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There are four waves of innovation sweeping through the automotive industry that will disrupt vehicles more in the next 10 years than they've changed in the last 100.

Each week, we explore connected cars, electrification, changing ownership models, and autonomous self-driving vehicles, as we seek to understand and prepare you for the future of transportation.

Aug 7, 2019

EP015 - Director of Automotive Analysis at IHS Markit, Mike Wall

http://www.vehicle2.getspiffy.com

Episode 15 is an interview with Mike Wall, Director of Automotive Analysis at IHS Markit; recorded live at the Automotive Intelligence Summit in Raleigh, NC on Wednesday, July 24th, 2019. Mike and Scot discuss a variety of topics, including:

  • His 16+ years of experience in automotive industry forecasting and trend analysis with IHS Markit.
  • The role of IHS Markit as a leader in automotive research and insights.
  • A realistic breakdown of EV adoption, from the US to China.
  • Cities where AVs will likely compete with mass transit in the 2020s
  • The true impact of changing ownership models on new car sales
  • The rise of AV and EV partnerships between automakers in the industry

If you enjoyed this episode, please write us a review on iTunes!

The four pillars of Vehicle 2.0 are electrification, connectivity, autonomy, and changing ownership models. In the Vehicle 2.0 Podcast, we will look at the future of the auto industry through guest expert interviews, deep dives into specific topics, news coverage, and hot takes with instant analysis on what the latest breaking news means for today and in time to come.

This episode was produced and sound engineered by Jackson Balling, and hosted by Scot Wingo.

 

Transcript:

Scot:                     

Welcome to the vehicle 2.0 podcast. We are live podcasting here from the 2019 automotive intelligence summit from Sunny Raleigh, North Carolina is Sunday today. Yesterday was rainy, so it's good to deliver that to the attendees is Tuesday the 24th and we're excited to have on the show. Mike Wall. Mike is Executive Director of automotive analysis at IHS market. Welcome to show.

Mike:                   

Thank you Scott. Appreciate it.

Scot:                     

Cool. Well uh I have I come from the ecommerce world and I wasn't really familiar with you guys, but now I've been in the auto world. You can't kind of swing a cat without hitting your research, so it was really excited to have you on the show. But for folks that haven't had a chance to check that out, maybe give us a little bit of background about yourself and then IHS and, yeah, absolutely. We'll jump in.

Mike:                   

Yeah. So I've been covering the auto industry for IHS over 20 years now and spent some time in the supply chain. So working with an auto supplier, large tier one supplier, but over the last really 18 years or so, really working in them more consulted consultative phase, you know, working with in forecasting realm, forecasting, late vehicle sales, light vehicle production working with suppliers, automakers, financial firms, pretty much anybody with an interest in stake in the industry. And I just market, we are a broad and diverse business intelligence from coming, covering a wide variety of, of really business verticals, energy chemical financial markets. And in one of our larger verticals is automotive as well. So we've been steeped in research and analysis and covering this industry.

Scot:   

Very cool. And then you have a certain cadence that you publish for things? How does that work?

Mike:                   

We do! It does vary depending on the, the discipline and the are the, the forecast itself. But our production forecast is an example, is updated every month as well as our powertrain forecast. We do have very wide and deep powertrain forecasts and we forecast vehicle sales down to the model level. All this is very granular and it's also global so you can see it both globally and regionally all the way down to some very minute levels of detail including model level detail call. Is your role kind of North America or do you remind goal is, I work very much with, with all of our various diverse groups around the world, but my primary background has been in North America, certainly is where I cut my teeth in the forecasting space as it were. But we have folks on the ground all around the world that do the forecast themselves and then we globally coordinate it.

Mike:                   

So just a great group of colleagues that are really trying to cover this ever-changing industry. And where are you based out of? I'm based out of Michigan. I'm, I'm actually on the west side of Michigan. Grand rapids. Our automotive headquarters is our, one of our major offices out of Southfield to suburb of Detroit. We have several hundred folks working out of that location. IHS market as a broad group is actually over 14,000 employees. But our automotive practices is quite large in and of itself.

