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News Article

OEMs to Shift Business Models, Welcome Transformation

By Antonio Gozain | Wed, 03/23/2022 - 18:28

OEMs are changing their business models in Mexico and across the world amid one of the largest industry transformations in history. Electrification, digital services, vehicle ownership changes and data have become the main drivers of this transformation, agreed industry experts.

“Things are moving very fast. The global economy is shifting, as well as consumer preferences around ownership and sustainability. These two factors are transforming many industries, including the automotive sector, which has been the same for many years. Now, it is time to change and be part of a sustainable growth,” said Raymundo Cavazos, Managing Director, Volvo Car México.

The current OEM business models are not long-term sustainable, said Nazareth Black, CEO, Zacua. The automotive industry was already experiencing a digital transformation; however, the pandemic accelerated it and now OEMs need to have robust digital strategies and platforms and change the way they work in-house, she added.

Zacua is a Mexican OEM focused on EV development that designs and produces urban, zero-emission small vehicles. The company started production in the country in 2018, the same year it released its first two models: the M2 and M3. Both models are manufactured at Zacua’s facilities in Puebla. While Zacua does not compete at a global stage yet, its small size is a strength that has allowed it to grow in a cooperative way, said Black. “We created an ecosystem where cooperation with bigger players from all around the world is possible. Instead of competing, [OEMs’ business models] should seek to join and cooperate, either going abroad or inviting others to the country.”

Changes in the automotive industry used to take a lot of time, said Elias Massri, CEO, Giant Motors Latinoamérica. However, the past three years have been “surprising” and the Mexican auto sector has grown in all regards, he added. “Technology is not new; it is just improving very fast. We started several years ago in a project with Bimbo, utilizing lead acid batteries, which gave us a 60-kilometer autonomy at the time.”

Giant Motors Latinoamérica is a Mexican automotive assembly company focused on the production of commercial and passenger vehicles for the Mexican market. The company partnered with China’s JAC Motors in 2017 to assemble and market the latter’s passenger vehicles in Mexico. “Today, we have 42 dealerships across the country. In 2019, we introduced the full line of (JAC’s) EVs to challenge the Mexican market and break some myths, such as Mexico not being suitable for this technology or not having enough infrastructure,” said Massri.

Electrification plays an essential role within Volvo Car, both internationally and in the Mexican market, said Cavazos. “We are preparing for electrification. By 2030, 100 percent of our global sales will be of EVs. This is not part of the strategy; it is the strategy.”

Mexico is still undergoing a slow transition to electrification, said Black. While HEVs have been successful in the market and will remain stellar during the short-term, in the midterm “people will jump directly to EVs,” she added. Before the pandemic, from the 1.5 million vehicles sold in 2019, only around 300 were EVs, according to Black. During the pandemic, the figure increased to 800 EVs sold and by 2025, EV sales will make up 3 to 4 percent of total light-vehicle sales, amounting around 50,000 units, she added.

Although people usually point to charging infrastructure as the main challenge for the adoption of EVs in Mexico, the real problem is education and financing, said Black. “In Mexico, the incentive [to buy EVs] is more financial than ecological, following gasoline cost increases and even shortages. It is crucial to work on education as a tool to raise awareness and a sustainable mobility culture.”

While electrification usually takes the spotlight of automotive trends, OEMs have also shifted toward becoming mobility providers rather than automakers. This shift from “hardware” sellers to solution providers has led OEMs to ally with technology companies to offer more advanced digital services. In Jan. 2022, Volvo Group signed a deal with Qualcomm Corp to use the latter’s chips in vehicles and an operating system from Google in vehicles starting 2H2022, as reported by MBN.

Volvo is also leading the way in the transition toward car subscriptions, one of the latest trends regarding vehicle ownership according to Forbes. The vehicle subscription model, similar to subscriptions offered by streaming applications, offers consumers vehicles direct from automakers and third-party leasing companies. This provides flexible terms and vehicle choices not often found in lease agreements, reported MBN. Subscription models were born as a convenient alternative to leasing. Under this scheme, customers pay an “all-in” monthly fee, which includes vehicle access, insurance, maintenance and servicing.

“We are becoming a consumer-oriented company. To do so, we must understand consumers and use every single digital tool to do it. Data has become crucial. The industry is being changed by service-oriented business models, electrification and the new ownership models. The new focus will be in retention. We must utilize data and bundle our services,” said Cavazos.

Technology and personalization are already an essential part of vehicles and young people will become the main target, said Massri. “Affordable cars are important. The growth will be very fast and EVs could take 50 percent of the market in less than 15 years.”

While the automotive industry continues its accelerated transformation, data will continue to enable more revenue opportunities for OEMs around services and software amid the inflection point Mexico is living in its path to EV adoption, concluded Kevin Laczkowski, Senior Partner, Global Co-Leader, McKinsey Automotive and Assembly Practice.

The data used in this article was sourced from:  
MBN
Antonio Gozain Antonio Gozain Journalist and Industry Analyst