WOLFSBURG, GERMANY - OCTOBER 26: Volkswagen ID.4 (R) and ID.3 electric cars stand on elevator platforms inside one of the twin towers used as storage at the Autostadt promotional facility next to the Volkswagen factory on October 26, 2020 in Wolfsburg, Germany. The ID.3 and ID.4 are Volkswagen's first real effort to break into the growing electric car market and are aimed for mass appeal.   (Photo by Sean Gallup/Getty Images)
Volkswagen ID.4 (R) and ID.3 electric cars on elevator platforms inside one of the twin storage towers at the Volkswagen factory on October 26, 2020 in Wolfsburg, Germany. The ID.3 and ID.4 are VW’s first real effort to break into the growing electric car market. Photo: Sean Gallup/Getty Images

The COVID-19 pandemic sent the global car industry into meltdown in 2020. First, China, the world’s largest car market, went into complete lockdown. Shortly after, the pandemic arrived in Europe, causing supply-chains to collapse and shuttering production.

Lockdowns in Europe and the US meant that factories and dealerships were at a standstill for weeks. When they finally reopened, consumer demand was weak, as job uncertainty put people off buying cars.

According to the European Automobile Manufacturers Association, new-car registrations fell by 26.8% in the European Union between January and October due to the pandemic. Around 8 million new cars were registered in those 10 months, 2.9 million fewer than the same period last year. Spain was worst hit, seeing a 37% drop in new car sales in the first 10 months of the year, followed by Italy at almost 31% and France at nearly 27%.

Sales in China are now springing back, which has helped carmakers at the tail end of a dreadful year. BMW (BMW.DE) said its third-quarter profits were boosted by a 31% year-on-year sales rebound in the Chinese market, offsetting a slump in demand in the US market.

Volkswagen (VOW3.DE) swung back to profit in the third quarter thanks to strong demand in China, and Honda and Toyota have forecast profit growth on the back of China’s recovery.

Electric avenues

31 October 2020, Lower Saxony, Hanover: A new VW ID.3 is parked in a car park at the market place in the Linden district of the city at an Enercity charging station. The first vehicles of the new model were delivered to customers in September 2020. Photo: Hauke-Christian Dittrich/dpa (Photo by Hauke-Christian Dittrich/picture alliance via Getty Images)
31 October 2020, Hanover, Germany: VW ID.3 parked at an Enercity charging station. The first vehicles of the new model were delivered in September 2020. Photo: Hauke-Christian Dittrich/picture alliance via Getty Images

One bright spot in a gloomy year for the car industry has been a big boost in uptake of pure-electric and plug-in hybrid vehicles.

In Germany, where experts said in September that the powerful automotive industry is “no longer the growth engine of the economy,” sales of pure-electric cars accounted for 8.4% of all new car registration in the month of October. That might not seem huge, but, breaking them out separately, battery-electric (BEV) new car sales represented a 365% increase compared with the same month in 2019. Combined with hybrids, the share of non-fossil-fuel cars hit 17.5%, a new high.

Much of this is down to incentives, as European governments put money behind grants to make e-cars cheaper for consumers. The German government, for example, is spending around €1bn (£890m, $1.9bn) to increase and extend grants on new all-electric cars until the end of 2025.

Ferdinand Dudenhöffer, the director of the Center for Automotive Research (CAR) in Duisburg, Germany, says that while a large part of the sales increase — between two-thirds to three-quarters — is down to the attractive buyer premiums, there are other factors at play.

“We have a better choice available. Car manufacturers like VW with the ID 3 are very important here,” Dudenhöffer told Yahoo Finance UK. “Supply always drives the market. Tesla (TSLA) has certainly contributed a lot to the popularity of electric cars. If you will, all EV providers have benefited from Tesla, as Tesla has significantly improved the image of the vehicles.”

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The third important factor boosting EV sales is increased awareness of climate change. “It might sound a bit strange for the German auto industry, but in my opinion Greta and Elon did more than carmakers’ many TV adverts,” Dudenhöffer says.

