHICLES

The silver lining in this difficult condition, for manufacturers who are heavily reliant on the Asian market such as VW, is that the economy is gradually showing recovery signs.

WHAT ABOUT THE LUXURY PERFORMANCE AUTOMOTIVE SEGMENT?

Two differences can be drawn already between the mass market and the luxury segment of low-volume manufacturers. The first is that the overall low-volume market segment, differently from the rest of the industry, has experienced a substantial growth of 33% in the last 5 years. Highly limited production manufacturers such as Pagani, Bugatti, and Koenigsegg have not been included in the graph as their market is partially different. The low numbers, annually below 100 cars sold, would not affect significantly the total of the industry here.

LOW-VOLUME CAR MANUFACTURERS SALES FIGURES BY BRAND

*The data for McLaren is an estimate based on the company’s forecast after the investors' relation of Q3 as official results for the entire year are not published yet

The second is that, differently from many high-volume companies, in the luxury segment the majority of players rely on the US as their biggest market, despite China representing an important share. A good market balance should anyway help these companies get through this period, nonetheless.

RISKS WITHIN THE LUXURY PERFORMANCE CAR MARKET

Two are the risk factors for the luxury performance automotive segment that do not affect the rest of the market in quite the same way. One is the more concentrated supply chain, while the second is resale value.

While the actual number of suppliers might be similar for companies in the two different market segments, the same could not be said for complexity and replaceability.

A global high-volume car manufacturer such as Toyota, VW or BMW has to rely on an extensive and extremely complex supply chain, hundreds, sometimes thousands of linkages. Low-volume manufacturers, while still managing a complex suppliers’ web, tend to be more localised with a higher percentage of components done in-house. This ensures maintaining both their brand’s national identity and a higher control so that each component and service achieves the top quality required. Companies such as Koenigsegg even pride themselves on producing the vast majority of their parts in-house.

In case of a prolonged stop of some of these highly selected suppliers, low-volume OEMs will have a much harder time replacing the production, while mass-produced car companies instead will have more flexibility and alternatives.

Secondly, if the market stagnates, with the worsening economy and a drop in demand caused by people being forced to stay home, the resale value of luxury cars could be affected. This is an important risk factor as many cars in this segment, especially the limited series, are bought as an investment. A low or absent depreciation rate is an important asset for low-volume manufacturers, as it is attached to the value of the brand itself. Luckily, so far, the resale market has not suffered any massive hits.

MEASURES TO CONTAIN THE RISKS

To cope with the lockdown, different companies in the segment are putting infrastructures in place to bypass the problem. Innovative initiatives and digitalisationwill play a major role in this. Apps and online platforms for vehicle evaluation and specification will be even more important now. Some companies could decide to personally deliver the cars to customers for test drives and handovers to maintain social distancing, instead of managing all the activities from the dealership.

Strategic investments should be put in place to address the VUCA (Volatility, Uncertainty, Complexity, and Ambiguity) and the leadership challenges that come with it.

 

PWC in a recently released survey shows how financial concerns and global recession risks are the major worries for people in the sector. In its list of measures for automakers, the strategic suggestion is to tackle the crisis by assessing the variety of potential outcomes. Then, creating resilience with flexibility and agility by while aiming at core objectives instead of trying to exactly predict uncertain events.  

CONCLUSIONS

Low-volume luxury automakers can incur major risks from supply chain disruption but having a more concentrated structure arguably allows for better control over operations and logistics.

As for the client base, while many people are losing their jobs and the global economic conditions are worrying, the average buyer within this segment is likely to be more resilient and less affected by the Covid-19 aftermath. In general, considering also the previous market condition and the companies’ creative reaction to this situation, the luxury performance automotive market will be less impacted by the virus outbreak. Smaller companies with more limited financial resources, however, might go through major difficulties as the quarantine forces the delay of operations and new launches. According to experts also, in case of a global recession, the world would lack an emerging market such as China, which during the 2008’s crisis contained the consequences for many companies thanks to its extremely fast growth and boosted the luxury goods sales.

This observation though discounts the geography and governments’ decisions that might impose prolonged lockdown on certain countries.

Ultimately, as the daily routine gradually restarts, people might decide to rely more on private transportation to maintain social distancing. This factor could give some relief to the entire automotive sector partially offsetting the drop in sales occurring during the quarantine period.

