KUALA LUMPUR: The automotive market is undergoing a transformation driven by four technology trends including connectivity of vehicles, alternative fuel vehicles (AFVs), autonomous vehicles and ride sharing.
Moody's Investors Service said the trends will transform the complex ecosystem of manufacturers, suppliers, users and technologies that facilitate personal and commercial mobility, and the different opportunities and challenges will have varying credit implications for each sector.
“The auto sector accounts for about three per cent of Moody's-rated corporate debt globally, and after adding the other sectors affected by its transformation, such as commodities and technology, the share rises to almost 54 per cent of rated corporate debt,” said Moody's senior vice president Robard Williams.
He added that changes in how vehicles are made, used, insured and financed will affect credit conditions in multiple ways, and for a variety of sectors and financial instruments.
In a research report titled “Cross-Sector - Global: Auto sector transformation will drive global multi-sector credit trends”, the credit rating company said the trend transformation would usher in major changes to the automobile market as the sector accounts for an estimated US$320 billion (RM1.3 trillion) in rated debt.
“Of the four trends, connectivity offers mostly opportunities, either for new products or for increased efficiency, whereas the other three trends bring a mix of challenges and opportunities to various sectors,” it said.
The report revealed that on how individual entities within each sector respond to these opportunities and challenges will influence their respective credit profiles.
“Technology, government policy, consumer preferences and corporate strategy will shape how each trend develops.
“Therefore the business and credit implications of each trend for a particular company could be quite different depending on sector opportunities and challenges, regional policy and preferences, and company-level strategy,” the report noted.
Moody’s said the changes will be incremental and gradual rather than sudden and rapid, although these shifts will take decades to transform the complex ecosystem of manufacturers, suppliers, users and technologies.
“For automakers, the journey to developing products and capabilities spurred by the trends will add cost and competitive pressures, but it will also create some opportunities in the form of efficiency gains and new revenue streams.”
Moody’s said each of the four trends presents risks in the form of additional capital investment required and uncertainty around technologies, but also some opportunities in the form of new and differentiated products for automakers.
“For example, increased vehicle connectivity provides links with retail, media and other offerings; however, automakers face the challenge of meeting customer expectations that connectivity will be a standard feature with manufacturers largely shouldering the cost.
For insurers, connectivity via telematics, through the use of global positioning system (GPS) and other on-board diagnostics, increases the ability to tailor products and pricing based on actual driving behaviour.
Similarly, as the market share of AFVs rises amid greater policy focus on climate change and air quality, utilities could gain new opportunities as demand for electric charging infrastructure rises.
However, it said utilities also might have to assume more responsibility for reliability in the supply of power and infrastructure.
For the metals and mining sector, Moody’s said demand for certain metals used in car batteries will grow as AFV adoption increases, but there will also be a risk of stranded investment if alternative battery arrays utilising different materials are developed.
“The shift in vehicle fuel to electricity may dampen growth in demand for gasoline, though at the same time it may provide alternative revenue opportunities for oil companies focused on innovation,” said Williams.
For technology companies, autonomous driving offers opportunities in navigation and operating systems, which will expand their revenue bases, although cybersecurity risks and liability for software errors and malfunctions could pose a risk for developers.
Moody’s said ride sharing and its integration with autonomous systems could also boost efficiency in personal mobility and opportunities for technology-based companies.
However, if ride sharing lowers growth in household vehicle ownership, it would bring challenges to manufacturing, finance and insurance sectors reliant on that growth.