Podcast transcript: How the pandemic triggered a shift toward sustainability

12 min approx | 23 September 2021

Announcer

Welcome to the EY Advanced Manufacturing and Mobility Business Minute podcast series, where EY professionals explore the critical business issues impacting our industry today.

Moderator

Greetings to our audience, and joining me today are Avinash Sagar and Akshi Goel, who both serve as analysts for our Global Mobility sector. Today, Avinash and Akshi will be sharing their insights into second quarter earnings calls for 42 mobility sector companies and will discuss key themes derived from these discussions.

So, let’s get started for a lively discussion as we hear what was discussed during these earnings calls and round out with a few insights of what we can expect from third quarter closing.

Welcome, Avinash and Akshi, it’s a pleasure to have you both here. 

Avinash Sagar

Thank you for having me, Bhavini.

Akshi Goel

It’s my pleasure to be here, Bhavini.

Moderator

Our analysis highlights the top five market forces and company responses; however, we do call out the top theme in each of these categories that garnered a fair amount of discussion. Let’s give our audience a quick insight into each one. Akshi, if you can elaborate on the market force that stood out the most that would be great, and likewise, Avinash can share the top company response.

Goel

The market force that stood out is demand patterns.

The global economy is witnessing robust growth across the mobility end consumer segments.

If we talk about automotive domain, the US is witnessing record growth, despite a high pricing environment amid low vehicle inventories. Europe’s vehicle sales outlook is improving gradually, despite a drag in the first quarter. For Asia-Pacific, consumer demand remains robust and is expected to achieve pre-COVID-19 levels by the end of 2021.

Coming to the transportation domain, airlines are witnessing strong demand for leisure travel and cargo business. In fact, cargo business is now an essential business segment for airlines. Other transportation subsectors including logistics, shipping and rail companies – they are focused on meeting demand as the economic recovery is having a domino effect across end consumer sectors. These peers are expanding product portfolios and hiring more employees in a labor and supply constraint environment.

Now, let me pass it over to Avinash.

Sagar

On the company response side, we saw a great deal of activity this quarter focused on competitive positioning.

Most mobility companies are maintaining a robust pricing strategy on the back of recovery across end consumer segments. Logistics companies are expanding their coverage and product portfolio to capitalize on increasing e-commerce demand. They are leveraging differential pricing strategy, amid capacity constraints. Airlines are building on the success of cargo flights, as it is now an important part of their recovery, revenue diversification and long-term growth.

OEMs are expanding their geographical footprint, targeting customers in green powertrain segments with advanced connected features. They are also maintaining a robust pricing strategy as vehicle sales have been hit due to low inventory levels. Automakers are driving innovation with a commitment for decarbonization and sustainability adoption across the value chain. 

Moderator

Thanks for sharing those insights. Akshi, how about sharing the other themes that made up the top five market forces that we can share with our audience. 

Goel

We’ve already talked about demand patterns, which was the top theme as we witnessed recovery across the end consumer segments.

At number two, we have consumption behavior, which is due to the shift in attitude toward green products and digital technology adoption.

Number three is value chain breakdown, as the demand upsurge coupled with raw material shortages, such as semiconductors and petrochemicals, led to disruption of production schedules.

Number four was operating cost, as companies are facing headwinds due to incremental employee and technology costs.

Finally, we also heard leaders talk about investor expectations for improved financial performance, as several mobility peers are reporting strong cash flows aided by revenue growth.

Moderator

Akshi, thanks for those detailed insights. Let’s hand over to Avinash to give his insights on the other company responses.

Sagar

We’ve already talked about competitive positioning.

Going down the list, we saw significant developments in product design and innovation, largely in the areas of shipment tracking, bidding for freight and sustainability, along with the usual urgency in drive toward electrification.

Third on the list was customer acquisition and connectivity, as OEMs strive for undisrupted supply of vehicles, airlines witnessing upsurge in bookings and automakers having digitalization and customer experience high on their agenda.

Coming in at number four was business reorganization and restructuring, as automotive OEMs look to have a tighter grip on cost structures, and transportation companies look to reduce costs and last-mile delivery inefficiencies.

Finally, we observed a change in financial outlook, where companies are starting to confirm growth ahead in 2021.

Moderator

Great insights, Akshi and Avinash. Thanks for delving deeper into each.

Our analysis also includes subsector-specific findings for automotive and transportation companies.