Scot:                     

Cool. so what are you speaking about here at the show?

Mike:                   

So I'm basically going to kind of give everybody hopefully like a 10,000 foot view of the industry as a whole, particularly focusing on the u s market. What's the sales outlook touching on some of the mega trends that, that we've been hearing about a lot. So electrification, mobility as a service, autonomous driving where we see the market playing out for that. We'll also sprinkle in some global trends as well in some, some global dynamics because it's hard to talk just about us without having a broader context of how the market's behaving or how the industry is behaving in other markets as well. So this is a, a, it is a very interesting industry in that there are a lot of different drivers impacting it and some of them are very tactically focused. Like, you know, we've got to sell pickup trucks if we want to pay for everything we want to do in, in the next 10, 15, 20 years. So there's very tactical side of it. And then there's a very strategic megatrend side to it too. Yeah. Intersect.

Scot:                     

So in the vehicle 2.0 framework, we talk about four topics. We talk about changing ownership connected car and then electrification and autonomy. I'll give you kind of a toss up. Which of those do you, would you like to jump into first?

Mike:                   

I think electrification would be an interesting one to jump right into. Yeah. Because, that is where we're seeing the amount of, there's, there's activity in all of those categories. So I don't want to, I'm not trying to diminish any of them, but boy, in terms of electrification, if you were to ask me three or four years ago, I would say, yeah, there's a lot of talk around electrification, but you know, we still haven't necessarily seen as much of the rubber hitting the road as it were. The capital being spent. Well that's changed mightily over the last few years. And we are seeing the capital being deployed and in fact we're on the cusp of seeing a multitude of new electrified vehicles being launched.

Mike:                   

Now that begs the question, will there be consumers are you know, ready to buy right now? Last year, I think the market was about 1.3% was true fully electric vehicles. Now the devil's in the details there as to when that inflection really starts, but for sure there won't be a lack of offerings. And that's the interesting thing. You look at a Tesla who has really just done a fantastic job kind of assuming leadership in that, in that space. Now we'll start to see some and other initial a competitors starting to enter in.

Scot:                     

Yeah. And then I, I know it's a small percent, but if you start, you know, I've seen some reports where if you look at a certain slice starting to be material like you know, there's like this 50 to $60,000 where has that disrupted some of the German makers? And there's this kind of reaction.

Mike:                   

No, absolutely. So when you look at, when you look at that space, and again, tussle is a great example with that. They've come in and entered that in really started to disrupt the luxury category as an example. And it's not, you know, shouldn't be as a surprise that we see new players coming out, whether it be Jaguar, I pace Adi, each run new sort of existing luxury players saying we're getting into that, we're jumping into that space. We, you know, we need to have compelling offerings and they're coming to market some very, very solid offerings in their own right. But it is very material in those, I don't want to, I don't want to diminish that either by saying those was 1.2 1.3% when you start sliced slicing and dicing it down the vehicle segments. Yeah. Boy, it's, it's important in the automakers see the need for it as well, frankly, because a lot of times we can sometimes think of the u s almost in a vacuum and maybe get constrained by, Oh, you know, it's not a huge percentage rate just yet. Um too. There's growth certainly. But then when you look at Europe and you look at China, we're really other Asia, a lot of growth coming down the pike. So it behooves the automakers to have that sort of broader strategy to be thinking about it.

Scot:                     

Okay. And then within EV, do you guys project when will it like a 10% or number or anything like that?

Mike:                   

That's a good question. It depends on the market. That would be my first, my first caveat. But when we look at the u s market, the North American market as an example, we see that as probably closer to 2028, 2030 timeframe. Whereas if you look at China in and Europe, it's going to be, it'll be sooner than that. It'll be an advance of that. And part of that is we've got a government and regulatory decrees and, and rules and regs coming down the pike in Europe and in China as an example that are really helping to foster that acceleration as it worked. It's not that we're not focused on it here. We sure are. When you look at the California resources board and Carb, but at the same time we're a little bit at loggerheads between that and cafe and, and there's still that is yet to be fully vetted yet or fully decided and once we get some more resolution to that, we could see some additional acceleration on that front as well.