Whether fossil-fuel or electric, Dudenhöffer believes the pandemic will continue to make cars a more attractive option for people in 2021.

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According to industry expert Matthias Schmidt at Schmidt Automotive, battery and plug-in hybrids “were always going to be the horse to back this year, even despite corona, thanks to the new EU CO2 fleet average emissions targets being phased in 2020, with OEMs effectively forced to open their plug-in dams that had been gently filling with orders towards the end of last year.”

Schmidt says that was apparent from January, when French carmakers saw huge boosts in EV volumes, while “German and Korean OEMs waited until the tail end of this year to make their move.”

“The priority given to xEVs [pure EVs and plug-in hybrids] can be seen in the German production figures,” Schmidt says. “As plants were coming back online German xEV production jumped to above 10% of the total vehicles produced for the first time — this has since increased to 16.7% in September as the Germans make their last minute push.”

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The fact that carmakers’ entire fleet emissions will be counted under the EU’s new CO2 emission regulations means carmakers “have to do even more work to register plug-ins and are already shifting 2020 orders to 2021,” he added.

The UK has set the ambitious target of ending sales of new petrol and diesel cars altogether by 2030, a goal which would make it second only to Norway which will ban them from 2025.

The UK’s Society of Motor Manufacturers and Traders (SMMT) called prime minister Boris Johnson’s new deadline an “immense challenge,” and said its success depends on “reassuring consumers that they can afford these new technologies… and, critically, that they can recharge as easily as they refuel.”

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Edmund King, president of the Automobile Association, also said that the problem with the plan is the lack of national charging infrastructure, and the need for a better and more affordable range of cars.

Despite being slow off the mark when it came to instigating a move to e-mobility, Germany is now tooting its electric horn: “The German automotive industry is already today the European champion in electromobility,” Hildegard Müller, president of the Germany Automotive Industry Association (VDA) said in November.

Müller said that in western Europe, German car manufacturers had increased their share of the electric-car market to 46%.

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Auf Wiedersehen, Diesel?

29 June 2020, Baden-Wuerttemberg, Stuttgart: A sign indicates a route-related driving ban for diesel of the Euro 5 emission standard or worse in the city centre. The extension of the driving bans for Euro 5 diesel in Stuttgart to a zonal driving ban in the Stuttgart basin and in the districts of Bad Cannstatt, Feuerbach and Zuffenhausen will take effect on July 1, subject to further court decisions. Photo: Marijan Murat/dpa (Photo by Marijan Murat/picture alliance via Getty Images)
A sign indicates a ban on diesels of the Euro 5 emission standard or worse in the city centre of Stuttgart. Photo: Marijan Murat/picture alliance via Getty Images

The death of diesel cars in Europe has been predicted for years, but even after the Volkswagen diesel-emissions cheating debacle in 2015, they clung to popularity, thanks in some parts to government subsidies on diesel fuel. Then, this September, for the first time ever, the total number of electric cars (in all their forms) outsold diesels in the 27 EU markets as a whole.

“The shift from ICEs to EVs is finally taking place,” Felipe Munoz, global analyst at Jato Dynamics said in a post in October. “Although this is largely down to government policies and incentives, consumers are also now ready to adopt these new technologies.”

In Germany, where Rudolph Diesel invented his engine in the 1890s, registrations of new diesels dropped to their lowest level since 2009 in July this year, accounting for around 29% of all new car sales.

Dudenhöffer believes that “the winding-down phase of diesel has begun,“ and that this trend is not going to reverse.

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Instead of being diesel-land, Germany will take great strides to becoming “battery-land” he says. “Who would have thought it? With SVolt in Saarland, CATL in Erfurt, Northvolt in Salzgitter, Farasis in Bitterfeld, PSA-Total in Kaiserslautern, and Tesla (TSLA) in Grünheide, battery-cell factories are growing like mushrooms on the ground.”

