Global Automotive Supplier Study 2019 - After years of excellent growth, the market environment is getting difficult - Lazard.com
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Global Automotive Supplier Study 2019 After years of excellent growth, the market environment is getting difficult August 2019
Contents A B C D The The The The status future strategies contacts Increasingly The transfor- Suppliers have Roland Berger difficult environ- mation of the different and Lazard ment after record automotive opportunities to Automotive profits until last industry is well prepare for the teams year underway future © Roland Berger/Lazard 2
Executive Summary (1/2)
> After record years, the automotive industry is facing a difficult time with multiple market uncertainties and a global
production volume decline by -5% in H1/2019 vs. H1/2018
> Especially the slowdown in the world's largest market, China, since H2/2018 is causing problems for the global
suppliers
> As a result – 2019 will not be a year of recovery, but rather stay challenging for automotive suppliers. The average
industry margin is expected to fall below 7% for the first time in the last seven years driving sector valuations below
10-year average
> Amidst a weakening market environment some structural changes have taken place:
Profitability of China/NAFTA-based suppliers is shrinking. However, it is still better than that of European peers. Although
Japanese suppliers improved in comparison with previous years, they remain well below other regions
Tire and chassis suppliers are leading in margins. Interior players remain at the bottom of the automotive suppliers field
Profitability of product innovators came down to 7.3% EBIT margin in the last year, reducing their relative advantage in comparison
with process specialists
> Digitization appears to be one of the most important near-term topics for suppliers as it touches multiple dimensions:
the potential to create new business models, offer new products and services, and improve the efficiency of
operational and administrative processes
> In the long term the mobility landscape of today will change – especially as new market entrants possess a non-
automotive mindset and capture parts of the future automotive business
Source: Roland Berger/Lazard 3
Executive Summary (2/2) > For traditional automotive suppliers the risks in the market are high: on the one hand, they could potentially miss out on new revenue opportunities, and on the other hand, they face increasing price pressure from the OEM side, who have to deal with increasing capital requirements and declining profit pools themselves > For traditional suppliers, access to capital may become tougher. Equity investors favor other industries whereas financing banks are becoming more cautious about cyclicality and long-term threats, especially for many small traditional suppliers. In addition, M&A activities in the sector have gone down recently, with Chinese investors, representing an important buyer group, becoming less active > While many small traditional players will face difficult times, new global entrants and technology system integrators are generally well-positioned for tomorrow's changes. Performance-improvement programs, accelerated capacity adjustments and pro-active portfolio management are recommended countermeasures for most suppliers Source: Roland Berger/Lazard 4
Contents A B C D The The The The status future strategies contacts Increasingly The transfor- Suppliers have Roland Berger difficult environ- mation of the different and Lazard ment after record automotive opportunities to Automotive profits until last industry is well prepare for the teams year underway future © Roland Berger/Lazard 5
Within the first half of 2019 the global automotive markets
significantly weakened relative to 2018
Recent developments in the automotive industry
H1/18 vs. H1/19 [m units]1) Automotive headlines
-5%
"Again a Schaeffler profit "Lear 2Q Profit Falls Amid "Nissan to Cut 12,500 Jobs
48.4 warning" Global Vehicle Production as Its Profit Plunges"
46.0
Others 6.0 Handelsblatt Online – 07/19 Decline" Dow Jones Newswires Chinese –
5.6 Dow Jones Institutional News – 07/19
"Insolvency of Eisenmann 07/19
Japan/
6.6 Group – Next large "Ford's Shrinking China
South Korea 6.5 Business Is Hurting Its
automotive supplier failed" "Weak automotive economy
South America 1.7 starting to badger Hella" Global Ambitions"
1.7 Wirtschaftswoche Online – 07/19
Reuters – 07/19 Dow Jones Institutional News –
NAFTA 8.7 "Bosch sees car production 07/19
8.6 "Michelin margins hit by auto
falling 5% in 2019" "There is a storm brewing"
ReutersNews – 07/19 slump despite price hikes" AUTOMOBIL PRODUKTION –
ReutersNews – 07/19 07/19
Europe2) 11.9 "Goodyear Tire & Rubber's
11.2 "Slackness in sales –
Profit, Revenue Miss "Due to weakening
Estimates" Automotive economy in the automotive markets press
Dow Jones Institutional News – downturn" supplier Schuler cuts 500
07/19 Handelsblatt Online – 07/19 jobs"
China3) 13.5 12.4 Handelsblatt – 07/19
"U.S. auto sales seen "Renault Profit Drops, Hit by
slipping in July" Lower Sales, Nissan Payout"
H1/2018 H1/2019 ReutersNews – 07/19 Dow Jones Institutional News –
07/19
1) Global light vehicle production volume 2) Excluding CIS and Turkey 3) Greater China
Source: IHS May/June 2019, Automotive, Roland Berger/Lazard 6
2018 production was lower than 2017, driven by weakness in Triad
market in H2/2018 – Further decline expected in 2019
Global light vehicle production volume1) by region, 2014-2019e [m units]
NAFTA Europe3) China4)
-7%
CAGR2): -0.1% CAGR2): 2.3% -2% CAGR2): 1.7%
-2%
27.4 28.0 26.9 25.0
23.0 24.0
17.0 17.5 17.8 17.1 17.0 16.7 16.9 18.1 18.7 18.9 18.6 18.1
2014 2015 2016 2017 2018 2019e 2014 2015 2016 2017 2018 2019e 2014 2015 2016 2017 2018 2019e
South America World Japan/Korea
-3%
CAGR2): -2.8% CAGR2): 1.9% CAGR2): -0.9%
-1%
87.4 88.8 93.1 95.1 94.2 91.4
+4%
Most recent expectations announced
13.7 13.2 12.9 13.2 13.2 13.1
by many large suppliers as part of their
3.8 3.1 2.7 3.3 3.4 3.6 H1/2019 earnings even -5%.
