Audi is a renowned manufacturer of luxury automobiles based in Germany. The company has a vast presence with operations in more than 150 countries. Audi has a huge financial advantage in terms of increasing net cash flows and revenues. The revenue of the company in 2021 increased by more than 6% to reach 53.1 million euros while during the same period it had a huge cash flow reserve of 7.8 billion euros. Further, Audi has a long list of high-performing competitors in the market including BMW, Mercedes Benz, Jaguar, etc.
This article presents a well-crafted PESTLE analysis of Audi delving deep into the influence of external business factors on the automotive industry. To explain, the PESTLE Analysis Model is one of the important tools to analyze the external environment that can impact the industry. This article would analyze the impact of the political, economic, social, technological, legal as well as environmental factors that can have an impact on the automobile industry. The PESTLE analysis would prove to be beneficial for the automotive companies to formulate strategies for efficient operations in Germany as well as India.
Table of Contents
A coherent and ingenious PESTLE Analysis of Audi
Political factors affecting Audi
The automotive industry is quite popular in Germany while it has started gaining momentum in India. The policies concerning Germany that can be beneficial for the auto companies involve the announcement of funding worth $5.9 billion by the federal government of Germany to assist the auto companies in recovering from the losses due to the pandemic. Further, the policy of the government wherein the customers are being offered direct assistance of up to 4000 euros to purchase electric vehicles can play a significant role in boosting customers’ confidence to purchase the vehicles government with regard to buying more EVs. (Nichos & Jennen, 2016). Therefore, the companies should invest more in manufacturing high-performing EVs to stay competitive.
Moreover, as India is also one of the emerging markets for the automobile industry, the government is also promoting electric vehicles on a huge scale, it has set aside a budget of $500 million, hence leading to an increase in concerns for the automobile companies engaged in more production of gasoline-run vehicles. Further, the taxation system for automobiles in India is highly unfavorable as 28% GST is imposed by the federal government on vehicles above 1500 cc along with the registration fees and other charges (ET Auto, 2021).
The high taxation would lead to an increase in the prices of cars by manifolds which would reduce the affordability of many customers, this having a negative impact on the sales of the auto industry. However, it is also noteworthy that the auto industry is having production issues due to the global chip shortage as a result of COVID and the production could further get impacted because of the ongoing war between Russia-Ukraine as Ukraine is the major supplier of the neon supplies used to manufacture the semiconductor chips.
Economic factors affecting Audi
Germany is among the top economies of the world however, because of the economic repercussions of the COVID-19 pandemic, there were a few setbacks. Subsequently, the German economy is going through instability wherein the level of growth is predicted to rise in 2022 as compared to 2021 but in 2023 it is forecasted to decline. The growth in 2021 was 2.8% and as per IMF, the growth in 2022 would be 3.6% and 2.6% in 2023 (IMF, 2021).
Further, the unemployment rate by the end of 2021 was 5.1% (KPMG, 2022). The future predicted unemployment rate for 2023 and 2024 is 4.9% and 4.7% respectively. The moderate unemployment rate can pose a challenge to companies while recruiting employees have to shell out more money. The positive news for the car companies is that there aren’t significant increases in prices of inputs in the country as the level of inflation is moderate, it touched 3.1% in 2021.
Further, India, one of the major markets for the automobile industry and the economy is expected to rise to 8.7% in 2022 whereas it will lower to 6.6% in 2023 (Singh, 2022). Also, India’s growth rate is one of the highest in the world. The unemployment rate in India is 6.5%, the lowest since March last year. As employment is gaining momentum, more people would be having a fixed source of income which would lead to an increase in the sales of the automobile industry.
Social factors affecting Audi
Germans are becoming more fascinated with environmentally-friendly vehicles. More than 9.65 million people consider sustainability while purchasing the vehicles and the people are even ready to pay a premium for the ultra-modern and high-performing EVs (Koptyug, 2022). This highlights the need for the companies to innovate and manufacture high-quality EVs to increase sales.
Further, Indian consumers are shifting to utility vehicles from sedans and hatchbacks and this can be a great opportunity for many companies to explore new markets. In addition, nearly one-third of the customers in India prefer safety over other features and they are ready to pay more for safer cars. Moreover, the demand for luxury vehicles is increasing in India, and the customers from Tier 2 and Tier 3 cities are shifting towards luxury with the increase in income. This signifies the potential for growth in the Indian market. For integrating these changes, the companies can rely on the Mckinsey 7S Model which is an internationally recognized change management model.
