Chemicals: Getting up to Speed on the New Mobility

Chemicals: Getting up to speed on the new mobility

August 2018

kpmg.com/uk/mobility2030 How far, how fast, and in what direction?

Are we there yet? The signs of a The rise of autonomous and shared revolution in the global automotive vehicles will be equally disruptive and industry are unmistakable. The rise of complex. In KPMG’s 2018 global survey electric vehicles, autonomous vehicles of automotive executives, over 70 percent and shared mobility services cannot be of respondents said that traditional public Half of the car denied. The only question is how and transport solutions could be replaced owners today will where these developments are taking us by on-demand autonomous capsules in an increasingly urbanised, technology- within 10 years.9 In the US alone, vehicle no longer want to dependent and mobile world. ownership could drop as much as 43 percent due to the rise of self-driving On the one hand, sales of electric and own a personal cars, and US auto sales might drop by alternative fuel hybrid vehicles are 40 percent over the next 25 years with vehicle by 2025, expected to steadily increase,3 especially the growth of shared-driverless cars.10 according to a in China where tougher regulations are creating huge markets for low-emission However, as with electric vehicles, recent KPMG transportation. Global automotive OEMs consumer adoption rates for autonomous have already pledged a total investment and shared vehicles can differ significantly survey of auto of US$90 billion for electric vehicles, and according to demographics, region, executives.”2 that figure continues to rise.4 Ford Motor economic factors and culture. For plans to double its electrified vehicle example, car-sharing start-ups in spending as part of a major investment emerging markets are growing at a initiative for batteries and electric cars.5 faster rate than their predecessors in Daimler has said it will spend at least established markets, with services now US$11.7 billion to introduce 10 pure available in 41 cities.11 But in the US, a electric and 40 hybrid models, and that recent survey of car owners showed that it intends to electrify its full range of 67 percent of respondents prefer driving vehicles, from commuter vehicles to their own cars over using ride-hailing heavy-duty trucks.6 Volvo will electrify apps, and 63 percent are not interested in its entire vehicle line by 2019, with five trading their vehicles for shared-mobility all-electric models scheduled to roll out rides – even if the rides are free.12 from 2019 to 2021.7 So are we there yet in terms of electric, On the other hand, we need to keep autonomous and shared vehicle in mind that these growth rates are revolution? No, not yet. As with most calculated from a relatively small base. revolutions, the first steps are small. But Yes, over two million electric vehicles are clearly it’s only a matter of time, and as on the road today, but that still makes up this revolution gathers speed, chemical less than 1 percent of the total number of manufacturers need to keep pace with vehicles in use worldwide.8 industry changes – or be left behind.

1 Worldwide premium light vehicle sales growth rate from 2011 to 2020, Statista, https://www.statista.com/statistics/570438/premium-light-vehicle-sales-growth-rate-worldwide/. See also Global Automotive Industry Massive Disruption and Unprecedented Uncertainty — Winners and Losers, Riedel Research, www.riedelresearch.com/files/picks/4/64/64_Global_Auto_Industry_Outlook_3_16%20(1).pdf 2 KPMG Global Automotive Executive Survey 2018 3 Global electric vehicle sales are booming, Business Insider, 22 January 2018, https://www.businessinsider.com. au/the-rapid-growth-in-global-electric-vehicle-sales-in-4-charts-2018-1 4 Global carmakers to invest at least $90 billion in electric vehicles, Reuters, 15 January 2018, https://www.reuters.com/ article/us-autoshow-detroit-electric/global-carmakers-to-invest-at-least-90-billion-in-electric-vehicles-idUSKBN1F42NW 5 Ibid. 6 Ibid. 7 Volvo cars to go all electric, Volvo Car Group, 5 July 2017, www.media.volvocars.com/global/en-gb/media/ pressreleases/210058/volvo-cars-to-go-all-electric 8 Global EV Outlook, 2017, IEA, www.iea.org/publications/freepublications/.../GlobalEVOutlook2017.pdf 9 KPMG Global Automotive Executive Survey 2018 10 Global Automotive Industry Massive Disruption and Unprecedented Uncertainty — Winners and Losers, Riedel Research 11 Ibid. 12 How shared mobility will change the automotive industry, April 2017, https://www.mckinsey.com/industries/ automotive-and-assembly/our-insights/how-shared-mobility-will-change-the-automotive-industry

© 2018 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Mega-trends in the new mobility ecosystem13

Up to 50 percent of Miles traveled per consumers will not want vehicle could increase to own a car, as new fivefold as fleet mobility services begin to services use vehicles meet consumer needs. more efficiently.