2014 2015 2016 2017 2018 2019e 2014 2015 2016 2017 2018 2019e 2014 2015 2016 2017 2018 2019e
1) Incl. light commercial vehicles; 2) CAGR 2014-2018; 3) Excluding CIS and Turkey; 4) Greater China
Source: IHS May/June 2019, Roland Berger/Lazard 7
Growth and profit of previous years come to an end – Average 2019 EBIT margin likely
The overall sentiment is also reflected in supplier valuation levels
that trade below their long-term average
Evolution of automotive supplier valuations
EV/EBITDA NTM1) > Valuation multiples of publicly traded
11x
automotive suppliers are below their
long-term average values, driven by
the weakening market environment
Impacted by the and the existing uncertainties in the
9x economic crisis changing automotive industry, paired
with investors' cyclical concerns
> Recent multiple uplift in early summer
7x
10-y-Ø = 6.2x2) 2019 also driven by reduced earnings
6,0x forecasts
10-y-Ø = 6.0x2)
5x 5,1x > Many suppliers are currently facing
10-y-Ø = 4.4x2)
deteriorating free cashflows, given
comparably high working capital and
3,5x capex requirements in addition to the
3x shrinking operating profits
> Japanese companies continue to
trade at a discount to European and
1x
North American suppliers, reflecting
Aug 09
Aug 10
Aug 11
Aug 12
Aug 13
Aug 14
Aug 15
Aug 16
Aug 17
Aug 18
Aug 19
the stagnation in their home market
Japanese suppliers3) European suppliers4) North American suppliers5)
1) NTM = Next twelve months; 2) Excluding the distorting impact of the economic crisis (Aug–Dec 2009 multiples); 3) Aisin Seiki, Bridgestone, Denso, Exedy, JTEKT,
Keihin, Koito, NHK Spring, NSK, Stanley Electric, Showa, Sumitomo Riko, Tokai Rika, Toyoda Gosei, Toyota Boshoku and TS Tech; 4) Autoliv, Autoneum, Brembo, CIE,
Continental, ElringKlinger, Faurecia, Georg Fischer, Haldex, Hella, Leoni, Norma, Plastic Omnium, PWO, SHW, SKF, Stabilus and Valeo; 5) American Axle, BorgWarner,
Cummins, Dana, Delphi, Iochpe-Maxion, Lear, Magna, Martinrea, Meritor, Tenneco, Tower and Visteon
Source: Factset, Roland Berger/Lazard 9The gap between the valuation of automotive OEMs and suppliers has
narrowed since the beginning of 2018, driven by suppliers' multiple de-rating
Evolution of automotive OEM and supplier valuations
P/E NTM1) > Supplier valuation multiples
29x have historically outperformed
27x Impacted by the OEMs, with OEMs' valuations
25x economic crisis appearing to have reflected
23x risks from disruptive trends
21x to a larger extent
19x
17x > However, the valuation
15x spread has narrowed in
13x 2018 and 2019
11x 10-y-Ø = 11.0x2)
10-y-Ø = 9.0x2) > Investors seem to increasingly
9x 8.2x factor in the headwinds and
7x 6.8x
cost of disruption in their
5x
supplier valuations, being at
3x
1x
the same time more cautious
about the cost and payback
Aug 09
Aug 10
Aug 11
Aug 12
Aug 13
Aug 14
Aug 15
Aug 16
Aug 17
Aug 18
Aug 19
of growth areas for the
supplier sector
Selected automotive OEMs3) Selected automotive suppliers4)
1) NTM = Next twelve months; 2) Excluding the distorting impact of the economic crisis (Aug–Dec 2009 multiples); 3) BMW, Daimler, Ford, General Motors, Honda, Toyota and Volkswagen;
4) American Axle, Autoliv, BorgWarner, Brembo, Continental, Dana, Delphi, Faurecia, Hella, Magna, Norma and Valeo
Source: Factset, Lazard/Roland Berger 10Financial performance of suppliers varies greatly depending on
region, company size, product focus and business model
Profitability trends in the global automotive supplier industry 2018
Region 1 Company size 2 Product focus 3 Business model 4
> Chinese-based suppliers achieved > Mid-size suppliers (EUR 1.0 to 2.5 > Tire suppliers benefit from their > Process specialists are able to
the highest EBIT margins with bn revenues) could realize the aftermarket business and continue catch up to product innovators in
~9.0% in 2018 highest EBIT margins with ~8.7% to realize high EBIT margins of terms of EBIT margins
> NAFTA-based suppliers profit from > Large suppliers with >EUR 10 bn ~11.3% > The systematic "lean" focus of the
their previous restructuring efforts revenues achieved above average > Chassis suppliers also last years pays off with 6.6% EBIT
reaching ~8.4% EBIT margins EBIT margins of ~7.3% outperform the market and reach margins
> However, in both regions EBIT margins of ~8.1% driven by
deterioration expected for 2019 recent technology trends
> Japanese suppliers have > Very large suppliers (EUR 5.0 bn > Powertrain suppliers lost ground > Product innovators are growing
improved but remain at a low level to 10.0 bn revenues) fall behind and achieved below-average strongly but have difficulties
of ~5.8% EBIT margins with an EBIT margin of 6.5% margins translating this further into above-
> Globally, suppliers expected to > Small suppliers (EUR 0.5 bn to > Interior suppliers still trail their average EBIT margins
face margin declines in 2019 1.0 bn revenues) fail in terms of peers, with recently increasing
translating above-average growth margins but still waiting for future
into profitability improvements customization trends to realize
Source: Company information, Roland Berger/Lazard, Roland Berger/Lazard supplier database 111 Region
Automotive suppliers globally have to deal with declining margins –
NAFTA- and China-based suppliers still above average
Key supplier performance indicators by region 2018 [%]
Revenue ~10.7% ~1.9% ~4.9% ~3.5% ~4.3% > China-based suppliers defended their
CAGR far-above-average margins; however,
2012–2018 they are expected to suffer from the
slowdown in the domestic market since
9.0 H2/18
8.4 > NAFTA-based suppliers can defend
their excellent position from previous
7.1 years and are still outperforming
2018 = Ø 7.2 6.6
6.2 European players, but will also see
further declines due to the negative
market development in H2/18 and 2019
EBIT margin
> Europe based suppliers fall behind in
2018 terms of margin development; 2018 and
beginning of 2019 were difficult due to
volume declines and output issues in
conjunction with the new WLTP process
> As in previous years, South Korea–
based suppliers' margins are below
average
China NAFTA Europe South Korea Japan > Japan-based suppliers proceeded
with their recovery in terms of
profitability but are still far behind the
other regions
Source: Company information, Roland Berger/Lazard, Roland Berger/Lazard supplier database 122 Company size
Financially strong multinational suppliers as well as mostly
technology-focused mid-size suppliers achieve the highest margins
Key supplier performance indicators by company size (EUR bn sales) 2018 [%]
Revenue ~4.3% ~6.5% ~3.4% ~1.2% ~5.3% ~4.6% > Large multinational suppliers (above
CAGR EUR 10 bn revenues) can leverage
2012–2018 scale effects and benefit from additional
business potentials due to new
8.7 technologies or digital business models
> Very large suppliers (EUR 5 bn to 10
7.3 bn revenues) are in a sandwich position
2018 = 7.2 7.0 7.0
6.5 between OEM price pressure and high
capital requirements for new
5.7 technologies and further growth
EBIT margin > Large suppliers (EUR 2.5 bn to 5 bn
revenues) achieve industry-average
2018 values for revenue growth and margins
> Mid-size suppliers (EUR 1.0 bn to 2.5
bn revenues) achieve above-average
profitability, mostly on the back of a very
focused and technology-enabled
product portfolio
> Small suppliers (EUR 0.5 bn to 1.0 bn)
10.0 seem to have difficulties translating
growth into margin improvement
Source: Company information, Roland Berger/Lazard, Roland Berger/Lazard supplier database 133 Product focus
