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Automotive Outlook

Making a Splash

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MCN Editor Beth Gainer While 2020 found the automotive industry idled, 2021 has seen an abrupt turnaround, indicating a profitable road ahead.

Last year at this time, the pandemic raged on – and the automotive sector endured a standstill, unaware if and when a ramp up would occur. One year later, automotive has already come back with a vengeance.

Although the Seasonally Adjusted Annual Rate plummeted in March and April 2020, it made a rapid recovery in the back half of the year. In January 2021, the SAAR was approximately 16.6 million units annualized, which is close to the SAAR months before the pandemic.

“I think in terms of total industry volumes, we can claim to have come back from the problems and the issues that we had during the pandemic,” said Bernard Swiecki at the Fabricators & Manufacturers Association, International Virtual Conference in early March. Swiecki is the director of the Automotive Communities Partnership at the Center for Automotive Research, Ann Arbor, Mich., as well as a senior automotive analyst in CAR’s Industry, Labor and Economics group.

John Catterall, vice president, automotive program, for the American Iron and Steel Institute, Southfield, Mich., agrees the auto industry is recovering, estimating that total North American vehicle sales in 2021 will be about 18.6 million units, compared with 20 million units in 2019. He believes the latter number might even be seen again in 2022 or 2023. “Right now it looks like the automotive industry should be able to keep up with the demand that’s being talked about,” he says. “These are strong numbers, so it looks like the steel industry on the auto side should be in pretty good shape for this year.”

Contributing to the optimism is end users’ excitement about the cars they drive. In fact, today’s customers are looking for vehicles larger than typical passenger cars, which bodes well for the metals industry.

With airplane travel losing popularity because of COVID-19, people are now hitting the road,  RV-style. “Recreational vehicles were an accidental success factor in the market because of the pandemic,” says Abey Abraham, managing director of DuckerFrontier’s Automotive and Materials Practice, Troy, Mich. “We’ve seen suppliers in that sector growing very fast, above average in terms of what they’ve anticipated.” These vehicles are helping people feed their wanderlust without airplane travel and hotel stays.

Many consumers today believe that, when it comes to vehicles, bigger is better, and the roomier CUVs and SUVs fit the bill. “The automotive industry for the production base has already seen a transition in North America,” says Abraham. “We’ve been shifting away from passenger cars to more CUVs, SUVs, pickup trucks, as well as multi-purpose vehicles and minivans. [This] sector has grown in share tremendously over the last five years, and we estimate that to be the biggest chunk of production going into the future.”

Roomier vehicles have dominated the U.S. market. “For 2020, the CUVs have claimed 46 percent of the market, so that’s the Ford Escapes of the world and the Equinoxes,” says Catterall, “So you can see where the big dominance is in these CUVs, which have hit a sweet spot of the right size, high-seating position and utility. And the OEMs have worked very hard on making them fuel efficient.”

Fuel efficiency and reducing the carbon footprint are also key to end users’ purchasing decisions. Auto manufacturers are in sync with the Biden administration’s goal for increased sustainability and a low-carbon-emission future.

The EPA-published Safer Affordable Fuel Efficient for Model Years 2021 to 2026 supports fuel efficient, low-carbon dioxide emissions from passenger vehicles and light trucks. Leading the way is the nation’s largest state, which is dedicated to a zero-emission philosophy and is pulling the industry along. With transportation currently accounting for more than half of California’s greenhouse gas emissions, the state is requiring that, by 2035, all new cars and passenger trucks sold in California be zero-emission vehicles. GM has announced that its vehicles will be carbon neutral by 2040. And the OEMs are doing their part, according to Catterall, aiming for a zero-carbon target.

It is this environmental sensibility that has driven the demand for electric vehicles. Experts and customers alike believe EVs are the future.

Electrification

EVs are a fast-growing segment, and signs are it will continue at this pace, according to Swiecki. He defines electrified as including simple conventional hybrids, plug-in hybrids, full-on battery electrics and even fuel cell vehicles. “But it’s the electrified vehicles that didn’t just grow share of the market, they actually grew unit sales, which is pretty remarkable right now,” he said. “So in short, everything that grew share last year was either electrified, or a pickup or an SUV. Or a car pretending to be an SUV.”

