The Osborne Effect: Transformation of Automobile Industry

Published on : Monday 20-07-2020

Global automobile industry witnesses a wide change in consumer demand and growth in the development of new cars specification. Considering the current market trend, Tesla, a leading electric car manufacturer, considered as the most valuable car company followed by Toyota Motor Corporation in mid-2020. 

Auto companies focus to shift manufacturing from ICE to electric vehicles with spurred on new emission standards, technology progress, and customer preference in the near future. Also, these companies are focus to meet consumer sustainable demands, owing to an increase in environmental concerns among the end consumers.

“The Osborne effect is a communal phenomenon of customers canceling or acceding purchase orders for the current soon-to-be-obsolete product as an unexpected drawback of a company’s announcing a future product prematurely”

In that story, we included this remarkable graph, courtesy of Professor Ray Wills from Future Smart Strategies (and a director of Horizon Power and an adjunct professor at UWA). 
It sparked a lot of interest, so we decided to find out more. Is this just a wild prediction? And how does Wills back up his forecast? This is what Wills told us.

The global market witnesses the consistently decrease in the sales of internal combustion engine (ICE) cars month-by-month since the end of 2017. Therefore, the sales of cars are at a peak in 2017 and then continuously diminishing in 2018 followed by 2019. Moreover, the sales of hybrid cars have widely improved in the past few years and it is expected that hybrid cars are the perfect alternative for ICE cars.

A laggard response by Toyota to electrification and a push by Toyota for hybrid sales as an alternative to battery electric vehicles simply reflects their dominance in that sector.

Meanwhile, EV sales are still growing at a rapid rate, despite the impact of Covid-19 and expected to cross hybrid vehicle sales by the end of 2020. In addition, the customers are aiming for electric vehicles are simply not looking for hybrid solutions, which explains why plug-in hybrids haven’t been more popular. 

While sales of some models of electric car sales have slowed a little during Covid-19, lead models like Tesla have not stalled, and overall growth of the comparative market share of electric vehicles is still positive.

The continuing erosion of ICE sales through 2020 as the Osborne Effect continues to impact overall car sales will convince carmakers to release EV models faster and more convenient to take for the long-run.

This further expected to lead the pricing pressure on the manufacturers. All major carmakers have at least one model of an electric vehicle and have factories able to be retooled to produce electric cars rather than ICE cars in the coming years.

Once traditional manufacturers get on with it and retool, the arrival of greater volumes of more affordable EVs will carry the day and these new electric cars don’t actually compete with other EVs and they also don’t act as a threat to Tesla. It is expected that the manufacturing and sales of more EVs are further simply replaced by ICE cars in the consumer market. In addition, it also stated from the various industry experts that the short supply means new EVs actually leave ICE cars unsold, not other EVs.

The global automotive industry is primarily witnessing the anticipating the early arrival of autonomy, particularly as many vehicles are integrated with connected technologies to meet the higher levels of autonomy in the vehicles with simple adjustments in the software upgrade. Moreover, it will also act as a disruption in the global industry in the coming years.

Autonomy will change the market in a way most find unimaginable, an inevitable erosion of vehicle fleet: adoption of autonomy raises vehicle utilization rates and, despite a decline of fleet size by more than half, we will see more road miles per vehicle and more road miles overall.

The global automobile industry is currently witnessing the demand for electrification, but autonomy is also making its space in the commercialized sector. In addition, autonomy and electrification are unrelated technological concepts, but both concepts will contribute to the enhance the demand for sustainable vehicles and act as the replacement of the existing ICE fleet.

The industry associations and consumers already seem new electric vehicles are safer across multiple metrics compared to new ICE cars. But EVs also bring crash-safety revolution via the latest driver-assist being included in the new vehicles, systems that can then be upgraded to higher levels of autonomy via software updates. This revolution will save lives, as the majority of people are bad drivers, and invariably will make poor choices on the road, while autonomous vehicles will make safer choices for us, according to the NHTSA. 

The growth in safety concerns, the rise in demand for connected technologies, growth in environmental awareness among consumers, and the high price of the fuel used for ICE vehicles are considered as the main factors for the growth of sales of electric vehicles in the global market in the coming years.

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