Automotive suppliers are undergoing a time of fundamental upheavals. Despite increasing sales figures, a major number of suppliers are struggling with declining profit margins. This pressure on margins was even more intensified by the Corona pandemic.
Disrupting trends and external factors determine the future actions of companies and their objective to optimally adapt to the changing market conditions. At the same time, suppliers have to act ambidextrous: on the one hand striving for efficiency & cost excellence measures and on the other hand searching for new, innovative fields of business.
Particularly affected are suppliers of ICE components. By 2035 the market share per drive system will change significantly (>50% BEV + PHEV ratio). In this context, a comprehensive transformation approach and a clear strategic positioning are the key factors for profitable growth. In general, there are three main strategic positioning options for dealing with the impact and disruption of declining ICE markets
1. “Winner takes it all" - Focus: Market dominance by cost leadership
2. “Orchestrated Retreat” - Focus: Portfolio management
3. “Immediate Exit” - Focus: New business innovation
The strategic positioning process needs to be implemented and accompanied by a holistic transformation approach.
In order to successfully shape the transformation process, suppliers should break down and rethink existing competencies, structures and processes. The focus of transformation needs to be adapted to the general strategic direction. Depending on the key strategic objectives, different general organizational models can be suitable.
Our Horváth & Partners transformation framework incorporates all relevant pillars to adapt comprehensively: Strategy & Portfolio, Organization & Structure, Value Chain and Finance.
Only if automotive suppliers can pursue this holistic transformation approach by addressing all relevant pillars, they can be successful and competitive in the long term.
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The share of BEV / PHEV vehicles will be greater than 40% by 2025, which for many ICE suppliers means the loss of significant parts of the business.
This progress is already reflected in the key financiel indicators. Despite increasing sales figures, the largest German suppliers have recorded declining EBIT margins over the past three years (-40% on average).
There are three main strategic positioning options for dealing with the impact and disruption of declining ICE markets: "Stay" vs. "Retreat" vs. "Exit".
Key challenge remains execution of parallel transformation strategies: revised product & technology strategies, redesigns of operating models and global supplier & production footprint optimizations
In order to successfully shape the transformation process, suppliers should be ambidextrous, i.e. on the one hand optimize the existing business model an on the other hand foster new, innovative solutions for the mobility of tomorrow.