At first, EVs were popular when gasoline was expensive, Swiecki explained. However, as the price of gasoline dropped, the volume of electrified vehicle sales continued to rise. “So what that tells me is these vehicles are now mature,” he said. “People aren’t just buying them because ‘it’s an econobox that’ll help me save money.’ People are buying them because they actually want that vehicle. There’s a maturity element here and a consumer acceptance element here as well.”

He added that GM says by 2035, all of its light-vehicle sales in North America are going to be EVs. “That’s a tremendous transformation, and that’s going to be reflected in the supply base,” he continued. “We’ve seen similar but less ambitious announcements from Ford, Volvo and others.” He added that consumer sales drive the inventory levels, the production levels, the employment and where the investments go.
 
He emphasized that while hybrids have been selling well over the past few years, what’s really booming are the purely battery-powered vehicles, such as the Tesla, Nissan LEAF, Chevrolet Bolt and Audi E-Tron. These vehicles have been a huge growth driver. “Between the growth in the hybrids and the growth in the pure battery electrics, we’re starting to squeeze out the plug-in hybrids a little bit,” said Swiecki.

Electrified vehicles are gaining so much popularity, in fact, they were 5 percent of the market in 2020, while in January of this year, they were 7 percent of the market. “In January 2021 we sold almost a third more of these vehicles than in January 2020. The use of [EVs] is going to have legs; it’s going to have staying power. Right now there is a tremendous amount of investment going into things that are electrified,” he said.

Catterall concurs. “Electric vehicles seem to be the biggest thing that everybody’s talking about and working on,” he says. “Once we electrify the vehicles, then it’s becoming autonomous. You’ve got all the electrical systems on board; you have the power that you would need.” He doubts, however, that all new cars sold in 2035 and beyond will be solely electric, and he states that a need for hybrids will still exist.

One consumer concern has been about how long the battery charge of EVs lasts. Swiecki said the battery charge of EVs is lasting longer and this should mitigate consumers’ fears. “We are approaching 300 miles per charge for not just a luxury electric vehicle, but a basic one,” he says, “and that’s really helping to alleviate some of this range anxiety that I think was holding back electric vehicle sales.”

Of course, with EVs must come the infrastructure necessary to accommodate them. Swiecki pointed out that charging stations and parking structures are being built across the country. Abraham, however, exercises caution about EV infrastructure. “The fast shift toward electrification places a lot of burden on our electricity grid, and now we’re just talking about North America,” he says. “Our energy infrastructure has been a leading force of our industrial revolution for the past 100 plus years, but our energy grid just hasn’t been keeping up with that level of investment as other countries and other regions have put into it, so I think we have to be very careful as to how we make the transition away from ICE-based powertrains to electric vehicles.”

In terms of the push for EVs, Abraham also wonders if our society is trading one form of CO2 for another. “We have to think more broadly. Again, moving from an ICE powertrain to a battery electric vehicle is one piece of that puzzle, but you have to think about how our electricity is generated in North America,” he says.

Technological Revolution
“Every engineer is working toward a goal that generally is at opposite ends of the spectrum,” says Abraham. “[The vehicle] has to be the lightest weight and the lowest cost. The highest strength with the greatest amount of ductility. So material selection is ultimately the cross section of the compromise of that balance.”

Materials used to achieve that balance are abundant – from aluminum to advanced high-strength steel to Generation 3 steel. Whatever materials are used, a blend of them is needed to create the proper balance in a vehicle – whether it’s aluminum extrusions for bumper beams and closure panels or new alloys that target what the OEMs are looking for in terms of corrosion and safety.

In addition, mild steel has been improved upon dozens of times in recent years, with most of those changes geared toward the auto sector. “The steel industry has introduced 50 or 60 grades of steel, which really makes it more formable, very high in strength,” says Abraham. He adds that whether one supplies aluminum or steel, many options abound, and R&D is being pushed to its limit. “A lot of new changes are coming along. It’s really making the engineering community challenge the status quo of designing with the materials.”  