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Matthias Schmidt disagrees with the many analysts forecasting diesel’s imminent death. “With lots of tax systems switching to WLTP [world harmonised test procedure] diesel could even see a small revival thanks to lower CO2 values,” he says. “I also see plug-in growth being held back up to 2025, when new CO2 targets are introduced so OEMs have the chance to push profitable internal-combustion cars while they still can.”

State of change

23 October 2020, Hamburg: A Hamburger Hochbahn minibus running without a driver drives through HafenCity. The first passengers have been able to use the autonomous shuttle since Friday. Photo: Daniel Bockwoldt/dpa (Photo by Daniel Bockwoldt/picture alliance via Getty Images)
23 October 2020, Hamburg: A driverless minibus shuttle running through HafenCity. Photo: Daniel Bockwoldt/picture alliance via Getty Images

The switch to e-cars is by far not the most disruptive factor that the automotive industry faces in 2021. A recent report on the future of the automotive industry by McKinsey said that it estimates that the “top 20 OEMs [original equipment manufacturers] in the global auto sector will see profits decline by approximately $100 billion in 2020, a roughly six-percentage-point decrease from just two years ago. It might take years to recover from this plunge in profitability.“

The consultancy says that the coronavirus pandemic will accelerate the cooperations between partners in the automotive industry, for example with tech partners — and that they must “radically” focus on digital channels.

New user models

Car subscription and flexible leasing services are set to grow next year, as people want to be mobile, but not necessarily invest in a car that sits parked outside most of the time.

“The COVID-19 crisis has reinforced the existing trend toward greater flexibility, as customers hesitate to commit to large-scale investments and want flexibility in a fast-changing world,” McKinsey writes. “To adapt, many mobility players have already repositioned their offerings to increase customer flexibility. For instance, more rental companies are offering short-term leases as an alternative to car sales, and some OEMs are doing the same.“

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Dudenhöffer agrees, telling Yahoo Finance UK that “the new form of car use—the car subscription —will continue to win friends” in 2021, as it will make owning a car “easier, risk-free, more convenient.”

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He adds that in 2020, the growth of the subscription market will rob customers from the car-sharing services, such as Drive Now.

Already this time last year, BMW and Daimler nixed their car-sharing joint venture DriveNow in the US and Canada, citing “infrastructure complexities” and the “volatility” of the global mobility landscape, and pulled out of other European cities including London.

Car-subscription startup Drover told Yahoo Finance UK earlier this year that with people avoiding public transport and also not keen to buying a car outright or on financing, the time is ripe for a revolution.

London-based Drover, which says it is the EU leader in car subscriptions with a turnover of €30m in 2019, pointed out that automotive is the last retail sector to go online — and people don’t want to go to dealerships anymore either. Drover’s service, which fits between between short-term car rental and traditional fixed-term car leasing, delivers cars to customer’s doors.

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Autonomous vehicles gain ground

Autonomous vehicles could take steps forward in 2021 too, with governments finally passing regulations to let them drive on increasingly public parts of the infrastructure.

Germany’s began drafting legislation in October that will let autonomous vehicles operate on the streets, not just in special test areas, as is currently the case.

Chancellor Angela Merkel expressed a wish that Germany become a “pioneer” in autonomous driving, and said the new law should enable Germany to be the “first country in the world to permit driverless vehicles in regular operation” across the whole country.

READ MORE: Germany plans to legalise self-driving cars

“Tesla will continue to fuel curiosity about autopilot and automated driving,” Dudenhöffer said. “The Mercedes S-Class with level 3 will also contribute to the attractiveness.”

Tesla’s autopilot functions offer level 2 autonomy at the moment, meaning the car can do a lot of things, like staying in lane, keeping distance and so on, but the driver should have their hands on the wheel.

Level 3 autonomy is when the driver can be hands-off while the car does all the driving and makes all the decisions, but drivers need to be able to take over control if necessary.

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