China wants to take the future of supercars by storm. A new generation of start-ups challenging the supremacy of Porsche, Ferrari, Lamborghini, McLaren, and others in the field of luxury cars – sleek, powerful, and fast - is emerging in the fast-growing automotive market. So, should traditional European and American luxury supercar manufacturers be on the lookout?

In the last couple of years, we have seen the Chinese NextEV Nio, funded by tech giants Tencent and Baidu among others first winning a Formula E title, and then releasing its track car Nio EP9 that established the Nürburgring record for electric cars. Many more fresh names are emerging in this burgeoning market, such as the start-up TechRules with its GT96 and AT96 TREV (Turbine-Recharging Electric Vehicle).

By Jengtingchen - Own work, CC BY-SA 4.0, https://commons.wikimedia.org/w/index.php?curid=66784814

The efforts put by the government to increase the production and ownership of electric vehicles are finally paying off. The two major expected consequences are, of course, the crucial reduction of greenhouse gasses and the improvement of China’s image in the eyes of the rest of the world. But the technological innovation deployed to achieve these goals has been an astounding achievement in itself.

And what a market this is. Only in the last year, China’s domestic share of electric vehicles (EV) sales surpassed 3%, way ahead of the rest of the world with over a million units, and it doesn’t seem to stop. China is aiming for 1 million EV sales in 2018, and the numbers look favourable. In April EV sales reached 84,000 units and 94,000 in May, both growing year over year.

China’s automotive market is still the biggest in the world, despite a “modest” 3% growth in 2017 if compared with the staggering growth standards set in previous years. It is also dictating the trends, with a huge SUV share of 42% in the passenger vehicles segment, above the global average of 34%. However, despite losing shares of the SUVs segment in favour of Chinese manufacturers, foreign firms are still dominating.

It might come as a surprise then that the New Energy Vehicles (NEV) sector is exactly the opposite. China has the lion share of its own market. So, what is going to happen to the supercar market? Is this trend going to reflect on the luxury segment too?

Undoubtedly, big brands are gradually adapting to the new trends and society’s requirement for greener vehicles. Ferrari, McLaren and Porsche’s last generation of hypercars, new models delivering even more extreme performances, all featured the hybrid technology, even though applied in very different ways.

Luckily these historic brands are not spooked by the competition and rightly so. Surely not more than by the risk of losing their identity. As Lamborghini’s CEO Stefano Domenicali said in an interview it would be impossible for the company to suddenly shift toward pure electric technology. Such change requires time and the right technology, in order for them to remain faithful to the brand’s values. Customers do not buy Lamborghini (or other luxury supercars) just for the image, but mainly for each car’s specific driving experience, made of excitement, vehicle behaviour and engine sound. Against all odds, they recently showed their potential and vision of the future with the fully electric Terzo Millennio, like Porsche is doing with its Mission E. The customer and fan base though would most likely refuse to accept the abandonment of these brands’ roaring legacy. 

The same must be true also for the other big competitors, that still follow the laws of the market and sales in the dominating trend of SUVs diffusion. While Porsche has by now a long-established presence in the segment, amidst many critiques by purists, Lamborghini unveiled a few months ago the Urus, its own very personal 650 horsepower idea of a sport utility vehicle. Ferrari also will soon follow releasing its own SUV that should properly address this growing slice of the market while creating a new breed of cars that has already been defined as Super SUV.

Di Alexander Migl - Opera propria, CC BY-SA 4.0, https://commons.wikimedia.org/w/index.php?curid=67287264

In the meantime, in fact, established European supercar brands, still rely greatly on the US market that is the largest for this segment, but in China environmental policies’ restrictions have not affected significantly their sales. Porsche represents an exception with yet another success in 2017 thanks to a +10% sales in China that remains its biggest single market. More importantly, in the end, the import tariffs reduction announced by President Xi will positively affect mainly luxury brands that rely only on imports.

Going back to the NEVs popularity surge then, as of right now, it touches only the farthest segment from the luxury one. The 20 best-selling EVs in fact are all small and cheap cars that accommodate consumers thanks to the low prices and the ease of obtaining a license plate instead of long and expensive auctions or lotteries necessary in tier-one cities.

Finally, we will probably see more and more opting for a solid hybrid solution, closer to Porsche’s 918 idea. But it looks like for quite a few years more, the customer base that can actually afford one of these wonderful pieces of engineering will keep preferring the character and excitement of the roaring internal combustion engine over the silent but apparently soulless electric one. No need to hurry then!