Passenger miles will The number increase 10 percent, of major in line with the steady ecosystem growth of mega-cities players may decline as and their suburbs. sector convergences lead to consolidation.

Cost per mile of moving people could decrease by 40 percent due to reduced driver costs, longer vehicle lives, fewer accidents, new technologies and mobility scaling.

Three potentially major disruptors transforming how people and goods are moved in the future

Electric vehicles

Mobility value chain

Connected and Mobility as a Changing autonomous service consumer and vehicles (’MaaS’) societal demands — Moving people Collaboration in the — Moving goods future mobility ecosystem

Source: KPMG in the UK Mobility 2030 analysis

13 KPMG research and KPMG Global Auto Executive Survey 2018

© 2018 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member Chemicals: Getting up to speed on the new mobility 3 firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. What this means for the chemical industry

The growing adoption of electric, a broad range of wavelengths and autonomous and shared vehicles will weather conditions. This could open up affect the number, type and amount new markets for innovative paints and of chemicals required by automotive coatings. OEMs, not to mention supply chains, In addition, autonomous vehicles aftermarkets and market structures. The growing adoption operating in dense urban areas may of electric autonomous Consider the electric vehicle. Almost never travel faster than 25 miles per everything is simpler compared to hour, leading to a re-evaluation of and shared vehicles a vehicle powered by an internal strict crash-test requirements for will affect the number, combustion engine (ICE). With a vehicles. These trends could drive the single-gear transmission, fewer greater adoption of even lighter weight type and amount of moving parts and a simpler bill of vehicles with advanced composites materials, an electric vehicle requires and aluminum alloys. chemicals required by little or no coolants, oil additives, Vehicle exteriors and interiors could rubber tubing made of synthetic automotive OEMs, also change in a shift from private elastomers or polymers developed to public vehicles. As with today’s not to mention supply to handle the higher heats typical in urban transportation systems, the ICE engines. Except for tyre rotations chains, aftermarkets surfaces of a shared vehicle need to be and cabin air filters, an electric aesthetically pleasing but also resistant and market vehicle might well require little or to a heavy volume of passengers as no preventive maintenance for the well as potential vandalism. Vehicles structures.” effective life of the vehicle. in shared fleets could be increasingly At the same time, electric vehicles will modular, with future designs focused remain a strategic market for plastics on replacing interior components and other lightweight materials. Just that fail from increased wear and as traditional OEMs have long been tear before the rest of the vehicle. committed to reducing vehicle weight The interior could be completely for increased gasoline mileage, OEMs reconfigured for both commuting and for electric vehicles will want the same entertainment, creating new demands weight efficiencies to help extend for the materials needed to enable that the range of an electric vehicle per experience, such as high-definition charge. Many plastic components touchscreens and moulded instrument can weigh 50 percent less than panels. similar components made from other The growing adoption of autonomous materials.14 and shared vehicles will also disrupt With autonomous vehicles, traditional, OEM-centric business research suggests that driver-assist models for chemical manufacturers. technologies such as stability control, In the future, large fleet operators automatic braking and lane centering will likely represent a greater share of can decrease the number and severity the automotive market, and chemical of some types of accidents. This companies might find that their primary could significantly impact demand for customer is no longer the OEM and materials related to repair, replacement end user. These fleet managers will and repainting, but autonomous vehicle bring different perspectives on vehicles technology might require that cars and and supplies as well as different trucks are more visible on the road, expectations about volume pricing for with surfaces that are reflective across vehicles and maintenance supplies.

