How automotive suppliers can succeed in the vortex of change
September 26, 2022
In this second blog post of a three-part series, we will discuss the current M&A and technology developments in the automotive supplier industry to help shed light on mission-critical transformation steps for industrial suppliers.
The automotive industry is experiencing changes not seen in over a century. Today, with trends like the shift from internal combustion engine (ICE) technology to electrification, the current industry ecosystem is evolving and may eventually bear greater resemblance to today’s high-tech sector. In our previous blog, we saw that industrial suppliers would need to start mimicking tech companies. Meanwhile, new players will likely enter and leaders in different specialties—sometimes setting industry standards—may eventually emerge. Evidence for this is strong as we see a growing amount of merger and acquisitions (M&A) activity in the industry.
So, what will established automotive suppliers need to do, starting today, to be well positioned competitively in the future?
Understanding the state of the global automotive suppliers market and underlying trends will help set the stage for how to enhance competitiveness. Below is a snapshot of the five most important trends we see:
Within this environment, we are seeing ongoing consolidation, divestures and change in product portfolios among global suppliers. For example, the investment pressure on electric and autonomous vehicles and software will further accelerate M&A activities and industry consolidation. In fact, we anticipate that the entire automotive supplier market will be dominated by a handful of players within the next few years. Evidence for this is strong as already in 2020 and 2021 the top 10 of the top 100 suppliers accounted for 40% of the total global sales—with the top 5 each reaching sales over $30 billion.8 A prime example is the merger of Faurecia and HELLA creating the 7th largest global automotive supplier with a highly advanced technology portfolio. The combined group, Forvia, has publicly stated their ambition to reach sales above €30 billion, with an operating margin of over 8.5 percent by 2025, by focusing on six business groups and areas such as e-mobility (incl. hydrogen solutions), ADAS & autonomous driving, cockpit of the future, and lifecycle value management.9
We are also seeing new entrants, many digital natives bringing technical innovations and the agility to maneuver quickly to fill emerging market needs. For example, US-based chip maker Nvidia expects its automotive sales to grow by more than a third to $11 billion this year, based on booming demand for greater automation in cars. The company is now increasingly betting on software and chips that underpin sophisticated driver-assistance systems.10
New technologies are emerging for everything from infotainment centers to autonomous driving systems. In particular, the quest for green, carbon-free fuel alternatives is spawning ongoing M&A activity and development in hydrogen technologies for FCEVs, batteries for BEVs and solar-power augmentation. A prime example is the partnership Michelin and Faurecia struck with Symbio for hydrogen-powered vehicles. Renault also has a hydrogen joint venture with US-specialist Plug Power called Hyvia. Plastic Omnium, which makes body components and fuel tanks for traditionally powered cars, is shifting into supplying electrified vehicles and also branching into areas such as hydrogen.11
In the transition to a more sustainable future, batteries will also play a major role. Not only does battery use help reduce carbon emissions, but it also represents a significant value-creation opportunity for manufacturers and supports national economic growth. In fact, the biggest opportunities may be in Europe and North America, which have a rather immature EV battery value chain and an insufficient number of gigafactories compared to China.12 To serve the growing demand and boost Europe’s battery ambitions, the world’s largest auto supplier Bosch recently announced a joint venture with Volkswagen to explore the possibilities of industrial-scale solutions in battery manufacturing, aiming to establish a fully localized European supply chain for e-mobility. For Bosch, the move will strengthen its role in the transition towards EVs, which represent a threat for many automotive suppliers since EV manufacturing requires fewer steps and less labor than building a traditional combustion engine.
Having examined market and M&A trends as well as emerging technology developments, a critical question remains to be answered: What is the path forward for industrial suppliers? Examining how the top automotive suppliers are positioning themselves can provide important insights. Industrial suppliers should carefully consider the following key areas to shape their future:
Industrial suppliers must navigate change across multiple dimensions over the coming years. Understanding how the above-mentioned trends and developments factor into a changing global supplier landscape is a starting point. However, suppliers must accelerate their own change agendas starting today to seize new opportunities and to secure a strong position in the future.
In the next post of this three-part blog series, we will share our perspectives on the above-mentioned new business model developments and related talent demand and skill sets.