Deloitte’s 2018 Global Automotive Supplier Study Forecasts Transportation Disruption

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Deloitte, a global advisory firm which operates a large practice in Detroit, today released its 2018 global automotive supplier study. The study focuses not just on top industry performers, but also on the suppliers who are giving shareholders the best returns.

After nearly a decade of unprecedented growth, the automotive industry may soon encounter a plateau, the report states. As disruption in the industry unfolds, automotive suppliers must develop innovative growth strategies to thrive in a completely new environment.

There will be significant challenges ahead as traditional revenue for suppliers are at risk; however, there are also new opportunities that may significantly outweigh the risks that suppliers can take advantage of during this growth slowdown.

The composition of the top one-third of performers significantly changed over the last five years compared to that of the previous five years. Of the 41 companies in the top one-third category from prior Global Automotive Supplier Studies, only three of those companies are still in the top one third from 2012 to 2016. Those three companies spent twice the amount on R&D as a percentage of revenue than those who did not remain at the top. Those companies are also much more “asset light,” averaging a higher return on assets.

In turn, the report shows the automotive industry is at the cusp of undergoing major transformation, and three key forces could cause disruption in the near and long-term future.

  1. Volume headwinds: In the near term, several original equipment manufacturers (OEMs) forecast lower global demand, and growth is expected to plateau in most markets. Volume headwinds may persist over the long term as a result of shared mobility, autonomous vehicles, etc.
  2. Traditional value chain is under attack: New, untraditional players now operating in the automotive industry have added in an unexpected layer of competition to the fold, changing industry dynamics. More over, these new players are disrupting the traditional linear value chain by leapfrogging tiers, forming multi-tiered partnerships, etc.
  3. Vehicle content and technology disruption: Certain segments are at risk of commoditization while others are more attractive for differentiation. Meanwhile, value creation opportunities are expected to shift to data- and service-driven offerings.

The Deloitte study outlines four possible scenarios that could occur in the next 10 to 15 years.

Scenario 1, Drag on: The industry is not so disrupted after all. While disruptive trends

continue to be a hot topic at conferences, they fail to take a meaningful share of the market. Companies continue to position for future innovation and deliver great returns to investors.

Scenario 2, Repositioned: Disruption happens. Cars are transformed and new technologies capture the millennial market, offsetting the volume declines from disruption. Companies in turn adapt to these new business ecosystems and grasp at new opportunities.

Scenario 3, Downturn: The macro-economy stalls and commodity prices rise. Disruptive

trends fail to materialize in medium term and the market is not impacted. Companies go back to batten down the hatches and look for roll-up opportunities.

Scenario 4, Downturn: Shared driving makes a large dent in car volume and the future car is significantly different than the car of today — highly connected, shared, and autonomous. Certain segments are under significant pressure; however, at the same time, new opportunities abound.

The research analyzed 213 Tier 1 global automotive suppliers with automotive revenue of $500M+ based in North America (43 suppliers), Europe (47 suppliers), Japan (91 suppliers), China and India (18 suppliers), and other parts of the world (14 suppliers).

Studied segments include electronics (31 suppliers), powertrain (75 suppliers), chassis (61 suppliers), exteriors (49 suppliers), and interiors/HVAC (41 suppliers).

The study looked at top performers that created “superior shareholder return,” top performers within each product segment and region, as well as how top performers bested their competitors.

The study can be found here.

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