Tire suppliers benefit from favorable raw material costs & business
model – Chassis suppliers well positioned for future technologies
Key supplier performance indicators by product focus 2018 [%]
Revenue ~0.4% ~2.7% ~4.5% ~5.4% ~3.3% ~3.6% > Tire suppliers can benefit from their
CAGR aftermarket business; favorable raw
2012–2018 materials price developments in the past
helped to achieve far-above-average
11.3 margins
8.1 > Chassis suppliers achieve above-
7.4 average margins due to advanced
2018 = 7.2 6.9 driver assistance and active safety
6.4 > Powertrain margins further pressurized
5.6 by intensified competition, the cost of
(multiple) innovations and the rise of
electric vehicles
EBIT margin > Exterior suppliers have been growing
2018 strongly. Margins benefited from raw
materials price developments and
increasing importance of light weight
with high-quality material
> Electrics/infotainment suppliers still
below average although importance of
Tires Chassis Power- Exterior Electrics/ Interior components is increasing – intensified
train Infotainm. competition
> Interior suppliers don't see a recovery
Source: Company information, Roland Berger/Lazard, Roland Berger/Lazard supplier database 144 Business model
Product innovators have not kept the high margin levels of the
previous years and have to focus on process efficiency in the future
Key supplier performance indicators by business model 2018 [%]
Revenue ~5.4% ~3.8% > On average, innovative products feature
CAGR higher differentiation potential and
2012–2018 greater OEM willingness to pay higher
prices
7.3
> But overall profit margins of product
6.6 innovators came under pressure due
to increasing OEM price pressure and
intensified competition
> Efficiency improvements, e.g.
subsequent to Industry 4.0 opportunities
EBIT margin and lean approaches seem to pay off
for process specialists
2018
> Gap between process specialists and
product innovators reduced over the
last years; reason to be seen in the
MADE3) trends and the resulting
financial/operational challenges,
especially for product innovators
Product innovator1) Process specialist2)
Note: Analysis excludes tire suppliers.
1) Business model based on innovative products with differentiation potential; 2) Business model based on process expertise (while product differentiation potential is limited)
3) M = Mobility A = Autonomous D = Digitization E = Electrification
Source: Company information, Roland Berger/Lazard, Roland Berger/Lazard supplier database 154 Business model
However, the top performers in terms of average margins are still
among the product innovators
Key performance indicators of top vs. low-performing suppliers1)
14 > Product innovators outperform
Revenues CAGR 2012–2018
13 process specialists in terms of
12 average profitability
11 > Top process specialists, though,
10 Top process achieve average revenue growth
9 specialists that is above the top product
8
innovators
7 Top product > Top process specialist growth
innovators is also accelerated by M&A
6
activities of several players
5 Ø 4.6%
> Large difference in growth rates
4 Low product between top and low-performing
3 innovators
process specialists indicates the
2 Low process relevance of scale economies
1 specialists Ø 7.2%
0
0 1 2 3 4 5 6 7 8 9 10 11 12 13
Avg. EBIT2) margin 2018
1) Top (low) performance based on above-average (below-average) revenue growth 2012–2018, ROCE 2012–2018 and ROCE 2018; 2) EBIT after restructuring items
Source: Company information, Roland Berger/Lazard, Roland Berger/Lazard supplier database 16Contents A B C D The The The The status future strategies contacts Increasingly The transfor- Suppliers have Roland Berger difficult environ- mation of the different and Lazard ment after record automotive opportunities to Automotive profits until last industry is well prepare for the teams year underway. future © Roland Berger/Lazard 17
The importance of mobility- and digitization-related business models
significantly increased while electrified mobility is becoming normality
MADE temperature check 2017 vs. today
2017 2019
Mobility Ride-hailing firms Ride-hailing players
The future of moving
scaling up. OEMs become technology
people & goods trying to figure out drivers. Key role
their role. as future clients.
Autonomous driving Autonomous mobility First players within
is the matter of the autonomous mobility
Replacing drivers to improve
safety, cost & efficiency day. Key topic for established. Hype has
suppliers & OEMs. calmed down.
Digitization Digitization & Digitization of business
connectivity in models fully underway.
Big Data analytics,
connectivity & AI discussion. Focus New sales chan-
e.g. on Industry 4.0. nels and products.
Electrification OEMs and suppliers More and more car models
heavily investing in on the road. Suppliers need
Hybrid or electric powertrains,
batteries, and electric actuation electrified mobility to decide if they intensify
as a future market their activities as well.
Source: Roland Berger/Lazard 18The change in the automotive industry is gaining speed, affecting the
market landscape, product portfolios and required employee skills
Current developments within the automotive industry
Market trends 1 Prerequisites for electric vehicles constantly getting better, e.g. further
emission regulations and ICE city bans, decreasing battery costs or
improving infrastructure
2 Beside new forms of mobility also the mobility mix itself is changing
3 Uncertainty remains over technical development path and legal
framework for autonomous driving
4 Data-based and digital business models enable new business potential
Impacts 5 Sales potential for certain products likely to fall dramatically
6 Customers continue to push suppliers for cost reductions
7 New players enter the automotive business across the entire
value chain
8 Required employee skill-set is changing dramatically
9 Access to capital is expected to become tougher given a shrinking
relative attractiveness of the automotive sector
Source: Roland Berger/Lazard 191 Prerequisites for electric vehicles constantly getting better
Sales numbers for electrified cars still low – But, despite the auto-
motive market cool-down in H2/2018, all markets saw growth for xEV
EV/PHEV/FCEV sales in 2018 [% of total vehicle sales]
2018
29 28 1,166 61 14 363 53 72 33 52 13 101 Prerequisites for electric vehicles constantly getting better
The charging infrastructure for electrified cars is gradually getting
better – But still many countries have a long way to go
Infrastructure: Charging infrastructure [charging stations per 100 km roadways]
Jul -17 / Jul -19
41 0.2 401 8 0 38 26 9 16 2 2 4 22 5 1 0 0
29,3
24,4
21,0
17,5
8,8 8,2
7,0
5,1 5,7
4,3 2,9
2,9 2,9 2,9 2,3 1,3
2,5
1,3 1,3 1,6 2,3 1,1 2,3 1,9
1,0 1,4
0,4
0,9 0,6 1,1 0,6 1,0 0,9 0,3 0,5 0,3 0,3 0,3 0,1
Netherlands Dubai China South Singapore Japan France UK Germany Belgium Sweden Italy USA Spain Russia India Bahrain
Korea
July 2017 July 2018 July 2019
xx : # charging stations ('000)
Source: EV Volumes, Desk research, Roland Berger/Lazard 212 Beside new forms of mobility also the mobility mix itself is changing
Especially in Asia the majority of people already have the opportunity
to decide between different mobility modes – Limitations in EU/US
Multimodal mobility – Offer in terms of transportation modes
On all the trips you took, how often did you have the choice for a different mode of travel?
