Cost of manufacturing cars has been on the rise in recent years as rising commodity prices coupled with increased protectionism is making the acquisition of key raw materials more expensive. On top of this the impending arrival of Google and Apple will further strengthen rivalry in the industry.
Eco-Friendly legislation boosting demand for pricier aluminium as players bid to reduce car weight and emissions
Players in the car manufacturing industry have been under great pressure in recent years to manufacture vehicles that are more environmentally friendly. As awareness of climate change has increased governments around the world especially in the US and the EU member states have enforced greater restrictions on car manufacturers. In a bid to make their vehicles more fuel efficient and reduce their emissions, car manufacturers have sought to utilize materials that are lighter.
The most prominent example is the increased usage of aluminium whose lighter weight as compared to steel means cars end up using less fuel when being driven. Aluminium however also costs more than steel. Meanwhile the growth in demand of electric vehicles has also boosted demand for commodities such as lithium and cobalt which are imperative in the battery making process. The strong growth in demand for aluminium, lithium and cobalt has driven their prices up immensely. On top of this, protectionist measures increasingly imposed by governments on the import of aluminium and steel have driven up prices further. As these prices have increased so have production costs.