Lightweighting is still important, but it is not as much of a priority as it once was, according to Catterall. “As the fleet switches over to battery electric vehicles, they’re actually less sensitive to the total mass of the vehicle. They can recover the energy while braking; regenerative braking will basically slow the vehicle down; in a traditional vehicle, there’s a lot of energy that gets wasted.”

Abraham agrees. “Mass is the natural enemy of efficiency,” he says, adding that powertrain efficiency improvements, which include electrification, add to mass. “But also, what’s critical toward the growth and the more consistent use of lightweight materials is the enabling technology,” he says.

And technology has contributed to making cars lighter but stronger. Advanced high-strength steels are still popular and Abraham forecasts that they will be used even more. “In 2018, advanced high-strength steels accounted for 348 pounds per vehicle. In 2022, we estimate that to grow to 572 pounds per vehicle,” adding that AHSS are replacing the milder conventional grades of steel and thus taking share away from the latter.

Catterall says, “Advanced high-strength steel allows you to create a structure that’s lighter because you can absorb the same amount of energy, the same strength, but you’re doing it at a thinner gauge,” adding that it will be a continuing trend to use advanced and 3rd Gen high-strength steels.

Third Gen high-strength steel is strong and ductile. “You have an end product that’s both cold formable but has the strength at the end of the day so that you can cold stamp it and perhaps not have to use hot stamping in some cases,” he says. “It’s a good balance for everybody, and it will allow the OEMs to do more cold stampings and yet have a high-strength steel.”

Caption: American consumers continue to prefer larger vehicles, such as this Ford Raptor, which consume more metal than passenger cars. (Photo courtesy Ford Motor Co.)

[Sidebar]
Microchip Shortage Stymies Automakers
The automotive market is rebounding nicely, but it could be doing better. What’s holding it back is a microchip shortage.
“The origination of this shortage was an unintended consequence of the COVID-19 pandemic, where auto suppliers had to shut down production,” says Abey Abraham, managing director of DuckerFrontier’s Automotive and Materials Practice, Troy, Mich. “They in turn turned to their electronics suppliers, who in turn turned to their chip suppliers and said, ‘Hey we don’t need any parts anymore; we don’t know when we’re going to restart.’”

Abraham adds that the chip shortage forecast is pushing the automotive industry’s 2021 production off by 5 percent. However, if the shortfall “isn’t managed, we could quickly see ourselves back to 10 percent or 15 percent,” he says.

In the microchip industry, only seven to 10 percent of their industry revenues comprises automotive accounts, with the sector competing with consumer goods, durables, healthcare, aerospace and cellular technology. “Computing technology accounts for their lion’s share of business,” says Abraham, “so what they started to do is reallocate production capacity toward other industries that are less impacted by the COVID-19 pandemic, so consider the chip industry the big Titanic.”

John Catterall, vice president, automotive program, for the American Iron and Steel Institute, Southfield, Mich., agrees the pandemic helped cause the microchip shortage. He believes that people working and attending school remotely drove up the need for more microchips into computers, cell phones and gaming systems.

“The transition into having a lot more chips into automobiles has been happening over the last decade or so,” he adds, emphasizing all the heads-up displays and instrument panels are making vehicles become minicomputers in a sense.
Catterall says OEMs are going to prioritize which vehicles receive the chips, most likely the high-demand vehicles. However, there is hope on the horizon. “It looks like the automotive industry, even though they have a shortage of chips, should be able to keep up with the demand that’s being talked about,” he says.
 
Abraham says the carmaking sector is particularly well-suited to dealing with the challenges. “The auto production supply base is very used to just-in-time inventories and being very agile, but when you go down further in the supply chain to get some things like [microchips], you can’t expect them to be so quick to turn around,” he says. “The wafers required to make the microchips have very, very long lead times. There’s a long value stream, a long supply stream associated with it. Similarly, to ramp up volume in the chip industry requires a considerable amount of investment; but not only that, it requires a lot of time.”

Abraham predicts that if all goes well, the microchip dilemma can be resolved by the end of the second quarter.


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