Scot:                     

Cool. Awesome. What do you want to talk about next?

Mike:                   

Yeah, you know, autonomous is another hot topic. Obviously when we see all of the, the, the executions out there in terms of different deployments in, in, out west and well almost anywhere really. You've got a lot of different deployments. So it's really stoking a lot of interests and frankly, the technology development going on within that space has been nothing short of phenomenal.

Mike:                   

I sometimes I do worry that maybe we missed the forest through the trees in that whenever we talk about autonomous, it's oftentimes as anchored by l four and l five and for any listeners in, we'll have your l four l five means that the vehicle can essentially drive itself. L four, it can drive itself, but it's still a steering wheel and pedals, l five no steering wheel, no pedals. And to be sure if you look at our forecast, we see that true call it mass deployment further down the line, 2030, 20, 35 really when we start to see mass volumes on that end, because of a lot of hurdles we still need to really surmount. Probably the least of which is technology. The more focused right now is regulatory, legislative in liability and insurance. There are a lot of things that we're going over and we will overcome those.

Mike:                   

But in the meantime, I don't mean to diminish that either, to say that it's not happening because it is, we're seeing it than being deployed in certainly fleets scenarios. We're seeing them deployed in, you know, obviously geo-fenced areas, controlled environments even to this day. And there is a lot of opportunity out there within that space. But the other side of that coin, which I do think sometimes gets forgotten, is what would be considered sort of the classic l two l three, you know, autopilots the, the driver assist the advanced driver assist systems. And we're seeing just a lot of development in capital, in investment in that space and technology deployment in that space. So I kind of view both, both, both sides of that coin and you'd look at automakers, automakers themselves as well are, are thinking very dynamically about that. Yes, we have to invest in think about all four oh five, but at the same time they're also looking very strategically at that l two and l three and having solutions out there for consumers to help maybe with more of that consumer pull rather than a push. Um I, and I do think we're going to see maybe a little bit of bifurcation where you see 'em, you know, a fleet environment around mobility as a service that is supported and enabled by autonomous as that technology develops further.

Scot:                     

And then so just make sure I understand that. You mean? So like long haul transportation maybe or?

Mike:                   

That's a great example too. I D I even, yeah, I wasn't even referring to that, but you're absolutely right. But yes, elements of that long haul transportation can even bridge between sort of that l two l three into l four l five and in on that medium and heavy space. So when we were thinking about that, so class eight vehicles, the big rigs, semi trucks and trailers, As they're moving freight, there are opportunities around there as well at talk to folks out in the sort of the central us when they're thinking about some of the the, the legislative bodies in some of these states are actually contemplating creating highways that are autonomous zones, autonomous lanes in being able to, so maybe it's not autonomous on the city streets, but once you hit the highway, you can enter into more of an autonomous mode. Maybe you need a safety driver for certainly a period of time, but there are those activities going on on right now as well within this, within this space that even kind of transcend sort of the consumer quote unquote consumer market or the light vehicle market.

Scot:                     

Do you, so in electrical it was interesting because you have China, we'll probably get there before the u s do you see other countries ahead of us in AV, maybe it's the, if the technology's there and I'm a Waymo maybe I just kind of bail on u s and go to a children's thing or another country.

