Whether it be for one company or an entire industry, forecasting is one of the most difficult practices in business. We have not yet invented a crystal ball to tell us exactly what will happen next, but through opinion, expert, and data analysis, we can come pretty close. In addition to the business world, forecasting is evident in everyday life. For example, I use forecasting to predict my final grades here at UR. Analyzing previous test or homework scores for a class enables me to develop an estimate for what I might receive on the final exam. Forecasting is all around us, but for this post specifically, it leaves its mark on the automotive industry.
https://www.ft.com/content/32aa5418-1ada-11e8-aaca-4574d7dabfb6 *Google article title if link won’t work*
According to the article above, a major French supplier to the automotive industry, Valeo, predicts that 10% of all vehicles sold by 2025 will be completely battery-powered. This is a major step up from the 5-6% they predicted for 2025 only a year ago. So, what caused the sudden jump in expectation? Car manufacturers across the globe have ramped up their investment in electric-battery technologies due to a number of external factors including plummeting diesel demand and the banning of older cars in certain cities. Valeo has taken note and increased their forecast accordingly.
To better understand this forecasting increase, it is essential to look at the time series. In this case, the demand pattern for electric-powered vehicles can be explained as a trend. Government regulations are continuously being implemented to preserve the environment, so as a result, clean, electric cars are becoming more popular each year as they better align with regulatory standards. In addition to government regulations, everyday consumers are growing more environmentally conscious. People are actively looking to do their part to help the environment. These two factors serve as the main drivers for automotive manufacturers to invest more heavily in electric vehicles. Because the technology is not quite there yet, electric cars remain comparatively expensive and, as a result, less popular. As more vehicle manufacturers invest in new technology, however, electric cars will grow less expensive and more accessible. Using this judgment method and thought process, Valeo’s forecasting increase for electric car sales can be explained.
While electric vehicles are forecasted to grow, the article above details how gasoline is expected to do the exact opposite. The two have a very strong negative correlation. For companies like Sunoco, this disheartening information needs to be handled carefully. They could use this forecast to their advantage by investing in new electric technology, but if they reallocate their funds from gasoline to technological investment too quickly, they could face major issues involving backorders or stockouts. As fuel becomes less useful for cars, gasoline suppliers need to keep a close eye on their forecast and prepare accordingly as to not incite a gas shortage or, on the other hand, harbor toxic waste. Forecasting can serve as an advantageous tool for any company or industry, but if it is not handled properly, it can quickly turn into a major problem.
That being said, how would you recommend fuel companies manage their forecast moving forward? What about automotive manufacturing companies? How do they compare? What other industries regularly implement forecasting into business strategy?