Let’s give our audience a view into what each of these subsector companies had to say.

Avinash, if you don’t mind going first and giving us highlights on the transportation subsector, that would be great.

Sagar

Yes, glad to share.

Earlier, when we were talking about product design and innovation, I mentioned shipment tracking, bidding for freight and sustainability. The logistics industry loses a significant amount of revenue each year as “revenue leakage.” To address this, logistics companies are investing to have a greater visibility of supply chain and last-mile delivery networks. Railway companies are looking to adopt and implement precision scheduled railroading to improve service levels, reliability and productivity. New age players are emerging in the logistics space, offering solutions to remove operational inefficiencies and provide greater supply chain visibility.

As competition intensifies in the transportation space, logistics companies are expanding coverage and product portfolio to capitalize on high e-commerce demand.

An increasing number of incumbents are putting sustainable logistics on their agenda as global organizations and associations look to lower the impact of logistics on the environment through regulations and policies.

Let me pass it over to Akshi to share insights on automotive.

Goel

Thank you, Avinash.

So, I mentioned earlier that consumer demand for automotive sector is ramping up across geographies. However, this demand uptake has come at a dear price. It is like a double-edged sword, as the industry continues to reel under the impact of supply chain constraints. Demand upsurge coupled with raw material shortages, specially semiconductors, has led to disruption in production schedules which is causing order backlogs and inventory challenges across the value chain.

We also heard leaders at mobility companies calling out that consumer behavior is shifting toward digitalization and sustainability. In fact, a shift toward sustainable or green products is moving at a much faster pace than we had anticipated. EV sales growth for most peers exceeded the growth of ICE vehicles. This is extraordinary especially in the context of the global pandemic and passenger car sales decline in 2020. I think it is safe to say that the industry is experiencing an urgency to shift toward alternative fuel vehicles in response to the decarbonization and sustainability agenda.

In context of digitalization, participants across the automotive value chain are focusing on providing a seamless experience to consumers and also to establish access to the consumer by leveraging innovative digital platforms and online sales channels.

Moderator

Avinash and Akshi, thanks for sharing those insights, as always, a lot happening in the mobility sector.

For our audience, be sure to check out our second quarter update on ey.com, where we have also included interactive charts that show even more detail on the market forces and company responses, as well as subsector sentiments.

As the third quarter is coming to a close, let me ask you both for a quick horizon outlook of what to expect for mobility companies and the industry in general.

Avinash, let’s start with you. 

Sagar

Here’s what I’m observing:

Consumer demand will continue to dominate in the next quarter, as leaders sound confident about growth. While we witnessed demand increasing in the previous quarter, the next quarter could be more about companies looking at margins and capital deployment to expand services. The pandemic has created new demand streams and companies will look to address this with product and service innovation.

At the same time, mergers and acquisitions (M&A), including divestitures and portfolio rationalization, are likely to emerge as key themes, especially in the transportation subsector which continues to be heavily fragmented and key players having access to capital.

On the horizon is also the theme of sustainability with a rising importance on ESG.

As companies look to pursue climate and sustainability goals this will be high on their agenda, so definitely a point to watch out for.

Akshi, your thoughts?

Goel

Those are all great points, Avinash. 

In fact, I would also like to elaborate on sustainability. In the last quarter we predicted that sustainability could be a hero theme for mobility companies considering the emphasis on the decarbonization by all stakeholders.

This quarter, many peers reported concerted efforts around sustainability across the value chain, which is also supported by a strong shift in consumer demand toward green products.

Interestingly, the pandemic has acted in favor of sustainability by providing the industry a golden opportunity to supercharge electric vehicle sales. The consumer mindset is changing fast – over these past few months. People around the globe have reconnected with environmental concerns and are now more willing than ever to put sustainability at the top of their mobility needs. We expect these trends to continue for the next few months. So, sustainability is likely to be a major topic next quarter, too.

Moderator

Avinash and Akshi, as always, a lively discussion and I hope our audience took away some insights we shared with them. I’m looking forward to our next discussion in a few weeks.

Sagar

Likewise, it was a pleasure to take part in this podcast and I look forward to our next episode.

Goel

Thank you for having me today and I definitely look forward to our next discussion.

Announcer

Thanks for listening to today’s EY Advanced Manufacturing and Mobility Business Minute podcast. We hope you found it engaging and informative. To listen to other Business Minute podcasts, you can find them at ey.com/amm podcasts.