Mike:                   

AV can enable it can enable mobility differently in different markets. I would say that that's how we're kind of envisioning that as well and sort of that disruption. So it's a fair point. I think the, the, the interest in the of intensity and investment is certainly significant here in the u s so I'm not downplaying that. But at the same time when you look at a China in, in the congested areas and it's, it's definitely an emerging market for sure. And there is a high where it's going through a bit of a rough patch. We saw a sales contraction last year. We've gotten a little more forecasted this year, but at the same time there is, we do expect there to be growth in that market, but I do think that that growth in that market will, it will resemble maybe less of a developed market as we traditionally think about it less than the sort of the u s profile and more of a mixed profile that's going to be enabled and aided by autonomous and sort of that mobility as a service. So there's no doubt we are seeing investment going on in China too in the autonomous space as well. But I, I don't see it necessarily as a zero sum game yet where we lose in China winds necessarily on this.

Mike:                   

It's, it's kind of going where the money is in terms of where there's the potential to move people. You look at the u s in maybe the Midwest where you've got maybe a little bit more of a suburban sprawl if you will. In rural, maybe it's a little bit more challenging, but I'll tell you, we've got a lot of very large cities and don't even have, they don't even have to be the large metropolises talking today in an area that can be very conducive to moving people like that. And so there can, there definitely can be some very profitable business cases around that.

Scot:                     

Well and then I was talking about changing ownership and then one of the, one of the, as I've dug into those models that the key driver is AV. So, you know, once you take that driver out, you can get from kind of $3 a mile down to dollar mile. We had a robust discussion on that. Where do you fall on the changing ownership models? Do you see us going to mobility as a service kind of a model?

Mike:                   

You know, I think it's, it, it is interesting because I, and I still wrestle with some of, and this even came up I think in, in, in, in your conversation yesterday as well as I've been thinking about it in terms of carrying that capital asset. You know, if we're, if we're shifting that burden, if you will, to another entity, how do we get 'em, how do we get approved, you know, the requisite cost to capital paid for return on investment. And at the end of the day we as, until we get to the point where we're kind of all writing in these moving pods that are sort of nondescript. And I'm not saying we'll necessarily ever truly get there because I'm not sure I maybe in certain, again, megaplexes larger cities, metropolises where where it's all about moving people. And I would dare I say more of a disrupter to mass transit than traditional car ownership. When you, especially when you think about the u s it's still pretty ingrained outside of those larger cities, that personal car ownership experience. But you start going into, again going back to China or in India and you think about truly the business of moving people ability as a service I think is going to play a very sizable role in that, in that discussion, in executing that strategy.

Scot:                     

So, so you guys have an Evie forecast Nav forecast. Do you kind of do a, you know, an ownership, do you see new car sales kind of tapering off in 2030, 2035 as those drivers.

Mike:                   

You had a great slide yesterday that showed countable precipitous fall off. And then there was another one that was a little bit more of a, a feathered approach. And I'll describe that and I would say we're more than that feathered approach. And what do I mean by that? I mean we're going to see very much right now, especially if we, if we look at the u s market and break it down, it's very much a, a retail based with a layer of fleet in that fleet might be daily rental, it might be commercial fleets, things like that. But clearly the preponderance is, is retail as we go forward and we start bringing in mobility as a service to a greater extent as we bring in autonomous mobility as a service. What we're going to see is we're going to see that fleet model growing and we're gonna see that retail model contracting somewhat. But net net were there is a, I would say there's an a a net maybe low single digit headwind to vehicle sales.

Mike:                   

All things held equal due to autonomous and mobility as service. But at the same time we don't see a cataclysmic fall off you because of other things at play. And you could say the classic cases, well we're not using vehicles as efficiently right now because they're sitting in our garage, you know, 2021 out of 24 hours a day or 23 out of 24 hours a day. So if we're using them at even 18 hours a day more efficiently, haha you know, we, we won't need as many vehicles and I would submit a couple things. I do believe we may not need as many vehicles in operation. So if you think about that 278 million vehicles on the u s roads right now, we may not need that. We definitely see there being maybe a bit more disruption in terms of vehicles on the road because we will be using them more efficiently, but they're, by using them at such a rapid clip, suddenly when we're talking about driving a vehicle 12,000 miles a year, that could go up to 90,000 miles a year, a hundred thousand miles a year.

