INDUSTRY REPORT
Lower volumes suppress profitability
The European automotive supply industry is grappling with unprecedented levels of uncertainty , as an industry survey in November 2024 revealed that 60 % of suppliers expect a decrease in revenues over the next 12 months . New insights from CLEPA ( the European Association of Automotive Suppliers ) and McKinsey ’ s bi-annual survey , with input from 120 companies , shed light on the industry ’ s business climate , key trends and pressing challenges :
“ A prevailing sense of uncertainty led to 64 % of suppliers expressing a negative outlook , signalling a significant fall in overall industry sentiment . Around 68 % of suppliers expect profits to remain low , and approximately 38 % expect to operate at break-even or face losses over the 2024 reporting year . Demand reduction and decreasing EU competitiveness are seen as major concerns . 65 % of suppliers expect that the battery electric vehicle penetration rate will now stay below 50 % for 2030 ,” said CLEPA .
“ High levels of uncertainty surrounding new projects and electric vehicle ( EV ) demand in Europe , coupled with pressure from vehicle manufacturers ( OEMs ) to cut costs and concerns regarding EU competitiveness , are contributing to the deterioration of business sentiment in the sector . As a result of these challenges , profitability projections paint a bleak picture . 38 % of suppliers now anticipate operating at marginal or negative profitability levels in [ 2024 ], compared to just 25 % at the start of 2024 . Only 31 % expect profitability above 5 %, marking a downturn from earlier forecasts . Prospects for fiscal year 2025 show little improvement ,” it continued .
Suppliers identified investment into electricity generation and charging infrastructure , as well as the buildup of a European battery and semiconductor ecosystem , as key investment focus areas to reinforce Europe ’ s competitive strength . Roughly three quarters of suppliers identified these as their three top priorities . A third of suppliers highlighted the development of an open-source software ecosystem and access to funding .
“ Demand reduction is cited by 80 % of respondents as the most pressing issue . 77 % report significant difficulties in passing on cost increases to OEMs . Suppliers , as intermediaries in the supply chain , are the first to absorb cost pressures . While some contracts include
Future automotive technology .
UK car manufacturing ( SMMT ).
indexation clauses to adjust prices based on costs on a regular basis , many contractual relationships with vehicle manufacturers do not include such clauses and require negotiations for price adjustments ,” added CLEPA . “ Additionally , 58 % of suppliers cited increasing geopolitical instability as a major concern . 29 % identified bankruptcies of the smaller Tier 2 suppliers , as well as suppliers exiting the automotive business , as having a strong impact on their operations , marking a sharp uptick from 2023 when only 16 % identified it as a major challenge ,” it concluded .
Less than 50 % of the automotive suppliers surveyed expected battery-electric vehicle ( BEV ) sales growth in the next 12 months . Growth prospects are particularly uncertain for vehicles in the midprice range . Around 65 % of automotive suppliers anticipated that BEVs will account for less than 50 % of car sales by 2030 . A striking 81 % of suppliers blame pricing as highly relevant to explain declining demand for BEVs .
The development of connected and autonomous vehicles promises to revolutionise transportation by improving safety , reducing congestion and enhancing the overall driving experience
Images : Shutterstock . com .
New horizons
However , according to François Roudier ’ s presentation to the China Auto Forum 2024 ( on behalf of the International Organisation of Motor Vehicle Manufacturers ), “ there is no logical reason why the automotive industry shouldn ’ t continue its global expansion , reaching more people and utilising new technologies .”
“ The last decade has seen America with Tesla , coming from nowhere , outselling many famous brands , we have seen China emerge as the formidable player in the global automotive arena and we have seen Europe rushing to invest massively in new technologies . Moreover , technological advancements worldwide are breaking down barriers and creating new opportunities for growth . The development of connected and autonomous vehicles promises to revolutionise transportation by improving safety , reducing congestion and enhancing the overall driving experience . Technologies like 5G and Artificial Intelligence are enabling vehicles to communicate with each other and with infrastructure , paving the way for smarter cities and more efficient mobility solutions ,” he continued .
“ As we look to the future , the potential for further innovation seems limitless . The integration of renewable energy sources , the advancement of autonomous driving and the continuous improvement in battery technology are just a few areas where we can expect groundbreaking developments . The automotive industry will continue to evolve , driven by the relentless pursuit of excellence by manufacturers , the guiding hand of government policies and the challenging needs of consumers ,” he concluded . n
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