New Delhi: It is for a given that the automotive industry will witness a contraction of development and advanced research budgets in the coming year as the inevitable impact of revenue loss from COVID-19 works itself through the companies’ budgeting processes.
According to a global survey conducted by the IHS Markit, around 92 percent of the respondents indicated that R&D budgets are likely to consequently shrink, which may result in a series of cost-containment measures being deployed.
With little prospect for an imminent “return to normal”, automakers and suppliers are looking to shore up their finances by preserving cash and other non-critical expenses which is going to have implications on short- and medium-term research investment priorities in future technologies like e-mobility, autonomy and connected car.
E-Mobility technology around battery, e-motor and power electronics emerges as the area which will be more negatively impacted by COVID-19 as compared to others according to 22 percent of the respondents.
However, one supplier mentioned that the substantial capital expenditures that OEMs have devoted to e-mobility technology in recent years should make technology deployment in this area more resilient to COVID-19 related cuts.
Autonomy deployment is another area majorly impacted by the COVID-19 outbreak. Several supplier respondents indicated that OEMs will focus on more immediate technology deployments around Level1 and Level2 ADAS functions, which are more “proven” and less subject to regulatory complications.
Some 16 percent of respondents think that the regulation of autonomous vehicles is likely to be delayed in all markets.
The financial impact of COVID-19 will drive more companies to explore M&A opportunities to support sustained investment in e-mobility, autonomy and connected cars.~
Advanced research projects are expected to be more impacted in both 2020 and 2021 when compared to general product development activities as OEMs will have to prioritize resources for immediate product launches.
Survey respondents expect ‘Advanced Research projects’ funding to be cut by 17 percent in 2020 and 12 percent in 2021, while development budgets are expected to be downsized by 12percent in 2020 and 8 percent in 2021.
The situation poses a tangible threat for some early-stage R&D projects that might get cancelled altogether feel 13 percent respondents whereas 23 percent expect delays by a year.
As per the report, there were several respondents voicing concerns about the long-term survival of start-up companies born to complement or bolster research and development activities, particularly in emerging technology areas.
According to a respondent, “As venture capital money dries up, many start-ups, especially in Lidar development and autonomous driving software, will disappear.”
The survey further reveals that respondents in Asia, particularly in China indicated a greater concern on long term R&D impacts (over 3 years) compared to Europe and North America. Most North American respondents think the impact on R&D will disappear within 3 months.
This suggests that following a recessionary 2020 when deep cuts are expected, 2021 should offer a growth story, but not return to pre-COVID-19 levels, which is likely to materialize in 2022 and beyond.
The post-COVID-19, the R&D environment is expected to feature a major recourse to in-house capabilities and development, especially at large and medium-sized OEMs and suppliers.
Smaller companies believe their R&D outsourcing levels situation will remain unchanged, with around 14 percent of smaller companies indicating there might be actually an increase in the R&D outsourcing.
The survey suggests that the financial impact of COVID-19 is likely to drive more companies to explore Merger and Acquisition opportunities in a bid to be able to support this sustained investment in light of e-mobility, autonomy, and connected car development.
Respondents suggest that this consolidation trend, which was already evident before COVID-19, might accelerate further. Some respondents have however raised that consolidation in the supply base is likely to negatively impact OEMs as the suppliers that will survive will have better negotiation leverage, particularly in some critical sectors like e-mobility components and autonomous vehicle sensors.