40% 40%
50% 50% 50%
60% 60% 60% 65% 70% 70% 70% 75% 80% 80% 80%
60% 60%
50% 50% 50%
40% 40% 40% 35% 30% 30% 30% 25% 20% 20% 20%
Choice of mode in less than 40% of trips Choice of mode in more than 40% of trips
Source: RB online survey Jan 2019: 16,180 participants - Participants by country: Belgium 1,004; China 1,006; France 1,006; Germany 1,004; India 1,008; Italy 1,012;
Japan 1,060; Netherlands 1,001; Russia 1,011; Singapore 1,004; South Korea 1,009; Spain 1,009; Sweden 1,001; UAE 1,009; UK 1,036; USA 1,01; Lazard 223 Uncertainty remains over technical development path
The legislative framework for autonomous mobility gets better –
However, L5 blanket coverage still has a long way to go
Evolution of approval process for autonomous driving levels L4 & L5
Edition 1 (Jan 17) Edition 5 (Jan 19) > Legislation still a
limiting factor for
Step 1 Step 2 Step 3 Step 4 Step 5 Step 1 Step 2 Step 3 Step 4 Step 5 automated driving
> UK with the biggest
development step
United States United States
during the last 2 years
UK UK
Netherlands Netherlands
> USA the only country
Singapore Singapore
globally without
France France
limitations for type
Japan Japan
approval process,
China China
hence most leading
Germany Germany
players for automated
Italy Italy
mobility out of the US
South Korea South Korea > Ethical discussions
Spain NA Spain often hampering the
Russia NA Russia legislation process
Sweden NA Sweden > In addition, increasing
Dubai NA Dubai awareness of massive
India NA India capital requirements
Bahrain NA Bahrain with uncertain payback
Belgium NA Belgium Changes since January 2017 periods to achieve L5
Indicator Rating: Progress regarding type approval progress for No Initial Basic regulatory Regulation Regulation in No limitation
autonomous vehicles discussion discussions set in progress decision phase for approval
Source: Roland Berger Automotive Disruption Radar, Lazard 234 Data-based and digital business models enable new business potential
The digitization of the industry is well underway, but only technology
system integrators or new players can fully leverage the potential
Digitization steps in the automotive industry
1 Digitization
processes
of business
2 Digitization of products
and services 3 Digitization of entire
business models
> Workflow automation and RPA to > Capturing of product and customer > Introduction of disruptive business
digitize inter- and intracompany data for additional services, e.g. models, e.g. mobility-as-a-service
business processes (e.g. P2P, PEP) telematics and predictive service > Cloud-based service offerings
and standardized tasks offerings > Innovative applications, e.g.
> Industry 4.0 solutions for shop floor > Introduction of smart products, mobility apps, eCar wallets
automation (e.g. predictive traceability and mobility solutions, or > Digitization of sales channels
maintenance, testing) infotainment features > Use of blockchain technology for
> Car connectivity and V2I (vehicle to e.g. IoT, smart contracts, fleet
infrastructure) communication management
Limited: Low:
High: Few can, Diversified and
Technological Many do, players with new tech players
sophistication all should traditional portfolio only
handicapped
Accessibility for automotive suppliers
Source: Roland Berger/Lazard 245 Sales potential for certain products likely to fall dramatically
Since 2015 more than EUR 60 bn of venture capital has been
invested into new automotive technologies and players
Invest in venture capital1): Mobility and artificial intelligence [USD m]
Total VC invest – Total VC invest – > VC funding of new
automotive
Mobility Artificial intelligence2) technologies is
extremely high
21,427 > While investments in
mobility themes have
been high for a few
years, artificial
intelligence is
becoming the hot topic
12,977 in terms of technology
10,210
9,328
x10 recently
> With external financing,
new players can catch
6,537 up with large
established players in
3,432 the market
1,558
652
2015 2016 20173) 2018 2015 2016 2017 2018
1) Analysis on disclosed amounts
2) Including investments in smart cars, AI in transportation and autonomous vehicle technologies, and AI infrastructures (natural language processing, computer vision, etc.)
3) Fueled by several large funding rounds (e.g. Didi, Lift, Grab, et al.)
