The purpose of the paper is to address the changes that have occurred in the automotive sector in recent years, with a particular focus on automotive companies, the central and driving element of the industry, and their adaptation to the transformations resulting from the electrification of the car model range. Three main determinants of the industry’s ongoing change have been identified.
The first of these is represented by emission regulations. Many countries are adopting increasingly stringent regulations to combat climate change, obliging automakers to comply with very low limits for pollutant emissions.
The second driver of the examined change is related to the development of new propulsion technologies. Thanks to recent investments in research and development, the propulsion options available to automotive companies have significantly expanded, ranging from traditional internal combustion engines (diesel and petrol) to a wide range of alternatives, including electric vehicles, plug-in hybrids, and mild hybrids.
The third element is the growing importance given to building an ecosystem around the vehicle, catalyzed by the spread of electric cars, leading to the expansion of businesses in which automotive manufacturers operate.
Automakers have responded to this new scenario by adopting different strategies. Some have fully embraced the ongoing change by focusing on electric models; others, more cautious, have tried to maintain a balanced mix of traditional and electric models; and still others, more backward-looking, continue to invest in internal combustion technologies.
Based on the examination of the strategic plans announced to the market by automotive companies, the paper proposes an empirical analysis aimed at evaluating the elements related to electrification that are most appreciated by the market. Using the event study method, the study examines abnormal stock returns following the announcement of strategic plans of carmakers, particularly analyzing the characteristics of plans that are more advantageous in achieving a better stock return after their presentation.
The object of the analysis is, therefore, the market reaction, evaluated in terms of the variation in the reference stock price, following the presentation of the strategic plan by the automotive company. The statistical sample constructed for the analysis includes 67 strategic plans presented between 2010 and 2023 by 21 global publicly listed automotive companies.
The chosen model is the event study model, where the event is represented by the communication of the strategic plan by the automaker to the market. Two analyses were conducted: an analysis with untreated data and an analysis with winsorized data at the 95th and 5th percentiles to reduce the impact of outliers.
The event windows chosen for the analysis are three symmetric windows, +/- 1 day, +/- 3 days, and +/- 7 days from the date of the strategic plan's communication to the market. The SP 1200 Global index, representing 75% of global market capitalization, was chosen as the market control index of the model.
In terms of descriptive statistics, some fundamental data for the hypotheses to be presented shortly are provided. The average duration of the strategic plans in the sample is 5.7 years, with a median of 5 years. The statistical sample consists of 54% short-term plans (with a duration of 5 years or less) and 46% long-term plans (with a duration of more than 5 years).
Another important metric for the analysis is the electrification strategy. Two clusters were created to evaluate it: one for plans with intensive electrification strategies and one for plans with weak strategies. These clusters were further divided into two sub-clusters: one for plans presented in the sample from 2010 to 2015 and one for more recent plans presented between 2016 and 2023.
The aim of this subdivision is to consider the evolution of the context over the 13-year period analyzed in the classification of electrification strategies and to make the strategic plans comparable.
A total of nine research hypotheses were analyzed, with one being the basic research hypothesis, two being the main hypotheses, and the remaining six being secondary hypotheses, all related to electrification.
H1. Communication of strategic plans to the market by automotive companies leads to abnormal returns on stock prices during the period corresponding to the presentation of the plan to the market.
H2. Communication of long-term strategic plans leads to a greater abnormal stock return than the communication of short-term plans.
H3. Communication of strategic plans focusing on intense electrification leads to a greater abnormal stock return than the communication of other types of plans.
H4. Communication of strategic plans involving the development of an ecosystem to support electrification leads to a greater abnormal stock return than the communication of other types of plans.
H5. Communication of strategic plans that include information about the automaker's battery procurement strategy, either through strategic alliances or internal investments, leads to a greater abnormal stock return than other types of plans.
H6. Communication of strategic plans containing information about the creation of platforms dedicated to electric models leads to a greater abnormal stock return than other types of plans.
H7. Communication of strategic plans indicating planned monetary investments for electrification leads to a greater abnormal stock return than other types of plans.
H8. Communication of strategic plans containing the expected year of complete transition to electrification leads to a greater abnormal stock return than other types of plans.
H9. Communication of strategic plans adopting a global approach to electrification strategy leads to a greater abnormal stock return than other types of plans.
Following are some examples of model output, specifically, the output for the base hypothesis H1, for hypothesis H3, and finally, for hypothesis H4. The main outputs of the model are the CAAR, Cumulative Average Abnormal Returns, and the percentage of positive CAR recorded overall.
In summary, five of the nine hypotheses were verified.
In particular, the base hypothesis regarding the market reaction following the communication of the plan was verified, as well as the main hypothesis concerning the electrification strategy, that regarding charging infrastructure, and finally, the communication of planned investments and model platforms.
What are the managerial implications and key takeaways from the model results?
Firstly, the primary key result of the model is that, on average, the market reacts negatively after the presentation of the strategic plan by the automotive manufacturer, with an abnormal return averaging -2%.
Additionally, the market values an intensive electrification strategy that includes investments in charging infrastructure, the construction of model platforms dedicated exclusively to electric models and recognizes the added value of plans that disclose the total investments planned for electrification.
On the other hand, from the analysis of the unverified hypotheses, especially H8 and H9, it can be inferred that the market still deems a certain caution necessary in electrification strategies, adjusting investments based on different geographical areas. The market seems to prefer a regional electrification strategy rather than a global one, aiming for a product mix that does not solely focus on total electrification but also includes other alternatives to meet the needs of markets not currently inclined towards electrification.
Finally, the limitations and potential developments of the research:
The limitations are primarily related to three areas:
- Limitations related to the event study, hence the model.
- Limitations related to the small size of the statistical sample.
- Limitations related to the information considered by the model.
Further research developments could be linked to the creation of a model that overcomes some or all of the aforementioned limitations. Additionally, the use of different event windows or a different market index could contribute to enhancing the research.
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