Study on trends in the automotive industry: Growth in China, but stagnation in Europe, North America and Japan

• Market for automotive components to grow by EUR 160 bn over next decade – from approx. EUR 500 bn (2008) to more than EUR 660 bn by 2020
• Chinese market expanding fastest – but stagnation in Japan as well as Europe and North America

• Growth segments now electronics and powertrains

After the toughest year for the industry since World War Two, automotive suppliers are slowly climbing out of the crisis. This is the finding of "Win with the winners", a study conducted by Roland Berger Strategy Consultants. Measured against 2008, the industry's last "normal year", the value of vehicle components is forecast to rise by EUR 160 bn over the next decade – from around EUR 500 bn in 2008 to more than EUR 660 bn in 2020. The impetus for growth comes predominantly from China, while the Triad markets are likely to remain more or less stagnant. The study identifies key growth drivers: pressures to reduce carbon emissions and cut consumption, rising safety standards and greater comfort expectations, but also strong demand for low-price automobiles. The changes will demand the use of more and more electronics and alternative technologies in the powertrain.

"Following what was a historic downturn in 2009, the automotive industry can again see light at the end of the tunnel," says Marcus Berret, Roland Berger Strategy Consultants' expert for the global automotive supply industry. "But new growth will come predominantly from China. The Triad markets – Western Europe, USA and Japan – will remain more or less stagnant." The global market for supplier components is forecast to grow by EUR 160 bn over the next decade – from around EUR 500 bn in 2008 to more than EUR 660 bn by 2020. "The growth drivers are mainly regulatory targets, such as lower carbon emission and fuel consumption or higher safety standards, but also consumer expectations concerning comfort along with stronger demand for affordable mobility," explains Roland Berger Partner Wolfgang Bernhart.

Winners and losers in the supplier sector

"Powertrain component manufacture will grow particularly fast," says Bernhart, "but in no other segment is there such a wide gap between winners and losers." The demand for power electronics, electrical drive systems and high-voltage batteries will see double-digit annual growth, generating business opportunities even for new suppliers entering the industry. But the less sophisticated, purely mechanical component supplies are being squeezed from two sides: "On the one hand, they face the threat of falling demand or even substitution and, on the other, the massive cost-cutting pressures will continue," says co-author Juri Wagenleitner. The study also identifies this winners-losers scenario in the chassis segment. Here, active safety systems will be the main driver for innovation. The Roland Berger experts expect to see a clear upgrading trend in this field, with purely mechanical components being substituted by mechatronic systems. "If suppliers want to be successful in chassis, they'll have to go with this trend, either building their skills base or buying in the right expertise," says Berret. Lightweight construction is key to the future of exteriors and interior components. But unlike most other segments, the level of innovation required here is relatively limited. "This segment will continue to be all about price and volume", adds Bernhart.

Challenges of infotainment

The biggest challenge to the existing business model is faced by suppliers in infotainment-related segments. Navigation systems used to be highly profitable but this has changed. "Especially in the volume market, free services delivered on mobile platforms are calling into question the business model followed by suppliers," notes Berret. "This problem is exacerbated by a trend toward 'splitting up systems' and 'cherry-picking'. We see this in displays, for instance. New suppliers from Asia are increasingly entering the automotive business to compete in this field," says Bernhart. "Functionalities are moving out of the vehicle itself and into the telecommunications environment. By shifting to Internet, they become associated with the prevailing freebie mentality."

"Automotive supplies business remains a highly competitive," Berret concludes. "But it can still be profitable for suppliers with a tailored product portfolio and an appropriate business model."