Source: Tracxn, Roland Berger/Lazard 256 Customers continue to push suppliers for cost reductions
Traditional OEMs are facing pressure from many sides, not only in
new expansion areas but also in their core business
Pressure on traditional OEMs
Electric mobility New
MaaS
New mobility > High pressure on
OEM margins from
2025 business concepts 2025 e-mobility and new-
mobility concepts
More intensive competition New Maas business slower > In addition, further
due to new entrants with advan- than expected to ramp up pressure from
tages over established players emission regulations
Fierce competition due to and potential fines
Falling margins due to electri- new entrants with advantages
fied vehicles either because of over established players > OEMs will try to, at
simplified (BEV) or more cost Tradi- least partially, pass
intensive (HEV) powertrain tional Late to follow-up: negative effects on
core Traditionally leading OEMs in their earnings to their
Lower EBIT due to rising business follower position supply base
costs and portfolio shifts
Strong need for investment
High investments in into automated driving and
powertrain electrification and artificial intelligence and to
new technologies scale up
High costs associated with Decreasing brand loyalty
personnel transformation and design relevance
OEM/OES
business 2019
Positive impact on business Negative impact on business Neutral
Source: Roland Berger/Lazard 266 Customers continue to push suppliers for cost reductions
Coherently, OEMs have announced large cost-saving programs,
which all have a major material-cost-reduction component
Recent efficiency programs of major OEMs (illustrative selection)
> Cost-saving programs
OEM Examples of levers are one of the most
promising measures for
4.5
General Motors USD bn > More efficient production
Improvement targets
OEMs to handle their
cost reduction current challenges
by 2020
> Leaner product portfolio
> Reduction of material costs > Nearly all large cost-
cutting programs
have a material-cost-
6.0
Porsche EUR bn > More efficient production reduction element,
op. result
by 2025
> Digital business models thus are targeting the
> Reduction of material costs supply base
> Suppliers have to
define measures to
4.0
Mercedes-Benz EUR bn > More efficient production
op. result defend themselves
by 2025
> Quicker introduction of new products against cost-saving
> Reduction of material costs programs and to
handle their financing
requirements in parallel
2.5
Jaguar/ GBP bn > Layoffs
Land Rover cash flow
by mid-2020
> Reduction of non-product investments
> Reduction of material costs
Source: Handelsblatt; Wirtschaftswoche; Reuters; General Motors; Daimler; Jaguar/Land Rover; Porsche, Roland Berger/Lazard 277 New players enter the automotive business across the entire value chain
Successful new market entrants leverage a non-automotive mindset
and technological innovations to capture parts of the future business
OEMs' path toward a mobility ecosystem scenario 2030+ Example
Old Candidates New
MSP1) Pure MSP MSP Railway
companies
Ride-hailing
Traditional OEMs with providers
OEMs Integrated MSP mobility service
offerings
CaaS Established
premium/sports- New xEV OEMs
lifestyle brand car OEMs
Traditional Consumer
Device suppliers and electronics
New OEMs manufacturer OEM volume OEMs manufacturers
Selected
Ø out of traditional
OES business suppliers and
OEMs
Service enabler/ Technology Semi-conductor
Component suppliers or battery
New OES manufacturer OES manufacturers
2019 2030 New mobility ecosystem 2030+
1) MSP = Mobility Service Providers
Source: Roland Berger/Lazard 287 New players enter the automotive business across the entire value chain
Players like Amazon enter different areas of the market and win on
scale, coverage or pricing, and even offer better user experience
Focus trend: E-commerce players' positioning in automotive aftermarket in the USA
Large portfolio Cost-efficient Fast delivery (still gap) > Amazon sales in the
Wholesale automotive aftermarket
100,000
Number of SKUs offered (500–1,200) bps Stocker already passed the
by regional aftermarket
retailers across their
USD 1 bn milestone
∑ = 20–32%
network
Last mile > Amazon not only offers
Number of SKUs
offered by national
delivery parts for Do-It-Yourself
2,000 15% Amazon
aftermarket Fulfillment but also services for
retailers or WDs Op Margin Tgt
across ∑= center Do-It-For-Me
Number 15–20% Admin costs > Pressure on speed of delivery: Same day
their
network
of SKUs 4–6%
Customer in certain cities, 1–2 days in most cities > Amazon leverages its
Amazon 3% and aiming for delivery within 1 hour by sales channels for B2C
Orders/day for each SKU
auto 2–4% service 2025
1,000
after- 10–15%
2–3% Local platform > Economies of scope and scale across
as well as for B2B
market product categories to move parts from
has 5–10% Regional
platform warehouses to fulfillment centers near > Except body parts and
access
Supernational
customers software, the portfolio
to 6–11%
0
6–8% platform already covers the
0 175,000 400,000 3m 6m Traditional Amazon Amazon, 482% whole aftermarket
Number of SKUs ranked by customer demand bandwidth
> Differentiation factor is
Stock price a better service ex-
[USD]1) O’Reilly , 96% perience for the clients
AutoZone, 76%
S&P 500, 42%
(delivery time, all out of
AAP, -9% one hand, etc.)
01.15 01.16 01.17 01.18 01.19 GPC, -14%
1) Stock price information as of Aug 9, 2019
Source: Roland Berger/Lazard 298 Required employee skill-set is changing dramatically
The changing influence on the supplier business models through
new technologies are also reflected in required employee skill-sets
Importance of necessary skill-sets and change in job vacancies
Change in job
2000 2018 2025ff vacancies1)
Mechanical Mechanical engineer
engineering 2017 2018
-21%
Software
engineering
> Milestones in mechan- > Mechanical parts start to > Mechanical parts and
ical engineering offer limited or less engine performance Software engineer
> Electronics limited to potential for further have become 2017 2018
simpler, not improvement commodities
+56%
differentiating > Advanced driving > Fully integrated
applications assistants implemented software solutions
> Unique characteristics with scattered software offer unique driving
for differentiation mainly solutions experiences, including
in the domains of > Unique characteristics autonomous driving IT specialist
handling and engine for differentiation split > Differentiation by 2017 2018
performance across the domains of comfort, autonomy
eco-friendliness, and additional services +14%
individualization and
infotainment
1) Based on engineering jobs in Germany
Source: Roland Berger/Lazard, Verband Deutscher Ingenieure, absolventa, karriere.de 309 Access to capital is expected to become tougher
The relative sentiment of the automotive sector vs. other industries
has been deteriorating in the last decade
Evolution of sector P/E valuations in equity capital markets
P/E NTM1) > Equity capital markets valuation
23x levels of the automotive sector
have been close to other
21x
Technology
industries a decade ago
19x > However, over the past years,
Chemicals
the gap has widened – equity
17x
Industrials investors have increasingly
15x
been willing to pay higher
prices for other sectors
13x
> Whereas other industries
11x benefited from the generally
Auto
Components positive macroeconomic and
9x capital markets environment,
Automobiles automotive companies saw
7x
rising concerns on their
5x industry
3x
Aug 13
Aug 18
Aug 10
Aug 11
Aug 12
Aug 14
Aug 15
Aug 16
Aug 17
Aug 19
1) NTM = Next twelve months
Source: Bloomberg, Roland Berger/Lazard 319 Access to capital is expected to become tougher
Automotive M&A activity has slowed down substantially – Especially Chinese
acquirers as important buyer group have become less active
# of automotive supplier M&A transactions Share of Chinese M&A activity in the supplier space
252 20%
232
17%
183 178 13%
12%
11%
66
2015 2016 2017 2018 H1 2019 2015 2016 2017 2018 H1 2019
Environment becomes more difficult – especially for smaller suppliers looking for a sale or merger
Note: Transactions considered: announced/completed, >75% stake, automotive suppliers, worldwide
Source: Dealogic, Roland Berger/Lazard 329 Access to capital is expected to become tougher
Especially smaller suppliers are faced with comparably limited access to
private equity capital and rising cautiousness on the credit side
Share of private equity buyers in mid-cap M&A transactions (2018)1) Selected debt capital and rating views
24% "We expect a further increase in receivable risk in the automotive
industry, especially driven by vanishing liquidity levels of small and
mid-size automotive suppliers. The current level of risk is the
highest since the financial crisis and we expect an increasing
number of insolvencies and payment defaults (increase of up to
30%) in the automotive supplier industry in the medium term."
