- Disruptive trends in automotive industry affecting all supplier sectors
- Suppliers face accelerating technological change with emergence of software as key differentiator, and commoditisation of hardware parts
- Business models will need to transform in order to capture future growth
Source: Roland Berger and Lazard Automotive presentation. Summary of the research. |
While the global automotive supplier industry continued to grow in 2017, disruption caused by four megatrends – shared mobility, autonomous driving, digitisation and electrification* – has gathered pace, according to the Global Automotive Supplier Study 2018 by global consultancy Roland Berger in conjunction with financial and asset advisory firm Lazard. The study projects that supplier CEOs will need to transform their existing business models in order to capture shifting profit pools caused by these megatrends.
The study analysed performance indicators from approximately 650 suppliers around the globe to assess the current state of the industry, as well as trends and challenges.
In 2017, the global supplier industry is expected to see revenues increase by approximately 3% compared to 2016, and maintain profitability levels with an average earnings before interest and taxes (EBIT) margin of approximately 7.3%. For 2018, the study authors expect suppliers to enjoy continued revenue growth, but at a slower pace, while maintaining stable EBIT margins. "The overall fairly positive sentiment is reflected in valuation levels of suppliers that are still trading above their long-term average," said Christof Söndermann, Director at Lazard. "But the four megatrends in the automotive industry are causing disturbance in all supplier domains."
Recent developments point towards an acceleration of the disruption caused by four megatrends:
1. New mobility business models (such as ride-hailing and car-sharing) are poised to disrupt car ownership, personal mobility and goods logistics
2. The timeline for level 4/5 autonomous driving keeps accelerating as necessary economics, regulations and technology fall into place
3. In digitisation, artificial intelligence (AI) offers almost limitless possibilities, while connectivity-enabled technologies are reaching the point of mainstream application
4. Momentum for electrification is building among regulators and original equipment manufacturers (OEMs), and progress on technology is accelerating
Based on these trends, disruption in the industry appears inevitable, but the transition period continues to be marked by a high level of uncertainty, said Roland Berger and Lazard. They recommend that automotive suppliers prepare for five distinct changes that are emerging: slowing growth; accelerated technological change; software as a key differentiator; commoditisation of hardware; and pressure on valuations for commoditised suppliers.
"Technology shifts require suppliers to substantially invest in old and new technologies in parallel, with benefits from new technology investments being uncertain," said Martin Tonko, President Director at Roland Berger in Indonesia. "Margins and valuation levels in commoditised fields will come under pressure, but at the same time, electrification and digitisation offer new monetisation options." He added that in Indonesia, automotive suppliers must invest even more than their Southeast Asia counterparts, as they start from a lower technology base and must keep up with external competitors.
Against this backdrop, the study's authors have identified a number of elements for suppliers to consider when transforming their business models to capture future growth opportunities. Among these, are factors that affect strategy and portfolio, such as the impact of automotive megatrends, which segments and products will experience continuous growth, and how new segments can fit their current businesses. They must also determine how best to exit businesses that they deem unviable. "Deep knowledge of disruptive trends is essential for any supplier," said Tonko. "The current supplier business model of offsetting negative cost impacts with volume growth will no longer work."
Potential implications include divestment and diversification into new growth areas, which is already reflected in ongoing mergers and acquisitions (M&A) activity in the sector in 2017. Innovation partnerships are increasingly important, and time is critical as many have already been formed. "Pressure for suppliers also comes from OEMs, whose business model is equally disrupted by the megatrends," observes Michael Schmidt, Director at Lazard.
Against this backdrop, the study's authors have identified a number of elements for suppliers to consider when transforming their business models to capture future growth opportunities. Among these, are factors that affect strategy and portfolio, such as the impact of automotive megatrends, which segments and products will experience continuous growth, and how new segments can fit their current businesses. They must also determine how best to exit businesses that they deem unviable. "Deep knowledge of disruptive trends is essential for any supplier," said Tonko. "The current supplier business model of offsetting negative cost impacts with volume growth will no longer work."
Potential implications include divestment and diversification into new growth areas, which is already reflected in ongoing mergers and acquisitions (M&A) activity in the sector in 2017. Innovation partnerships are increasingly important, and time is critical as many have already been formed. "Pressure for suppliers also comes from OEMs, whose business model is equally disrupted by the megatrends," observes Michael Schmidt, Director at Lazard.
"Not only are both looking at the same potential partners and M&A targets in the new growth areas of shared mobility, autonomous driving, digitisation and electrification, but the distribution of the value chain and the depth of vertical integration still remains to be seen."
According to the study, the disruption offers a unique opportunity for traditional suppliers to expand from selling hardware only to selling features and services. For suppliers to succeed in the new automotive environment, they will require a new set of competencies and capabilities. They will have to rethink their overall strategy with an open mind, act fast and be flexible, find new ways to innovate, and enter into partnerships with new players.
Explore:
Download the Global Automotive Supplier Study 2018
*Electrification refers to the shift from vehicles powered by petrol to vehicles powered by electricity.
According to the study, the disruption offers a unique opportunity for traditional suppliers to expand from selling hardware only to selling features and services. For suppliers to succeed in the new automotive environment, they will require a new set of competencies and capabilities. They will have to rethink their overall strategy with an open mind, act fast and be flexible, find new ways to innovate, and enter into partnerships with new players.
Explore:
Download the Global Automotive Supplier Study 2018
*Electrification refers to the shift from vehicles powered by petrol to vehicles powered by electricity.
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