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Vortex of change continued in the auto supplier market

10-minute read

February 20, 2024

In our last blog post, we discussed the recent M&A developments and technology trends impacting the automotive supplier sector to help shed light on the mission-critical transformation steps needed for industrial suppliers. The “vortex of change” caused by these trends has accelerated even further, forcing many to act now or get left behind.

A testament to this change was this year´s CES, the world´s biggest technology event: whether this be the increasingly blurring industry lines represented by the diverse exhibitors, or the show-floor innovations that exemplified the accelerating shift towards AI implementation, consumer-centricity, and smart vehicle—suppliers are right in the middle of the action, both using tech for good while seeking to secure their share of the pie.

In this new blog post edition, we will thus touch and focus on the additional “game changing” interventions that automotive suppliers need to adapt to stay well positioned and competitive in the future.

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Automotive suppliers' business models under high risk

Traditional business models in the automotive supplier market are facing unparalleled challenges. Growth is slowing down in most major automotive markets, in particular the Chinese vehicle market—globally the biggest vehicle market and the main growth driver in the past—is slowing down to single digit growth rates.[1]

Moreover, automotive suppliers which heavily invested in EV technologies, do not yet generate the expected returns as electric vehicle volumes are still lagging behind in almost all major automotive markets.[2] Even the electric vehicle sales in China will probably not solve the volume trap automotive supplier companies have to overcome. So, it doesn´t come as a surprise to see more and more suppliers doubling down on diversification and even evaluating asset sales amid this industry uncertainty.

Case in point

Continental seeking to turn around its key automotive unit by carving out the user experience business. At its Capital Market Day on December 4th, the company announced its strategy to achieve mid-term targets including a package of cost-reduction measures. Besides making the user experience business area to become organizationally independent to step up its focus on value-creating business areas with high growth, Continental said to also explore options for how to restructure further business activities in the automotive division worth 1.4 billion euros ($1.52 billion) in consolidated sales this fiscal year.[3]

Within this uncertain market environment, we´re not only seeing such divestures and changes in product portfolios, but also ongoing consolidation among global suppliers. A prime example is Schaeffler´s bid to buy Vitesco Technologies. Both companies have signed an agreement to jointly create a leading Motion Technology Company.

The four focused “pure-play” divisions will take leading positions in their respective markets and offer a complete product portfolio, particularly in the area of electrification. The combined company will have a pro-forma annual revenue of around 25 billion euros and employ more than 120,000 people with 44 R&D centers and more than 100 production sites.[4] All of this will elevate Schaeffler´s current No. 28 rank in the annual top supplier list to new heights, as the combined company is expected to be amongst the top 10 of global suppliers.

To adhere to changing consumer preferences for more sustainable vehicles and to ultimately achieve net-zero emissions, FORVIA has introduced MATERI'ACT, aimed at the extensive development and manufacturing of cutting-edge sustainable materials. The new entity is expected to offer materials with up to 85% CO2 reduction compared to existing materials and is projected to achieve over two billion euro sales in 2030—all while accelerating the sustainable transformation of FORVIA´s business.[5]

To address profitability issues and adapt to industry's changing dynamics, supplier companies must redefine their target industries, consider divesting non-strategic assets, and pivot towards more agile business models. This is crucial for long-term success in the fiercely competitive automotive sector, especially with the emergence of strong competitors from China that have gained a competitive edge in nearly all aspects of the BEV value chain. Chinese car brands have seen their domestic market shares climb in recent years now controlling a majority of the world´s largest car market for the first time;[6] and these players are also entering the market abroad at high speed.

With that, these new OEMs alongside suppliers are doing nothing less than reshuffling the cards in the global automotive game. This and the fact that established OEMs are pursuing very different strategies counter profit margin pressures—such as market exits or efficiency programs, while other OEMs focus on long production runs or on the proliferation of brands—will have consequences for suppliers.[7] Both OEMs and suppliers have no time to lose to increase the resilience of their business models by finding a new balance.

Overcoming a debt refinancing hurdle is business critical

As many suppliers are grappling with financial challenges that are often exacerbated by the need for significant investments in new technologies and sustainable practices, overcoming debt refinancing hurdles has become a business-critical imperative. Historically low interest rates provided rare opportunities for auto suppliers to make strategic investments. But the higher interest expenses and elevated debt service level is burning cash that could otherwise be used for critical business purposes.  In fact, our analysis reveals a notable tightening of financial conditions for suppliers in recent years.

Specifically, in 2018, 13% of the top 30 global automotive suppliers faced difficulties refinancing their debt due to their high net leverage ratio. This challenge has considerably intensified since then and has reached already one third of the top 30 suppliers in 2022.[1] And suppliers´ situation might worsen due to the increasing cost of capital and tightening credit conditions which is also a big concern for investors. Because debt is inherently risky, lenders and investors tend to favor businesses with lower debt-to-equity ratios, as this means lower risk of loan default and decreased probability of bankruptcy in the event of an economic downturn. This is leaving many suppliers with a high debt-to-equity ratio as most vulnerable right now.

However, a business that ignores debt (re-)financing entirely may be neglecting important growth opportunities. For example, Faurecia announced earlier in 2023 that it has entirely refinanced the Hella acquisition through pricing an additional €250 millions of sustainability-linked senior notes.[2] Following the merger of Faurecia and Hella in 2022, the combined company FORVIA became the world´s 7th-largest automotive supplier with a highly advanced technology portfolio.