19%
ATRADIUS – APR-20192)
16% "New technologies require automotive suppliers to make a
substantial investment resulting in an additional need for financing.
13%1) However, simultaneously banks are becoming more cautious with
regards to traditional lending in the automotive sector, as the
industry and corresponding rating recently have come under
pressure. Some banks even indicated their general reluctance to
increase the exposure in the automotive sector."
DR. WIESELHUBER & PARTNER – APR-20192)
"Weakening demand for cars and trucks has pushed credit rating
company Moody's to cut its outlook for the auto industry from stable
to negative. Slowing economic growth, a better-than-expected end
to 2018 and a host of potential political pitfalls are all expected to
dampen global auto sales in 2019, Moody's said in a research note
Monday."
CNBC – MAR-2019
Automotive Chemicals Healthcare Industrials
suppliers (ex. auto)
Note: Transactions considered: announced/completed, >75% stake, worldwide with disclosed deal value
Source: Dealogic, Roland Berger/Lazard, Press
1) Deal value between EUR 100 m and EUR 500 m; i.e. 13% of buyers were private equity buyers, while 87% were strategic acquirers 2) Translated 339 Access to capital is expected to become tougher
In 2018 many suppliers have streamlined their portfolios or invested
in further growth through M&A – Lower activity in 2019 so far
Selected automotive supplier acquisitions, 2014–2019 (YTD)
2014 2015 2016 2017 2018 2019
Amtek/ AVIC Automotive/ American Axle/ BorgWarner/ Asahi Kasei/ Autokiniton/
Kaiser Henniges Metaldyne Sevcon Sage Automotive Interiors Tower International
Amtek/ BorgWarner/ CIE Automotive/ CIE Automotive/ Calsonic Kansei/ Bridgestone/ TomTom
Kuepper Group Remy International Grupo Amaya Telleria Newcor Magneti Marelli Telematics business
AUNDE/ China National Tire/ Freudenberg/ Fountain West/Bosch CIE Automotive/Inteva CIE Automotive/Maquinados
Fehrer Pirelli TBVC Mahle Turbo Chargers Products (Roof systems) de Precisión de México
AVIC/ Continental/ Illinois Tool Works/ Fuxin Dare Automotive/ Continental/Cooper Standard Hitachi Automotive/Chassis
Hilite Elektrobit TRW Auto. Elec. & Comp. Carcoustics (AVS business) Brakes International
AVIC/ Delphi/ Mecaplast/ Genuine Parts/ Dana/ Meritor/
KOKI Technik HellermannTyton Key Plastics Alliance Automotive Oerlikon Drive Systems AxleTech
Bosch / Grupo Antolin/ Megatech/ Intel/ Faurecia / Michelin /
ZF Lenksysteme Magna interior business Boshoku Europe Mobileye Clarion Multistrada
Delphi/ Harman/ Musashi Seimitsu/ KSS/ Hanon Systems/Magna Fluid Nidec/Omron automotive
Unwired Technology Symphony Teleca/Redbend Hay Takata Pressure & Controls business electronics business
Federal-Mogul/ Johnson Electric/ Ningbo Joyson/ Lear/Grupo Antolin LG Electronics/ ZF/
TRW valves business Stackpole KSS (Seating & Metal Business) ZKW Group WABCO
Lear/ Linamar/ Plastic Omnium/ Luxshare/ Magna/
Eagle Ottawa Montupet Faurecia exterior bus. ZF Body Controls Olsa
MAHLE/ Magna/ Samsung/ Motherson Sumi Methode Electronics/
Letrika Getrag Harman Systems/PKC Group Grakon
Sensata/ MAHLE/ Valeo/ Superior Industries/ MinebeaMitsumi/
Schrader Delphi thermal business FTE Automotive Uniwheels U-Shin
Shanghai Prime Mann+Hummel/ Valeo/ TE Connectivity/ Motherson Sumi
Machinery/ Nedschroef Affinia Ichikoh Hirschmann Car Comm. Systems/Reydel Automotive FR
Visteon/ NGK Spark Plug/ VBP Group/ WABCO/ Ningbo Jifeng/
JCI auto. electronics bus. Wells Vehicle Electronics Mobile Climate Ctrl. Group RH Sheppard Grammer
ZF/ Valeo/ Yinyi Group/ ZMJ/CRCI/ Tenneco/
TRW Peiker Acustic Punch Powertrain Bosch SMG Federal-Mogul
Key: Acquirer/Target
Note: Excluding financial sponsor–led transactions. Some 2019 transactions are signed, but not yet closed.
Source: Dealogic, Merger Market, press research, Roland Berger/Lazard 34In the medium term, focus is shifting toward challenges like digital
business models, required R&D financing and availability of talent
Mid-term supplier CEO radar screen
Competition Supply base
Outsourcing of non-
OEMs Market differentiating parts Technology/
Reduced consolidation
Availability of Smart products & legislation
importance of New components
skilled workforce
high end variant
New market
New car Growing importance of
Price pressure entrants Digital
concepts software and electronics
on suppliers business
models Increasing quality/
durability requirements
High capital Capital
Reduced
Car Stagnation/potential ICE share Type approval
requirements markets/
decline of volumes for R&D
buyers Digital business
New
customers
process financing
models Light- Attractiveness Secure financing to
New mobility weight of equity story master disruption
Customization concepts
of interior Trade wars
Mobility Autonomous Digitization Electrification
Source: Roland Berger/Lazard 35Contents A B C D The The The The status future strategies contacts Increasingly The transfor- Suppliers have Roland Berger difficult environ- mation of the different and Lazard ment after record automotive opportunities to Automotive profits until last industry is well prepare for the teams year underway future © Roland Berger/Lazard 36
The predicted transformation of the automotive industry becomes
reality – Suppliers have to find their individual strategy to deal with it
Current situation for automotive suppliers
1 The automotive industry is at the edge –
Projected changes are becoming reality at high speed
2 The changes affect the clients, the products, the
employees and the legislative framework
3 The time to act and to prepare for the future
is running out quickly
4 All suppliers have to deal with the same market
situation but need to find individual answers
5 Automotive suppliers have to identify
which market changes are most relevant for them
Source: Roland Berger/Lazard 37We identified four basic criteria as a framework for the development
of individual strategies of how to cope with the changing industry
Basic parameters for strategy development
Company size – Revenues/sales Financial strength – Margin/financing
Size of the company predetermines: Financial strength takes into consideration:
> Market power/shares > Growth, margin and free CF generation
> Resource availability > Net debt and leverage
> Brand recognition > Access to large credit lines/debt capital
> Boundaries and flexibility markets or additional equity
Mega-player or start-up? Benchmark or restructuring case?
