A look at the future of the automotive industry: the Global Automotive Supplier Study

The latest Global Automotive Supplier Study 2023 from Roland Berger and Lazard provides a detailed insight into the current state and key challenges facing the European automotive industry. It focuses on various aspects, including the financial health of suppliers, the outlook for the industry and the strategies needed to adapt and successfully navigate the various current challenges. The study is available in English Global Automotive Supplier Study 2023 and the Slovak Association for Electromobility provides a short summary:

The automotive industry has faced a series of crises in recent years. From weak market growth to costly regulatory frameworks, expensive raw materials, rising labour costs, capital constraints and declining margins, suppliers have had to cope with many challenges. The main challenge is global disruptive change, radical innovation and a technological transformation that seems unstoppable.

The coronavirus pandemic halted decades of growth in the automotive industry, followed by supply chain disruptions and the war in Ukraine, which accelerated commodity price rises and general inflationary pressures. Skilled labour shortages, massive inflation and rising interest rates are also significant. All of these factors have led to significant problems in the industry even before the current geopolitical conflict in the Middle East.

Despite the decline in the growth of automotive production in most of the world, China, India and South East Asia are gradually becoming the driving force behind global vehicle production. Europe and North America are unlikely to return to their production peaks until the end of the decade. Uncertainty threatens the economic future and the automotive industry still faces geopolitical uncertainties. In contrast, India and South-East Asia are forecast to grow strongly over the same period.

Suppliers are facing significant negative impacts on their profitability. Lower order volumes have reduced their ability to benefit from efficiencies. In addition, the market remains volatile due to supply chain issues and program changes by OEMs. These factors, together with inflationary pressures, have led to a decline in supplier margins from around 7.5% to less than 5%.

Traditional suppliers have fared considerably worse than technology ‘players’, which are less affected by current developments. The differences between traditional and new technologies in the automotive industry are also significant. Traditional OES suppliers in areas with high profit potential are lagging behind new, more profitable players such as battery, semiconductor and software suppliers.

The automotive industry continues to develop, but its growth will be based on different parameters than in the past. Other players are likely to underpin growth. While traditional internal combustion engine technologies continue to decline and mechanical components move ever closer to standardisation, growth will primarily be generated by software, electronics and battery technologies.

Chinese OEMs are steadily increasing their market share and already have a leading global position in BEV production. In contrast, traditional Western suppliers are becoming increasingly irrelevant, while new entrants (often established and well-financed technology players from other sectors) are gaining strong market positions by capturing major (and profitably attractive) segments of expected future growth.

For traditional suppliers, it is important to radically rethink their strategy and find their place in the automotive future, which is, however, just around the corner. The automotive supply industry will continue to be a growth industry, albeit with different components, for different customers and different suppliers than today.

The summary and recommendations of Roland Berger ‘s Global Automotive Supplier Study 2023 highlight the need to implement targeted efficiency programs. These programmes should stabilise margins, improve cash flow and protect businesses from future uncertainty. Another key recommendation is to focus on the Asian market, where product portfolios, manufacturing locations and supply chain structures need to be adjusted. Also critical is the need to acquire and maintain expertise in software, batteries and new propulsion technologies, which includes the ability to attract and retain the necessary expertise beyond the traditional mechanical and mechanical engineering expertise that has been a strength in the supply chain to date, particularly in Europe.

It is also important to foster mergers, joint ventures and other forms of cooperation with automotive OEMs and other suppliers to successfully manage the capital-intensive transformation of the industry. Finally, suppliers need to clearly define their strategic path, which means deciding where to invest and capture growth, but also where to consolidate and what activities to divest in due course.

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