Mike:                   

So we start getting into duty cycles and replacement now that the sort of the converse to that is yes, but if they're electrified, they should be able to go longer to and absolutely. That's, that's definitely, that's definitely true too. We'll see that average vehicle age stretch, we'll be able to see that, that again, duty cycle stretch as well. But we do see some pros and cons of that where we don't necessarily see it as a death of the car, if you will. From that perspective or, or to the extent we start to see more disruption, it's gonna be further on down the line as you do start to see mobility as a service. Maybe take up even or, or go on the uptake even more.

Scot:                     

Yeah. And then there's always unintended consequences. Like I showed a chart where ride sharing Uber and Lyft have caused people to take more trips. So it's actually cause congestions in cities.

Mike:                   

That is a great point though. And it was very interesting to see that because I remember, I think it was last year, maybe late last year, maybe summer of last year, that came to a head in New York. I was in New York presenting at a banking conference and it was around that time, I think mayor de Blasio had been starting to pass down some decrees about, look, we've got to reign in all of this, you know, all the Uber and Lyft and mobility as a service and taxi because it has, it's blown up congestion. But you scratched on the surface of another. And even in your talk yesterday too, when we talk about total miles traveled, that, that concept of vehicle miles travel, you know, it's over well over a trillion or what have you. In the US as an example, what we are, what we, I would expect us to be able to do is really be pushing that curve out further.

Mike:                   

Suddenly we're going to be introducing mobility to more of the masses. Think about you know, folks that are, you know, have some sort of impairment, maybe blow a blind person who obviously can't drive right now, but suddenly he or she can, you know, push a button and someone who card come pick them up. Whereas before they may not get out as much or maybe they're using mass, like it's gonna Force to, a lot of times this discussion around mobility as a service and autonomous gets, gets wrapped around what's the auto industry gonna do with rightfully so. It's one of the ones that could be disrupted and you know, in the process of, you know, adjusting to it. Mass transit is another one in, I don't know how we necessarily navigate that. I don't know that that story has been fully written yet because you bring up New York is that great example. We've got subways, we've got buses, we've got cabs, and already some elements of those have been disrupted somewhat. You'd look at car rental and hold that whole concept there. Those folks in the car rental business are trying to adjust and adapt accordingly. Rightfully so. And there they're doing some really interesting work in their own end. So nobody's sitting still in this. But I don't think the story's fully, fully written yet.

Scot:                     

Yeah. To your capital and who's gonna, who's gonna pay for all these vehicles? That's the one segment that already is comfortable buying a lot of vehicles taking on the cap x load.

Mike:                   

That's right. That's right though.

Scot:                     

OEM's aren't and you know the, the dealers aren't and you know Lyft and Uber Aren't, but, the rental car companies, they have no problem saying Y'all put a thousand, I'll drop a thousand cars and LGA.

Mike:                   

And that's exactly it. And in the built that expertise up over decades, you think about that in terms of being able to adjust for that risk and, and shift on the fly as it were to, to, to, you know, make sure that that load, that vehicle load is balanced out where whatever region they may be looking at. So I do think they're gonna have a role in this. I think dealers, we mentioned, I think dealers are going to have a role if you think about fleet management, fleet maintenance. We were talking in an earlier session about subscription services. A really interesting concept, particularly in the used vehicle space because if you can create a sort of a cost effective solution for a buyer, maybe it's a, maybe it's a subprime buyer or you know, somebody in that, in that sort of category where they would be paying an exorbitant interest rate. But now through through interest rate arbitrage some sort of capital provider could base and maybe it's the, maybe it's a dealer, maybe it's a buy here, pay here, date dealer that can offer a true subscription service where that buyer now is going to be almost more quasi renter or they're going to be a customer that will drive that vehicle, pay a monthly fee and that will wrap up insurance. It'll wrap up the vehicle usage itself may be maintenance and repair and all that at a cost effective basis for the, for the consumer.