Product portfolio – Product variety Market environment
Reflects the technological basis: Reflects pressure level in home/new markets
> Portfolio commoditization > Attractiveness for other players to attack the
> Manufacturing and R&D skill-set same market/domain
> Digital vs. physical products > Current price levels
> Single parts vs. components/assemblies > Growing market vs. shrinking market
Focused or diversified portfolio? Competition or co-existence?
Source: Roland Berger/Lazard 38To point out differences in strategy approaches we have clustered
suppliers by size, financial strength, portfolio and market environment
Supplier archetype1) categorization – Methodology
Archetype assessment criteria Company represents a
larger commodity player,
Company Small Large e.g. a die-casting supplier
size or a body-parts supplier
with sales of more than
EUR 1 bn p.a., which is
Financial Weak Strong fully focused on traditional
strength ICE automotive business
Product Focus on one Diversified
portfolio commodity portfolio
Market Shrinking/ Strong growth
environment threatened segment segment
Cluster Company Financial Product Market
size strength portfolio environment
Large Weak/under- Commod- Shrinking/
company financed itized threatened
1) Archetypes are not all-encompassing, attribution can be ambiguous
Source: Roland Berger/Lazard 39Six supplier archetypes represent the most common players within
the automotive supplier industry
Supplier archetypes
Global
Small traditional Aftermarket commodity Global new Traditional di- Technology sys-
player player leader entrant versified player tem integrator
Company
/ / /
Assessment criteria
size
Financial
strength /
Product
portfolio
Market
environment
General > Portfolio of single > Broad portfolio of > Portfolio of > Portfolio focus > Broad portfolio, > Large integrators
characteristics parts or simple single parts and complex parts on innovation/ also for growing with broad
components components or modules new technologies segments portfolio
> Commoditized > OEM customers > Commoditized > Technology > High capital > System-relevant
portfolio as well as direct portfolio leader/disruptor requirements for as of today
> Business model sales > Among the > Limited OEM new tech- > Attacked from
under pressure > Market consoli- market leaders access nologies multiple sides
> Limited ability to dation ongoing > Sizes allows for > Agile > Financially strong
leverage scales scale effects organizations
Strategic How to survive How to position in a How to secure How to enter/disrupt How to identify the How to participate
questions despite strong consolidating and profitability in an the automotive right innovations for in future growth
headwinds? digitizing market? adverse market? market? the future? segments?
Small/weak/threatened Large/strong/growing
Source: Roland Berger/Lazard 40Exemplary strategic mission statements for the archetypes show
that suppliers should adjust strategies to their specific situations
Top challenges per supplier archetype
Archetype Selected top challenges Strategic mission statement
Small > Price pressure > Secure long-term funding Survival of the fittest – Cost
traditional player > Potential volume decline > Scale effects & Industry 4.0 optimization throughout the entire
> Electrification and digitization > Attracting talent organization is key
Aftermarket > Electric vehicles > Client structure (end client, Eat or be eaten – Compensate for
player > Market consolidation OEM, mobility provider) negative business implications from
> Low-cost competitors > Upcoming digital products e-mobility trend
Global > Price pressure > Industry 4.0 Defend current positioning – Process
commodity leader > Potential volume decline > Capital requirements excellence is the basis to generate
> Electrification and digitization > Platform projects capital and to ensure long-term success
Global new > Automotive standards > R&D expenses If you can think it, you can do it –
entrant > Customer access > Workforce availability Leverage existing know-how to generate
> Established competitors > Technology acceptance new business within automotive industry
Traditional > Price pressure > Internal cultural change Offense is the best defense – Focus on
diversified player > R&D expense allocation > Increasing competition cost-efficiency or proactive portfolio
> Portfolio commoditization for growth segments transition to future growth segments
Technology > Electrification and digitization > Increasing competition Remain system-relevant – Make the
system integrator > Autonomous driving > Financing needs company irreplaceable for OEMs and
> Breaking up of systems > Internal cultural change leverage positioning into new fields
Source: Roland Berger/Lazard 41The business models of many automotive suppliers appear to be at
risk
MADE1) impacts by supplier archetype
Impact2) for most suppliers 1 Small
player
traditional
2 Aftermarket
player 3 Global commod-
ity leader 4 Global
entrant
new
5 Traditional di-
versified player 6 Technology sys-
tem integrator
Car Digital business models – – 0 + + – – 0 + + – – 0 + + – – 0 + + – – 0 + + – – 0 + +
buyers Stagnation/decline of volumes – – 0 + + – – 0 + + – – 0 + + – – 0 + + – – 0 + + – – 0 + +
Economic downturn – – 0 + + – – 0 + + – – 0 + + – – 0 + + – – 0 + + – – 0 + +
New mobility concepts – – 0 + + – – 0 + + – – 0 + + – – 0 + + – – 0 + + – – 0 + +
Trade wars/Brexit – – 0 + + – – 0 + + – – 0 + + – – 0 + + – – 0 + + – – 0 + +
OEMs New car concepts – – 0 + + – – 0 + + – – 0 + + – – 0 + + – – 0 + + – – 0 + +
Reduced importance of high-end variants – – 0 + + – – 0 + + – – 0 + + – – 0 + + – – 0 + + – – 0 + +
Price pressure on suppliers – – 0 + + – – 0 + + – – 0 + + – – 0 + + – – 0 + + – – 0 + +
Reduced ICE share – – 0 + + – – 0 + + – – 0 + + – – 0 + + – – 0 + + – – 0 + +
New customers – – 0 + + – – 0 + + – – 0 + + – – 0 + + – – 0 + + – – 0 + +
Compe- New market entrants – – 0 + + – – 0 + + – – 0 + + – – 0 + + – – 0 + + – – 0 + +
tition Market consolidation – – 0 + + – – 0 + + – – 0 + + – – 0 + + – – 0 + + – – 0 + +
Supply Outsourcing of non-differentiating parts – – 0 + + – – 0 + + – – 0 + + – – 0 + + – – 0 + + – – 0 + +
base Availability of skilled workforce – – 0 + + – – 0 + + – – 0 + + – – 0 + + – – 0 + + – – 0 + +
Technol- Smart products/new components – – 0 + + – – 0 + + – – 0 + + – – 0 + + – – 0 + + – – 0 + +
ogy/Leg-
islation
Higher importance of software/electronics – – 0 + + – – 0 + + – – 0 + + – – 0 + + – – 0 + + – – 0 + +
Light weight – – 0 + + – – 0 + + – – 0 + + – – 0 + + – – 0 + + – – 0 + +
Increasing quality/durability requirements – – 0 + + – – 0 + + – – 0 + + – – 0 + + – – 0 + + – – 0 + +
Type approval process autonomous driving – – 0 + + – – 0 + + – – 0 + + – – 0 + + – – 0 + + – – 0 + +
Capital High capital requirements – – 0 + + – – 0 + + – – 0 + + – – 0 + + – – 0 + + – – 0 + +
markets Investors/creditors view on automotive – – 0 + + – – 0 + + – – 0 + + – – 0 + + – – 0 + + – – 0 + +
