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We are midway 2023, and half yearly financial results for most auto companies and suppliers have been announced. Most of the companies are reducing their earlier set sales/revenue targets, doing significant restructuring to contain costs, cutting jobs and everything possible to prepare themselves for difficult times ahead.
The auto industry is facing multiple headwinds in terms of declining sales, lower profitability, tariff war and higher capex requirements. Amid this gloomy scenario, what is the scope of automotive HVAC suppliers?
The answer lies in the mega trend of the auto industry- Electric and Electrified vehicles.
The biggest difference between HVAC in ICE vehicles and Electric vehicles is the type of compressor used and HMI (Human machine interface).
The EVs use a scroll compressor instead of reciprocal compressor used by ICE (Internal combustion engine) powered vehicles. The scroll compressors have an electric motor to compress refrigerant which is achieved by reciprocal movement of pistons in reciprocal compressors (powered by engine) in gas vehicles.
To know more about Electric Vehicle HVAC compressors, read our report – Global EV HVAC Compressor Market. Many EVs in the D and E segment for example- Tesla Model 3, Audi E-Tron, Polestar 1,2 in have touch control HVAC.
We might see specialized EV HVAC solutions being sold in certain US and European markets which are routinely affected by extreme cold temperatures. The reason being the electric HVAC compressor absorbs significant power when the ambient temperature drops below 0 degree Celsius- could even bring down the BEV range by 30-35%. There could also be some changes in the interior cockpit materials, insulation, which could allow the cabin to heat up quickly and efficiently.
EVs have been grown at ~51% CAGR for past 5 years (albeit due to low base), Electrified vehicles have grown at ~20+% CAGR and the growth momentum is strong enough to accommodate many new entrants (both OEMs and suppliers).
The EV sales volume including electrified vehicles could go past 15 Million or even more by 2025.
The HVAC system in BEVs and PHEVs will primarily differ in the compressor capacity. For example, long range BEVs like Tesla Model S and X have a 33cc scroll compressor whereas Toyota Prius PHEV has a 20cc scroll compressor.
The 48V MHEVs(Mild Hybrid electric vehicles) will grow at the fastest rate in Europe, due to 2021 95gm/km CO2 targets, could substitute Diesel vehicles to a certain extent. VW, the market leader brand(11.5% market share in Europe) will offer 48V mild hybrid on select variants of its best-selling models only, unlike its premium brand Audi which plans to offer the 48V system, gradually as a standard on all models.
The global Electric Vehicle HVAC market is estimated at $XXM growing at –% CAGR till 2030.
For most of the car manufacturers, as the share of EVs in the overall sales rises, they will seek to offset the lower profitability of electric cars by accelerating cost/workforce cuts, and implement a sharper purchasing process. Therefore, the EV HVAC suppliers will have to focus on developing efficient HVAC system for EVs at a reasonable cost.
Another important datapoint is that the suppliers must look into is that the battery packs of BEVs are getting bigger, the battery thermal management also needs to be upgraded accordingly, therefore the role of a quiet HVAC system becomes even more important.
BMW is already looking for innovative cooling technologies for EV batteries producing <35dB noise. In the luxury segment, where low NVH(Noise vibration and Harshness) and overall refinement are key parameters, a BEV could potentially have 2 electric compressors per vehicle. An important opportunity for EV HVAC suppliers.
In commercial vehicles, the electric commercial vehicles form a very small 1.4% of all commercial vehicles sold in 2019 which is expected to grow to 6.6% by 2025.
North America
The North American market, particularly the USA, will be one of the prime markets for (Electric Vehicle HVAC Market) due to the nature of industrial automation in the region, high consumer spending compared to other regions, and the growth of various industries, mainly AI, along with constant technological advancements. The GDP of the USA is one of the largest in the world, and it is home to various industries such as Pharmaceuticals, Aerospace, and Technology. The average consumer spending in the region was $72K in 2023, and this is set to increase over the forecast period. Industries are focused on industrial automation and increasing efficiency in the region. This will be facilitated by the growth in IoT and AI across the board. Due to tensions in geopolitics, much manufacturing is set to shift towards the USA and Mexico, away from China. This shift will include industries such as semiconductors and automotive.
Europe
The European market, particularly Western Europe, is another prime market for (Electric Vehicle HVAC Market) due to the strong economic conditions in the region, bolstered by robust systems that support sustained growth. This includes research and development of new technologies, constant innovation, and developments across various industries that promote regional growth. Investments are being made to develop and improve existing infrastructure, enabling various industries to thrive. In Western Europe, the margins for (Electric Vehicle HVAC Market) are higher than in other parts of the world due to regional supply and demand dynamics. Average consumer spending in the region was lower than in the USA in 2023, but it is expected to increase over the forecast period.
