The Next Economy
Automakers Must Embrace Disruption to Remain Relevant in Low-Carbon Transition

The auto sector is facing a complete overhaul with technological disruption already well underway. In order to remain relevant in the low-carbon transition, automotive companies must rapidly adapt to address technological disruption and environmental regulation. This is the key finding of a new report from CDP, which analyzes 16 of the world’s largest publicly listed automotive companies with a total market capitalization of $790 billion. The companies analyzed in Driving Disruption represent more than three-quarters of the global passenger vehicle market, with road transport accounting for 17 percent of global CO2 emissions.

According to CDP’s research, EVs could become as affordable as traditional petrol and diesel cars as soon as 2022, making it easier for carmakers to profit from the low-carbon transition. Indeed, a third of new car sales are expected to be zero emissions and plug-in hybrid by 2030, representing a potential $1 trillion market. At the same time, over a fifth of automotive company profits are expected to shift to tech suppliers and ride-sharing services as Uber and Google by 2030.

Carmakers are, on the whole, responding well to the shift in global consumer trends. The companies highlighted in the report have invested more than $11 billion in autonomous and shared vehicle companies, such as Lyft, since 2015, and have set a significant number of aggressive electric and autonomous vehicle targets in the last year. General Motors, for example, is working towards an “all-electric future” and is aiming to roll out a fully self-driving ridesharing service by 2019. BMW has also laid out plans to begin mass producing electric cars by 2020, with the goal of offering 12 different models by 2025.

“The auto sector is the poster child for the future of industry as we know it,” said Paul Simpson, CEO of CDP. “Tech and software disrupters have forced this high-emitting industry to innovate at a pace faster than it perhaps feels comfortable with. It is promising to see traditional carmakers step up to the mark to meet global shifts in demand for EVs. Only time will tell if new market entrants such as Uber and Google will alter consumer demands in the long-term. Regardless, auto manufacturers should quickly adopt new business models to ensure their survival in the low-carbon transition.”

However, the research finds that half of the automotive companies analyzed for the report still risk penalties by missing their emissions targets, and costs could be high, with up to €940 million at risk. In the EU alone, emissions must be reduced by up to a fifth over the next five years, meaning that some companies will need to increase their share of sales from EVs to 20 percent in order to meet the EU’s 2021 targets.

The report also sheds light on the potential risks and opportunities for the sector as presented by the Chinese market, which currently boasts the largest vehicle market in the world and has set aggressive targets for new energy vehicles such as EVs. This is significant as China accounts for 29 percent of global passenger sales.

CDP suggests that auto sector disruption is likely to have a material impact on other industries as well, such as oil and gas and the power sector, with increased demand for electricity.

Driving Disruption assesses companies across three key areas aligned with the recommendations from Mark Carney’s Task Force on Climate-related Financial Disclosures (TCFD). As the TCFD recommendations become mainstream, investors will increasingly expect auto companies to disclose how they are adjusting their business models to manage transition risks, while taking advantage of the opportunity to generate revenue from the global transition to a low-carbon economy.

“The auto sector is facing two waves of technological disruption — the first from EVs and the second from autonomous, shared driving. A whole new ecosystem is emerging, integrating energy generation, storage and transport while the rise of autonomous vehicles and mobility as a service will fundamentally change the form and function of the sector. Tightening emissions regulations and China’s new-energy vehicle quotas that begin in 2019 are forcing companies to increase penetration rates of advanced vehicles. Traditional carmakers may see these challenges as threats to existing business models. However, to be successful they must embrace the new opportunities and markets that will become available over the coming years,” said Luke Fletcher, senior analyst at CDP.

Kia, Great Wall and Geely (Volvo) did not respond to CDP’s 2017 climate change questionnaire and are therefore not included in the report.


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