Summary Overall impact – – 0 + + – – 0 + + – – 0 + + – – 0 + + – – 0 + + – – 0 + +
–– 0 + + Impact on supplier business: (strongly) negative, no impact, (strongly) positive 1) M = Mobility A = Autonomous D = Digitization E = Electrification 2) Relative to each other
Source: Roland Berger/Lazard 421 Small traditional player
Small traditional players have to find answers for the increasing
price pressure and potential volume downturns
Top challenges and rationales for most small traditional players
Price pressure, > Major OEMs have issued performance-improvement programs
missing scale > High capital requirements on OEM side to finance R&D expenses or Need
potential fines for exceeded emission limits
effects and
> Low manufacturing volumes, small client base and sometimes limited global for action
Industry 4.0 presence aggravate realization of scale effects
> Digitization and automation in operations required to maximize performance
> Industry 4.0 solutions require substantial investments
Declining > Possible economic downturn in the short term/mid term
volumes > Higher car utilization ratio due to shared mobility concepts and autonomous Low High
driving in the long term
Electrification > Changing car concepts require a different product portfolio from suppliers
and digitization > Increasing importance of lightweight solutions to increase EV range
> Car-as-a-service trend causes shift away from lucrative high-end variants
as not-owned cars become less of a status symbol
Securing long- > Creditors more cautious with long-term commitments especially for small
term funding suppliers in domains at risk
> Difficult to find equity investors at the same time How to survive
despite strong
Attracting > Small companies struggle to attract the right talent due to limited brand
talent recognition or unfavorable location headwinds?
Source: Roland Berger/Lazard 431 Small traditional player
A promising way for most small traditional suppliers is to fully focus
on performance improvement
Strategic direction of most small traditional players
Favorable actions
Set up a holistic performance excellence/improve-
ment program for overhead, operations and R&D
✓ Adverse actions
Do nothing, because changes seem to be
far away
✗
Free up cash with efficiency program Develop portfolio toward non-automotive,
Outsource non-core competencies if time-/resource-intensive or experience is missing
Re-think/adjust geographical footprint Focus on product portfolio diversification,
if it is time-/capital-intensive
Program to automate shop-floor processes
Develop capital-intense growth areas where no
Secure long-term funding flexibility and sufficient expertise is in-house
equity ratio
Build-up FTE in traditional functions and worsen
Actively consider merger/disposal options cost structures
Strategic mission statement
Survival of the fittest – Cost optimization throughout the entire organization is key
Source: Roland Berger/Lazard 442 Aftermarket player
Most aftermarket players have to deal with strong market consoli-
dation and electric cars as a threat to their business in the long run
Top challenges and rationales for most aftermarket players
Electric > Electric vehicles consist of far fewer parts than traditional ICE vehicles
vehicles > Durability of electric powertrain components considered higher than that of Need
ICE components
> Risk of obsolete production capacities for aftermarket part manufacturers in for action
the long term
IAM1) Industry > In the independent aftermarket, strong industry consolidation is underway
consolidation > Small aftermarket companies might be swallowed by industry giants
> Market already partly dominated by large, multinational parts distribution
groups Low High
New > Aftermarket is attractive for either low-cost suppliers, especially from Asia
competitors or global online marketplaces, due to relatively low entry barriers
for commodities > Overall very price-sensitive client base due to higher vehicle age –
risk of being substituted because of lower client loyalty
How to
Client > Very different client groups (end customers vs. OEMs) to be handled
structure > New client groups evolving, e.g. global mobility providers position in a
consolidating
Online sales > Increasing importance of online sales channel
and upcoming > New online players evolving and digitizing
digital products > Service-focused and customer-oriented business models gain importance market?
1) IAM = independent aftermarket
Source: Roland Berger/Lazard 452 Aftermarket player
Aftermarket players have to determine their strategy in view of
significant consolidation activities within the market
Strategic direction of most aftermarket players
Favorable actions
Approach new and/or emerging clients ✓ Adverse actions
Ignore trend of market consolidation on distribution
side
✗
Develop digital sales channels
Stick to traditional aftermarket business only, since
M&A activities or co-operations volume will decline in the long term
Ignore new or emerging players and miss
Review and clean up product portfolio co-operation or future business opportunities
Optimize level of vertical integration (as part Underestimate the disruptive impact of
manufacturer) digital giants and face a declining relevance of
today's sales channels
Working capital reduction program
Focus on hardware products only and miss
software and/or digital business opportunities
Strategic mission statement
Eat or be eaten –
Compensate for negative business implications from e-mobility trend
Source: Roland Berger/Lazard 463 Global commodity leader
Most global commodity leaders need to optimize their cost struc-
tures and adjust their portfolio for future requirements in parallel
Top challenges for most global commodity leaders
Price pressure > Major OEMs have all issued performance-improvement programs
> High capital requirements on OEM side to finance R&D expenses or Need
potential fines for exceeded emission limits
for action
Potential > Possible economic downturn in the short term/mid term
volume decline > Higher car utilization ratio due to shared mobility concepts and autonomous
driving in the long term
Electrification > Changing car concepts require different product portfolio from suppliers
and digitization > Increasing importance of lightweight solutions to increase EV range Low High
> Car-as-a-service trend causes shift away from lucrative high-end variants
as not-owned cars become less of a status symbol
Industry 4.0 > Industry 4.0 requires substantial investments
> Digitization and automation in operations required to maximize performance
Capital > R&D spending for lightweight solutions and advanced engineering due to
requirements new car concepts How to secure
> Transformation process within operations needs to be financed
profitability in an
Platform > Purchasing co-operations on OEM side as well as further efforts to leverage adverse
scale effects based on car platforms
projects
> Losing platform projects can become a serious issue for a supplier market?
Source: Roland Berger/Lazard 47You can also read
