The global automotive supplier industry will continue to grow in 2018 but signs of weakening are visible, disruption caused by four megatrends – Shared Mobility, Autonomous Driving, Digitization and Electrification – has gathered pace, according to the "Global Automotive Supplier Study 2018" by Roland Berger and financial service firm Lazard. The study postulates that suppliers will need to transform their existing business models in order to capture shifting profit pools caused by these megatrends. The study analyzed performance indicators from approximately 650 automotive suppliers around the globe to assess the current state of the industry, as well as trends and challenges.

Shanghai, January 25, 2018

In 2017, the automotive industry has seen a continuation of global growth, but first signs of weakening are visible. For 2018, the study expects the global supplier industry to enjoy continued growth, with revenues increasing by approximately 3 percent, and maintaining profitability levels with an average EBIT margin of approximately 7.3 percent. The overall fairly positive sentiment is reflected in valuation levels of suppliers that are still trading above their long-term average. Chinese and NAFTA suppliers are currently more profitable that the global average; however, China-based suppliers have seen a decline in margins in recent years due to intensified competition in their home market.

Recent developments point towards an acceleration of the disruption caused by four megatrends – Shared Mobility, Autonomous Driving, Digitization and Electrification. New mobility business is poised to disrupt car ownership, personal mobility and goods logistics. The share of new vehicle sales for application in the field of new mobility is expected to exceed 10% in the US and Europe and up to 35% in China by 2025. Autonomous driving will turn into reality while penetration rates for autonomous cars (SEA level 4/5) may reach a level between 5% and 26% in the following 15 to 20 years. In digitization, artificial intelligence offers almost limitless possibilities, while connectivity-enabled technologies are reaching the point of mainstream application. Momentum for electrification is building among OEMs due to increasing regulatory pressure and accelerating technology advancement. By 2025, the share of EV cars is expected to range from 8~20% in the US, 20~32% in Europe and 29~47% in China.

"The global trends are more pronounced in China; with unit-growth rapidly disappearing; shared mobility in leading position; and electrified powertrains growing 50% annually,” says Johan Karlberg, a Shanghai-based Partner of Roland Berger. “These trends will rapidly reshape business models and automotive suppliers.”

Based on these trends, the automotive "end game" appears inevitable, but the transition period continues to be marked by a high level of uncertainty. Automotive suppliers will need to prepare for five distinct changes that are emerging: slowing growth; accelerated technological change; software as a key differentiator; commoditization of hardware parts; and pressure on valuations for commoditized suppliers.

Meanwhile, such disruption also offers a unique opportunity for traditional suppliers to expand from selling hardware only to selling features and services, which is already reflected in ongoing M&A activity in the sector in 2017. Therefore, "end game" strategies include divestment and diversification into new growth areas, while innovation partnerships are increasingly important, and time is critical as many have already been formed.

"Mobility, Autonomous driving, Digitization and Electrification will continue to change the automotive industry," says Ron Zheng, a Roland Berger Partner. "The suppliers have inevitably to transform their existing business models – from overall strategy adaptation to implement a lower operating cost base, from organizational structure adaptation to create a new innovation mindset."