Automotive suppliers suffer shifting market, despite production growth
Growth in automotive industry production has continued, rising 2% on 2016’s figures to hit 94.9 million new units. However, suppliers are experiencing pressure thanks to a major shift in focus to new mobility forms, with the NAFTA region being most acutely impacted.
The automotive industry is in the midst of a global gear shift, as various mega-trends make themselves felt. Automation, electrification, connectivity and mobility, are each set to transform how consumers and corporations alike utilise vehicles, resulting in a more integrated, sustainable and safe operating environment.
In a new report from Roland Berger, in collaboration with Lazard, the strategy consulting firm explores major trends in the industry, from current market conditions to the wider impact of changes expected over the coming decades as the industry wide changes set in. Vehicle production has continued to rise steadily, and, although production has slowed somewhat on the average across previous years, global production was up 2%, or 1.8 million units, to 94.9 million units.
Europe had a relatively strong showing, with a 2% increase bumping production to 19.1 million units, or around a fifth of global production. While China saw modest growth of 1% to 27.6 million units, the NAFTA region, crippled by uncertainty around the future of regional trade – thanks in large part to the threat of the Trump administration to implement import tariffs – saw production decline 3% to 17.4 million units.
Japanese and Korean manufacturers led absolute unit growth increases, with production increasing 4% year-on-year, a considerable improvement on average CAGR over the past six years. South America saw production jump by 14%, although total unit growth stood at 0.4 million units, while the long-term trend is well behind the 4.3 million units produced in 2012.
Supplier strains
Roland Berger’s analysis also identifies how far suppliers to the automotive industry have enjoyed growth in recent years. Europe saw relatively solid ~6.9% CAGR growth between 2010-2017e, while EBIT margins stood at ~7.2% – boosted by premium offerings and good consumer market alignment. In Asia, meanwhile, Japan and South Korea have enjoyed relatively strong growth – at ~7.2% and ~5.1% CAGR between 2010-2017 – their EBIT margin has fallen below the collective average during 2017e.
Suppliers in China similarly enjoyed solid growth, with revenues up by ~11.9% CAGR between 2010-2017e, while EBIT margins were noted as a solid ~8.7% over the same period – margins have fallen on the back of increased regional competition. Again comparing relatively poorly, however – despite being noted to have strong EBIT margins at ~8.3% – the NAFTA region was impacted by relatively slow revenue growth over the recent period at 3% CAGR between 2010-2017e. 
Differences in consumer product segments are noted to have seen shifts in relative performance. Tires, for instance, had relatively low revenue growth between 2010-2017e, at ~2.9%. However, thanks to lower material costs, EBIT margins have jumped from 6.6% in 2010 to ~11.5% in the latest report. In contrast, while exteriors have seen solid 7.4% revenue growth, EBIT margins have remained level at around 7.8%.
Interiors, while enjoying revenue growth of 5.6%, continued to see EBIT margins pressured, falling from 5.9% in 2010 to ~5.5% in the latest survey. The outlook for the industry as a whole saw continued, albeit slower, revenue growth, as localised unit growth in Europe (1%), NAFTA (1%) and Japan/Korea (-3%). South America is projected to see around 10% growth, while China sees growth soften to 1%.
Overall, global growth is estimated at around 1%, boosted by South America, Russia, Turkey and the Middle East. Supplier revenue growth is expected, however, while EBIT margins will remain stable too, affected by favourable technology innovation and relatively stable economic and political conditions.
Commenting on the trends, Felix Mogge, Partner at Roland Berger, said, "Margins and valuation levels in commoditised fields will come under pressure, but at the same time, electrification and digitisation offer new monetisation options."
Mogge concluded, "Profound knowledge of the disruptive trends is essential for any supplier. The current supplier business model of offsetting negative cost impacts with volume growth will no longer work."