14 American Chemistry Council, https://plastics.americanchemistry.com/Market-Teams/Automotive/

oday ervices

Dealer

Fuel retailer

Government

Insurance

Finance Customer Remarket

Workshop

ervices Dealer

Fuel retailer Mobility services provider Government

Insurance

Experience Customer aggregator Finance

Remarket

Workshop Data aggregator

Source: KPMG in the UK Mobility 2030 analysis

© 2018 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member Chemicals: Getting up to speed on the new mobility 5 firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Questions to consider for automotive chemical companies How is your organisation Now is the time to question long-held processes, technology and operations assumptions regarding your financial infrastructure, organisational structure, structured and what model (value and investments), your governance and risk controls, people business model (markets, propositions, and culture, and measures and governance is required brands, customers and channels) and incentives). going forward to deliver your operations model (core business mobility solutions?”

What does it mean for the automotive chemicals players? Impact on...

Profit pools Customers Business and EVs’ single-gear New ecosystem players operating models transmissions, fewer moving will bring with them new Addressing a new, larger, more parts and simpler bills of priorities, expectations dynamic and interconnected materials mean different and business models ecosystem will require radical product demand business and operating model rethinking

Battery chemistry and circuitry Large fleet operators replacing OEMs Agility in face of disruptive tech components and end users as primary customers developments and competing business Plastics and other lightweight materials Importance of partnerships with models Innovative paints and coatings volume-driving key fleet providers Preparedness to service shifting product portfolios, clients and end users Oils and lubricants, fuel additives and New customer expectations of end-to- coolants end vehicle and maintenance supply New market and expansion strategies and volume pricing and need to improve operational Synthetic tubing catering for high-heat efficiencies of ICE Customer interface opportunities with decrease in SMR requirement Need for ICE-related capabilities, Maintenance and repair-related parts replaced by EV and AV capabilities

Questions you should be asking yourselves:

Finance Business Operations What should I aim for? Where do I play? How do I execute and win?

—— Where do the major value pools lie? —— Which markets will be early adopters of —— How do you ensure provision of quality future mobility? mobility services? —— What level of investment should you commit? —— Which part of the mobility value chains —— Do you have the operational infrastructure should you play in? and technology platforms to deliver? —— What mobility products/services will —— How is your organisation structured resonate with customers? What will your and what governance is required going future customers value? forward to deliver mobility solutions? —— Which of your customer segments are —— Does your organisation have the right likely to move first, and how can you leadership and capabilities in place to support? navigate the advancement of electric, autonomous and shared vehicles?

—— What are the right measures and incentives for a business operating in the wider mobility space?

Massive, disruptive and permanent portfolio. As with any disruption, there Massive, disruptive change is underway in the automotive will be winners and losers. Companies industry, affecting chemical companies that provide engine coolants, general and permanent change at multiple levels. Traditional distinctions lubricants, fuel additives and multi- are likely to be minimised or even gear transmission fluids for ICEs might is underway in the erased between passenger vehicles have to prepare for the possibility of automotive industry, and trucks, public and private modes of slowing demand. Manufacturers of transportation and different drivetrain battery materials and high-performance affecting chemical technologies. Aftermarket value might polymers might plan for increased companies at multiple be based more on software updates competition in growing markets. As than replacement parts. always, chemical companies will levels.” also have to continue their efforts in In the face of these changes, chemical enhancing regulatory compliance, companies may have to rethink their improving operational efficiencies, business models, reconsider key identifying new markets and mapping markets and recalculate the value their long-term expansion strategies. propositions for every product in their

© 2018 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member Chemicals: Getting up to speed on the new mobility 7 firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Contacts

Charlie Simpson Partner and Head of Mobility 2030 KPMG in the UK T: +44 (0)20 7311 3671 E: [email protected]

Christoph Domke Director, Mobility 2030 KPMG in the UK T: +44 (0)20 3078 3165 E: [email protected]

Paul Harnick Global Head of Chemicals & Performance Technologies KPMG in the UK T: +1 212 954 6866 E: [email protected]

kpmg.com/uk

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