To be better positioned to capitalize on emerging opportunities, it is apparent that suppliers must reevaluate their financial strategies, explore new funding sources, and consider strategic partnerships to weather the storm. By taking these steps, automotive suppliers can overcome their debt refinancing challenges and continue to operate as viable businesses.

The role of GenAI in thriving, not just surviving

In the face of current market challenges, the investments in and the integration of cutting-edge technologies is a key differentiator of automotive supplier businesses. Digital experiences, data and analytics, connected products and services, all stand to change as technologies like generative AI mature and scale.[1]

Numerous companies in the automotive industry are now riding the wave of hype around GenAI. This is hardly surprising given the disruptive potential GenAI has, not only in terms of enhancing operational efficiency and decision-making, but also when it comes to predictive maintenance, demand forecasting and supply chain optimization.

  • Predictive Maintenance: GenAI can analyze data from production lines and equipment, predicting potential failures before they occur. This proactive approach minimizes downtime and reduces maintenance costs for suppliers.

  • Demand Forecasting: By harnessing the power of artificial intelligence, suppliers can analyze market trends, customer preferences, and economic indicators to generate accurate demand forecasts. This enables more efficient inventory management and production planning.

  • Supply Chain Optimization: GenAI can optimize supply chain processes by dynamically adjusting to changes in demand, identifying bottlenecks, and enhancing overall efficiency. This results in a more agile and responsive supply chain.

So how is GenAI already being used in the supplier sector? For example, Bosch[2] is taking modern manufacturing to a new level with GenAI. The German supplier recently announced that generative AI produces synthetic images to advance, scale, and optimize AI solutions for optical inspection. Their goal is to reduce AI implementing time from months to weeks, resulting in productivity gains and cost savings in the six-to seven-figure range per year and plant.

To further drive cross-industry AI adoption, collaboration is a powerful approach. Consider the recent announcement of Schaeffler and Siemens[3] introducing the Industrial Copilot to the shopfloor. Together with Microsoft, Siemens has developed an AI-powered assistant aimed at improving human-machine collaboration in manufacturing. Optimizing the engineering and operation lifecycle, the Industrial Copilot helps Schaeffler simplify virtual collaboration of design engineers, frontline workers, and other teams across business functions.

While first projects like these that fundamentally change industrial production for the better are underway, a reality check is still pending including how automotive suppliers can unlock the full potential of AI and GenAI. At Accenture, we´re convinced that generative AI has the potential to impact much more than just the task at hand. Our recently launched Tech Vision report highlights the ways technology including GenAI enable new ways to unleash human potential. It´s already starting to profoundly reshape organizations and markets, reinventing business as we know it—and suppliers must get prepared.

To get started, and to make the GenAI hype a reality, we recommend suppliers consider the following:


Recognize AI not just as a technology, but as a strategic driver for business success. AI/GenAI is both a determinant of your competitive edge and an enabler for future growth.


Appoint a senior executive to own and architect the AI journey across the entire organization.


Emphasize a value-focused approach from use case identification to process definition, ensuring that AI initiatives align with measurable outcomes for your business.


Implement robust governance structures to establish guard-rails for AI implementations, ensuring ethical and responsible use.


Foster a culture of continuous learning and upskilling of talent to keep pace with evolving technologies and industry trends.


Embrace an agile mindset, allowing for rapid testing and learning in AI initiatives.

Incorporating these refined strategies into your AI adoption journey will not only enhance the likelihood of success, but also contribute to building a resilient and adaptive organization in the face of the supplier industry´s shift.

Thinking the unthinkable for long-term success

Apart from today’s operational challenges, automotive suppliers must increasingly deal with new competitors—be it from China or from persistent tech & media players pushing hard to get their foot into the connected and electrified car. To address this and other critical success factors, suppliers need to think about the hypothetical market conditions in the long run. In our “Industrial Vision 2040” workshops, we explore future scenarios along the below questions and evaluate the risks and implications on their business- and operating model and IT architecture:

  • How will global trade flow look like in 2040?
  • How will climate concessions impact companies in the long run?
  • How can suppliers manage resource disposability long-term?
  • How fast will new technologies such as GenAI be applied and impact operational models?
  • How can companies attract and retain the talent they need for their business transformations?

Not many executives in the automotive supplier sector would dispute that these questions are important. But executives’ full focus on the daily business means there is often not enough time to step back and think the unthinkable to prepare their companies for the business environment in the long term. Much of the decision making in the automotive supplier industry is, indeed, incremental—focused on something happening a year or two years from now (such as where to put in an efficiency program). This incrementalism could leave suppliers in the wrong place as the industry reinvents itself over the next decade. Balancing both, the daily business and the strategic long term view, will be mission-critical to enable future success.

Embracing the vortex of change

Approaches that served automotive suppliers well in the past are going to fall short in the coming period of disruption. Suppliers must reassess their business models, address financial challenges head-on, and leverage the power of artificial intelligence and GenAI to stay ahead of the curve. The need for swift adaptation is non-negotiable. Embracing and more importantly anticipating change—all while getting out in front of them through concrete strategic actions—is the best way to shape your company's future. Contact us if you want to further discuss.


Jean-Nicolas Brun

Managing Director – Industrial & Service Lead EMEA and Global Suppliers Lead