Eastern Europe is anticipated to experience a higher growth rate compared to Western Europe, as significant shifts in manufacturing and development are taking place in countries like Poland and Hungary. However, the Russia-Ukraine war is currently disrupting growth in this region, with the lack of an immediate resolution negatively impacting growth and creating instability in neighboring areas. Despite these challenges, technological hubs are emerging in Eastern Europe, driven by lower labor costs and a strong supply of technological capabilities compared to Western Europe.
There is a significant boom in manufacturing within Europe, especially in the semiconductor industry, which is expected to influence other industries. Major improvements in the development of sectors such as renewable energy, industrial automation, automotive manufacturing, battery manufacturing and recycling, and AI are poised to promote the growth of (Electric Vehicle HVAC Market) in the region.
Asia
Asia will continue to be the global manufacturing hub for (Electric Vehicle HVAC Market) over the forecast period with China dominating the manufacturing. However, there will be a shift in manufacturing towards other Asian countries such as India and Vietnam. The technological developments will come from China, Japan, South Korea, and India for the region. There is a trend to improve the efficiency as well as the quality of goods and services to keep up with the standards that are present internationally as well as win the fight in terms of pricing in this region. The demand in this region will also be driven by infrastructural developments that will take place over the forecast period to improve the output for various industries in different countries.
There will be higher growth in the Middle East as investments fall into place to improve their standing in various industries away from petroleum. Plans such as Saudi Arabia Vision 2030, Qatar Vision 2030, and Abu Dhabi 2030 will cause developments across multiple industries in the region. There is a focus on improving the manufacturing sector as well as the knowledge-based services to cater to the needs of the region and the rest of the world. Due to the shifting nature of fossil fuels, the region will be ready with multiple other revenue sources by the time comes, though fossil fuels are not going away any time soon.
Africa
Africa is expected to see the largest growth in (Electric Vehicle HVAC Market) over the forecast period, as the region prepares to advance across multiple fronts. This growth aligns with the surge of investments targeting key sectors such as agriculture, mining, financial services, manufacturing, logistics, automotive, and healthcare. These investments are poised to stimulate overall regional growth, creating ripple effects across other industries as consumer spending increases, access to products improves, and product offerings expand. This development is supported by both established companies and startups in the region, with assistance from various charitable organizations. Additionally, the presence of a young workforce will address various existing regional challenges. There has been an improvement in political stability, which has attracted and will continue to attract more foreign investments. Initiatives like the African Continental Free Trade Area (AfCFTA) are set to facilitate the easier movement of goods and services within the region, further enhancing the economic landscape.
RoW
Latin America and the Oceania region will showcase growth over the forecast period in (Electric Vehicle HVAC Market). In Latin America, the focus in the forecast period will be to improve their manufacturing capabilities which is supported by foreign investments in the region. This will be across industries mainly automotive and medical devices. There will also be an increase in mining activities over the forecast period in this region. The area is ripe for industrial automation to enable improvements in manufacturing across different industries and efficiency improvements. This will lead to growth of other industries in the region.
USA – $210 billion is allocated to federal R&D with main focus on health research, clean energy, semiconductor manufacturing, sustainable textiles, clean energy, and advanced manufacturing. Investments by private players are mainly focused on technological development including 5G infrastructure and AI in the region.
Europe – EIC is investing €1 billion to innovative companies in sectors like AI, biotechnology, and semiconductors. There is also a focus on developing the ecosystem in the continent as well as improving the infrastructure for developing industries such as electric vehicles and sustainable materials. Private players are targeting data centers, AI, battery plants, and high end technological R&D investments.
Asia – There are investments to tackle a range of scientific and technological advancements in this region mainly coming in from China, India, South Korea, and Japan. This will include artificial intelligence, 5G, cloud computing, pharmaceutical, local manufacturing, and financial technologies. Many countries are aiming to be digital hubs including Saudi Arabia.
Africa – Investments in the region are focused on improving the technological capabilities in the region along with socio-economic development and growth. Private participants of investments in this region is venture capital dominated who are targeting the various growth elements of the region as social stability improves. The major industries are fintech, easier lending, and manufacturing.
Latin America – The focus in the region is for fintech, e-commerce, and mobility sectors. There are also investments in improving manufacturing in the region. Local investments is focused on improving the healthcare, and transportation infrastructure in the region. The region is attracting foreign investments to improve their ability to utilize the natural resources present in the region.
Rest of the World – The investments in this region are focused on clean energy, green metals, and sustainable materials. Funds in Australia are focused on solar energy and battery technologies, along with high end futuristic areas such as quantum computing. The main countries of private investment in ROW will be Australia, Canada, and New Zealand.