Technological factors affecting Audi
The German government spends 75 billion euros yearly on average on research and development while the government of India spends very less on research and development. The expenditure in 2021 was just Rs. 851 crores and the budget has been further lowered to Rs. 812 crores for 2022. Further, the automotive industry is being revolutionized through the use of several technologies that include the concept of autonomous vehicles. This technology makes use of sensors and the vehicle can steer itself.
Autonomous technology is highly beneficial to the drivers as it prevents them from collisions by maintaining a safe distance from the other vehicles. The use of technology in manufacturing has lessened the need for manual labor and the products can be designed accurately with fewer errors. Many companies have started manufacturing the parts by using 3D printers. Also, the application of AI and robotics is increasing at an unprecedented pace in the automotive industry.
The positive aspect of the auto industry is that many companies are experimenting with various technologies in the electric vehicle segment, which is considered to be the future of the industry. Technologies like solar-powered cars and superfast charging of batteries if clear the testing phase can be game-changer for automotive companies in terms of enhancing the efficiency of the vehicles. However, at the same time, the industry needs to be watchful of the exploitation of technology.
Legal factors affecting Audi
Various laws that govern the automobile industry in Germany include the Automated Driving Act, Product Liability Act, Patents Act, etc. The Automated Driving Act states that automated vehicles would only be permitted on roads if a driver is present in the vehicle and fully automated operations i.e. driverless technology is not permitted (Oitzman, 2021). Further, the patents in Germany are governed by the Patents Act and European Patent Convention. The timeframe for which patents are granted is 20 years.
In addition, the Product Liability Act enlists the responsibilities of the manufacturers and retailers for the provision of safe goods to the customers. If the customer gets injured or dies using the product, then the companies may be required to reimburse the damages to the consumer up to the maximum amount of 85 million euros per product (Pinsent Masons, 2019). Therefore, the companies should focus on building quality products with enhanced safety features to avoid high penalties.
Further, the auto industry in India is governed through the Motor Vehicles Act which specifies laws related to companies and car users and the recent amendment in the motor vehicles act wherein it is mandatory for the companies to deploy 6 airbags in the cars from 2023 would lead to increase in the prices of the cars. Further, the amendments in the Motor Vehicle Act also empower the federal government to impose fines on the companies if the vehicles get recalled frequently and the government can itself order the companies to recall the vehicles if the vehicles are found to be polluting the environment or deemed unfit for the safety of the passenger (Merchant, 2017). Hence, the companies should focus on improving the efficiency of the vehicles as the new law can increase their financial burden if the authorities find any negligence in the vehicles.
Environmental factors affecting Audi
The German automotive sector in Germany contributes highly to the carbon emissions in the form of unsustainable fuel in the vehicles and the factories also consume lots of energy while manufacturing the vehicles. The auto industry is estimated to contribute 9% to global greenhouse gas emissions. The federal government of Germany has initiated various steps to eliminate pollution. These involve increasing the taxes on vehicles that produce more than 95 grams of carbon dioxide per km (DW, 2020).
Further, alongside Germany, the whole European Union is also acting strongly to contain the effects of the carbon emissions. Going by its mission, a scheme named ‘Fit for 55’ has been introduced wherein from 2035 only the vehicles that run on electric batteries or hydrogen would be allowed to be sold in the whole of Europe. Therefore, the companies should quickly enhance their EV infrastructure to avoid disruptions in operations.
Furthermore, automotive companies have to abide by several environmental regulations in India. These include The Environment Act and the Air Prevention and Control of Pollution Act. For example, two state governments of Delhi and Haryana have been tough on air pollution and recently announced the banning of registration of petrol vehicles above 10 years and diesel vehicles above 15 years. This would force customers to purchase new vehicles. Further, the federal government’s order requiring companies to mandatorily cut the emission from their vehicles from 2023 by 13% would lead to an increase in their research budget. Having said that, it has now become important for companies to address the neglect of environmental responsibility.
To encapsulate, the automotive companies should now shift their focus toward producing more electric vehicles as the governments of both the nations Germany and India are promoting them on a larger scale through various incentives. The level of employment in the emerging market of India is expected to rise which would ultimately lead to an increase in disposable income and more sales for the companies. Consumers in India are purchasing luxury vehicles more than earlier which is a positive sign for the companies. Besides, for assessing the internal capabilities of the company, you can go through our intelligible SWOT Analysis of Audi.
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