Scot:                     

Okay. And then we're up against time. But the last, last kind of kind of wave of innovation is the connected car. And there's kind of two elements out of, there's kind of like the in-dash and improving the customer experience, but then there's also an interesting, you know, a lot of people project that that data will then be used improved infrastructure and talk to cities and that kind of thing.

Mike:                   

Yes. And that's what we've seen, we, we see a lot of development in that space. We've already seen, you know, some certainly, but we expect to see even more. And frankly we have to things like vehicle to vehicle communication, vehicle to infrastructure, communication. In order to make this autonomous concept really work, we've got to get these vehicles talking to each other, we've gotta get these vehicles talking to the infrastructure. The true concept around connected car on that sense needs to happen in order to enable all of this. And so automakers themselves are, are obviously working feverishly on that, on those categories as well. You know, it used to be automaker just had to design and build a vehicle, you know, and didn't break hopefully and start to form a brand around it. Now they are moving into propulsion, alternative propulsion systems, autonomous technology, connected car technology.

Mike:                   

And then eventually we can start talking about, and you talk about data, data usage, data ownership. If we're in a true l five self driving vehicle and you're not having to drive, can Google start running ads? You know, we'll, we'll, we'll other buyers or other ad creators if you will, by space on your dashboard, by space on your windshield. Just to, you know, sell you something or you know, if you think of the Amazon model, you know, I know you bought this last week, you might be interested in this. And, and suddenly you've got a whole other business model where that data that's being generated maybe worth a lot more than people are thinking. Absolutely.

Scot:                     

Cool. So where do you think happens to these different constituents are that will lay all find a home? Is someone going to be kind of the future Brontosaurus in this world?

Mike:                   

That's the, that's the billion dollar probably trillion dollar question right now because there is so much investment going on in this space. And like I alluded to earlier, you know, at the end of the day, if I'm an automaker, I still gotta sell pickup trucks and utility vehicles because that's paying the bills right now. And yet you've got a lot of venture capital on of Capitol in general, just flooding into this market. I guess that would be though, and it's not uncommon, don't get me wrong, but it's one of those things that I, I do look at it and I, I worry a little bit is we haven't had that, it's been 10 years really since the big recession. We're bound to cyclical industry. So capital patients has been actually pretty patient I think in the overall scheme of things. But how does that patients test it?

Mike:                   

If do have a downturn, does this proliferation of players, do we start to see some consolidation? I think we will. I think from an automaker perspective we're seeing a lot of collaboration and I think it makes a lot of sense. You look at Ford with Volkswagen, you look at GM with Honda as an example with autonomous, I think we're going to see more and more of that because at the end of the day, these automakers have limited buckets of money and they have to deploy that capital strategically. And I think it's a, it's, it's a much more sound solution is to partner where you can to help to spread some of those costs out. And I think the more we do that and we're doing, we're, we're executing on that strategy, I think the better. And I think inevitably you will start to see some consolidation in some of these different disciplines, whether it be, again, the subscription services and those players are connected car space and you know, even the downstream suppliers that are feeding into all of this.

Mike:                   

That's the thing we've seen on just speaking from the supplier perspective, we saw that we're seeing suppliers actually carving out some business where it's not strategic anymore and bringing on new business to Bolt-on to broaden the new strategy that they have. Very healthy. So all of that I think is actually very healthy, but I think we're going to see more of that too.

Scot:                     

Very cool. So last question if a, so really enjoyed the conversation. If folks want to learn more and follow your research.

Mike:                   

Yeah.

Scot:                     

Do you publish that out on Linkedin or Twitter or where do they

Mike:                   

So yeah, I'm on Linkedin under Mike Wall, IHS market. Www.Ihsmarket.Com and that's m a R K I t.com. We have a load of research on there, particularly looking at our, in our automotive practice, and certainly folks can reach out to me directly. Happy to chat on the industry anytime.

Scot:                     

Awesome. Thanks Mike. We appreciate you taking time out of busy day to speak with us.

Mike:                   

You Bet. Thank you!