Though US$150-$200bn of traditional automotive supplier revenue is at risk over the next decade, over $700bn of opportunities exist for value chain players to capture, according to Deloitte’s third annual 2018 Global Automotive Supplier Study.
The study analysed shareholder value performance for over 200 automotive suppliers.
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“Over the next decade, automotive supplier revenues will be faced with commoditisation [sic], extensive change and risk due to a changing landscape, but at the same time, value chain players will have the opportunity to capture revenue through traditional content growth, autonomous and electric vehicle content, and new business opportunities in aftermarket and services,” said Neal Ganguli, managing director, Deloitte Consulting and author of the study.
“Our research found that new business models in aftermarket and service are likely to account for over half of the projected $700bn opportunity through volume growth and vehicle digitization.”
Shareholder value creation by top automotive suppliers in the last 10 years was driven by cost and asset efficiency, product range leadership and market focused innovation. The top third of suppliers drove 90% of shareholder value over the last eight years, and were 50% more profitable and 33% more asset efficient, according to the study.
Asset-light segments also outperformed other segments, generating approximately 70% of shareholder value. Finally, 60% of shareholder value correlated to leading on product range management and market innovation.
“While we analysed the top performers from the past decade, we also found that past performance does not guarantee future performance. Detailed analysis on the top performing automotive suppliers of the past 10 years found that those making up the top three significantly changed over the past four years,” Ganguli said.
“Our analysis indicates that suppliers need to create strategies based on their current portfolios and financial capacity so that they can capitalise on new opportunities that will enhance return on capital and growth.”
About a third (33.6%) of executives Deloitte polled believe that flat volume and high disruption is the most likely scenario to occur in the next 10-15 years.
“The global automotive supplier industry is facing impending transformation in the coming years and it is clear that these suppliers recognise that high levels of disruption are coming,” said Ganguli.
“However, executives polled were divided on what would be the leading strategy to capture opportunities in the future.”
Poll data showed respondents were spread for their leading strategies to capture future opportunities with a variety of options including restructuring fixed costs, divesting or selling, staying the course and optimising performance, consolidating, scaling business profitably, defining new solutions and services or shaping the ecosystem.
Other notable results:
- One-third (34.3%) of executives polled said cost and asset efficiency have been the key focus that has helped their company meet or achieve growth and performance objectives over the last five years. About half as many (18.8%) said it was market focused innovation and 15.2% said product line leadership, while the other 31.7% chose ‘other’.
- Approximately 24% of executives said electronics, infotainment and communication are among the key concerns for their company’s or client’s buying agents.
- More than a quarter (26.7%) perceive electric vehicle technology and infrastructure as the area with the most opportunities in the next 10-15 years, followed by 22.4% who believe autonomous vehicle technology and infrastructure to be the biggest area of opportunity.
