Corona Pandemic The effects of the coronavirus on the automotive industry
Automotive companies and Autonomous Vehicle (AV) firms alike have been hit hard by the corona pandemic as demand for vehicles has fallen markedly and the immediate future appears uncertain. Estimates vary for how soon enterprises working in these industries will move forward and what percentage will survive this dramatic commercial turbulence.
From its initial outbreak in Wuhan, China, the recent coronavirus pandemic has swept the world and so far claimed more than 400,000 lives, infecting at least 6.7 million people globally. Businesses and workplaces closed as workers self-isolated and lockdowns halted assembly lines. From China to Italy to the United States to Brazil, no country has been spared the effects of the contagious condition and its economic fallout. The coronavirus is one of the most infectious pandemics to appear in modern times, and its gestation is not without precedent but was still an unexpected occurrence for the 2020 calendar year. Its manifestation has resulted in work stoppages, supply chain breaks, delays in production schedules, and market uncertainty for businesses in nearly every sector.
Delays at chipmakers
A recent survey of 46 firms in the automotive IC supply chain found that almost two-thirds of respondents were expecting significant delays in technology deployments for upcoming launches in the industry. “Almost 65% [of firms] said they see delays in technology deployment of upcoming projects,” said Phil Amsrud, an auto industry semiconductor analyst at IHS Markit. As an example of the consequences of such delays, Amsrud said that a chip with a 7-nanometer node size might instead be delivered in a 14-nanometer node size, lowering expectations and ambitions for particular AV platforms.
“One of the effects of COVID-19 is that the semiconductor guys are expecting some delays of their [self-driving] devlopment programs,” stated Amsrud. “It’s not so much a change in their priorities, but more are saying they’re making less money this year; the pot is smaller, and their investment in research will be smaller. I think COVID will cause a bit of a pause as people look at the economic realities.”
By most accounts, AV chip designers will slow down their R&D efforts over the next several quarters. This isn’t due to automakers not believing in the technology but is simply a result of the downturn in auto sales. However, Amsrud added that no chipmaker is saying that any of their AV development work is shelved or dead; slightly more than 20% of the chip firms IHS surveyed said they expected no delays at all in technology deployments.
Gartner research analyst Gaurav Gupta said he hasn’t heard of any leading AV chipmakers postponing chip launches so far. “Automakers are burning through cash now as vehicle sales have nosedived,” Gupta cautioned. “As a result, one would assume their R&D spending would be conservative in the near future and would focus on technology that can help them with revenue in the short-term… Big leaders will continue their push for R&D and investment in the [advanced driver assistance systems (ADAS)] and AV space and perhaps will look for acquisitions.” In the meantime, Gupta believes the ecosystem of companies presently conducting AV research is due to shrink as smaller firms consolidate.
A separate survey conducted by consulting firm KPMG of 22 high-level executives at worldwide semiconductor firms found that 27% thought the pandemic would have a negative effect on adoption of, investment in, and growth of sales for AVs. 9% of those surveyed thought the virus’ impact would be positive for the AV industry, while 59% had a neutral opinion. Less negative effects were predicted for the technologies of 5G, artificial intelligence (AI), and the Internet of Things (IoT).
Auto sales decline
While many of those polled said that impacts from chipmaker delays and slowdowns would affect their innovation roadmaps, some respondents, like Chinese electric vehicle (EV) startup Xpeng vowed to push ahead anyway, despite sluggish progress amongst the chipmakers.
In the early stages of the pandemic, American automakers like General Motors and Ford closed plants and began turning out respiratory ventilators at the request of the U.S. government.
IHS Markit estimates that due to the pandemic, 2020 global auto sales are expected to decline by at least 22%, leaving about 70 million vehicles sold instead of almost 90 million. In the United States, the decline is expected to be even worse, at about 26.6% of the total, resulting in 12.5 million vehicle sales instead of roughly 17 million.
It was rumored that Chinese AV startup NIO may not survive in the wake of the pandemic. IDC auto industry analyst Matt Arcaro believes that “without vehicle manufacturing now, there will definitely be a significant 2020 in-year impact to chipmakers. I do think there will likely be some slight residual impact in 2021. Based on what we can see now, I would expect that the long-term trajectory and growth story will remain consistent with what was expected pre-COVID-19.”
Still, Arcaro thinks that the “automotive [sector], because of its scale and volumes, will remain a key area for growth for chipset providers. We’re still [in the] very early days in the automotive growth cycle for high-compute autonomy platforms.”
In fact, there may be a chance that the advent of COVID-19 may speed up markets that could compel chipmakers to focus on the auto sector more narrowly. “Rather than focusing on a whole suite of AV chips,” says Arcaro, “[these companies] may focus on just a subset of autonomy or look to form a business partnership or joint venture to de-risk some of the uncertain timelines and volumes for driverless autonomy.”
Certain companies such as MobilEye, the AV platform division of Intel, are reporting higher revenue in the first quarter of the year, with lower numbers expected over the remainder of the year due to declining vehicle sales. Moreover, these expectations don’t include estimates for R&D spending, which is a bellwether for AV chipmakers.
Delivering new AV functionality
Prior to the coronavirus pandemic, some AV companies were holding out hope of being able to deliver Society of Automotive Engineers (SAE) Level 5 (“full automation”) functionality for production cars in the foreseeable future—at least in a “semi-reasonable” timeframe. But now, IHS analyst Amsrud says that most firms are looking at Level 5 as the equivalent of a NASA “Mars shot.”
Even delivering SAE Level 3 functionality, he says, will pose challenges due to R&D delays. These delays may mean that an introduction or announcement that was scheduled for 2021, say, might have to be pushed forward a year.
“If you don’t invest now, you [might not] have a product when it’s needed in the next couple of years,” says Jack Gold, principal analyst at J. Gold Associates. “AV [features] and ADAS are really more of a long-term play. Companies may have to reduce some expenditures if they’re badly affected by the market downturn and their revenues tank, but I for the most part don’t see any significant pulling back for R&D for future deployments of AV and ADAS.”
Aforementioned Chinese electric vehicle startup Xpeng introduced the Xpeng P7 sports sedan EV in late April. It’s equipped with SAE Level 3 functionality and over-the-air (OTA) software updating for AI in the vehicle’s NVIDIA AGX Xavier-based AV platform.
At the same time, German automaker Audi announced it will drop plans to incorporate an SAE Level 3 Traffic Jam Assist (TJA) system in its 2020 A8 model, although this decision may be based more on unknowns surrounding legal liabilities than industry R&D slowdowns.
Effects on robo-taxis
Some experts on public health are saying that driverless robo-taxis may be desirable in the future because there will be no human in the front seat (or potentially any front seat at all) to spread viruses or germs. But so far, there’s no suggestion that this idea will accelerate robo-taxi development or deployment.
“[Robo-taxis] have long been put forward as the solution most appropriate for autonomy,” stated Gartner auto analyst Michael Ramsey. “Those efforts won’t disappear, but they certainly will slow. Full autonomy will be pushed into more business-facing uses like mining, logistics, warehouse operations, and other places where there’s a good mix of needs and the potential for efficiency and cost savings.”
Ramsey thinks the longer-term trend will be the AV market becoming more diversified and less driven by the scale of the auto industry as a whole, at least as far as delivering SAE Levels 4 and 5. Instead, he believes that advanced chips for AVs in the near future will be much more focused on ADAS.