The Future of the Automotive Value Chain Global Supplier Risk Monitor 2021 - Deloitte
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The Future of the Automotive Value Chain Global Supplier Risk Monitor 2021
The Future of the Automotive Value Chain | Global Supplier Risk Monitor 2021
Preface 04
Introduction 06
Approach and key results 10
Risk categories and indicators: Evaluation per component cluster 18
Case study 52
Contacts 58
03
Preface
The COVID-19 pandemic has hit the car industry head-on. Suppliers across the
sector are struggling to cope with the impacts of the crisis at the same time they
are trying to move forward with the transformation of the automotive value chain.
Even without an extreme one-off event like the
pandemic, taking the time to systematically
evaluate and manage the industry’s key risks
is a sensible thing to do. There is no doubt that
the transformation taking place in the industry
poses enormous risks for many suppliers: busi-
nesses that are too slow to implement the latest
in technological and consumer-driven trends –
or to follow new regulations – could fail. In the
end, we may credit the pandemic as the acceler-
ator for change, but in fact it has simply revealed
the risk factors and structural trends that were
already facing the automotive supplier industry.
It was our assessment – even before the COVID-
19 pandemic – that after years of positive growth1
the industry would be facing a wide range of risk
factors in the future.
1
Deloitte, The Future of the Automotive Value Chain – The Supplier Financial Transformation Model, 2018.
04The Future of the Automotive Value Chain | Global Supplier Risk Monitor 2021
“Our research highlights the strategic challenges for the clusters most affected by
the industry’s transformation. Setting a clear strategic direction, preparing proactive
action plans and showing a willingness to make profound changes – even in this
highly uncertain climate – are critical factors for suppliers eager to master the
fundamental challenges in today’s automotive industry.”
Dr. Harald Proff, Deloitte Global Automotive Lead
These included, among other things, cluster- seriously depleted. This is likely to lead to a vol- highlight the cluster-specific risks, outline the
specific challenges (e.g., internal combustion ume shift between the different product clusters potential impact of these expected changes
engine (ICE)-related products) stemming from (e.g., ICE vs. electric drivetrain) and a decrease in and recommend possible actions to take. Our
the digitalization and electrification trend. sales volume overall. The transformation of the goal is to raise awareness about current market
Recognizing and preparing for risk has become industry's value-chain demands serious atten- trends and give automotive suppliers and key
a more pressing concern. We believe that sce- tion on its own, but if our experience is any indi- stake-holders from original equipment manufac-
nario-based thinking and strategizing can pro- cation, other risk factors and weak capital safety turers (OEMs) to capital providers the support
vide valuable support, enabling companies and buffers will further aggravate the situation. Even they need to manage and mitigate today’s risks.
financing partners to proactively detect areas in this period of high uncertainty, there is no time
of risk and to assess a prioritized set of counter- for trial runs: the automotive supplier industry We hope that our study and our presentation of
measures that mitigate possible threats to their has to get its transformation right the first time. apparent risks, challenges and reactive scenar-
business. ios in the automotive supplier market will be of
We have developed the Deloitte Global Supplier interest to you.
So far, we still have no secured idea what the Risk Monitor to assist suppliers in their strategy
full magnitude of the global crisis will be. There formulation process. Using the same approach
is growing evidence that even in the best-case as our Future of the Automotive Value Chain study
scenario of a full economic recovery, the global series, we have split the automotive supplier
shutdowns have left with their financial reserves market into 19 vehicle component clusters to
05Introduction
Steering into the perfect storm?
Fig. 1 – Automotive transformation in the news - keyword cloud*
Mobility market
Innovation
change
technological Vehicle
Transformational
change Value chain severance
mobility
change
Structural
Transformation
turning point
Mobility
upheaval change Automotive
changed Disruption
industries
Tight Spot
strategy
revolution
for innovations
Compression
change
Car industry
alteration Crisis automotive
perturbation
framework
transformation
Automotive
Restructuring
Market changes
Turnaround
Transformation
process
*Font size indicates frequency of each keyword.
06The Future of the Automotive Value Chain | Global Supplier Risk Monitor 2021
The need for transformation across the Fig. 2 – Global light vehicle sales Fig. 3 – Change in stock price (January 2015 = 100)
automotive industry
100 1,600
We have seen a serious drop in light-vehicle 94.3
92.2 93.7
sales, a decline only exacerbated by COVID-19. 89.7
90 88.3
At the same time, the share of passenger cars
84.2 1,400
with alternative drivetrains is on the rise. This
has caused share prices of legacy OEMs to 80 76.9
decrease dramatically while newcomers such as 1,200
70
Change in stock price (indexed)
Tesla see their share prices soar to new, previ-
ously unheard-of heights.
60 1,000
On a subjective level, it often feels as if there is
a new story every day about present or future 50 800
shake-ups in the automotive industry and
impending structural change. Media reports on 40
so-called megatrends such as electric mobility, 600
autonomous driving, vehicle digitalization and 30
car-sharing in particular increase uncertainty
400
within the industry. Of course, the evergreens
20
Google, Facebook, Uber and Tesla are behind
these trends as well, ushering in fundamental 200
10
changes to established business models as
well as markets. Advances in electrification and
0 0
digitalization are moving at a rapid pace. By con- 2015 2016 2017 2018 2019 2020 2021 FC 2015 2016 2017 2018 2019 2020
trast, the once bold statements on mass-market (in Mio.)
autonomous driving have become noticeably Top 15 OEM
Source: IHS Markit.
reserved, due to delays caused by technical Tesla
and legal challenges as well as high costs. The
same holds true for the car sharing space, where Source: Yahoo Finance.
building a sustainable business model does not
appear to be as easy as originally thought.
07What may be a subjective impression is easy to earmarked for transformation considerably Fig. 4 – Notes, articles and publications on structural change
objectively confirm, given the urgent need for diminished, suppliers find that their room to in the automotive industry
transformation in the automotive industry. It is manoeuvre is seriously limited.
notable, however, how this view has gained trac- 100
tion among politicians and manufacturers across How to respond to the current environment
the globe, as evidenced by a growing number Given the current situation, it is now more 90
of publications, public statements and explicit important than ever for suppliers to validate the
warnings in management reports and in public. course they have set, to systematically identify 80
the relevant rapids and cliffs they may encounter
The COVID-19 crisis is limiting the room to along the way, and to monitor these risk drivers 70 1,337
# keywords mentioned*
manoeuvre for auto suppliers on an ongoing basis as well as any other relevant
Many automotive companies were already developments. 60 1,118
moving forward with their transformation process
when the COVID-19 pandemic hit. The global To help business leaders master this task, we 50
shutdown of economic activity that followed has, have developed the Global Supplier Risk Monitor.
818
among other calamities, precipitated a slump in This tool enables companies to systematically
40
global economic output that is likely to persist track risks of varying severity in each supplier 687
for years to come. As of the publication of this market, based on our breakdown of the automo-
30 522
study, the sales forecasts and consequently the tive supplier market into 19 clusters (see page 11).
share prices of most global automotive OEMs and
20
suppliers are under serious pressure. Debates Our monitor differentiates between purely
244
among political leaders, calls for immediate external risk drivers beyond a company’s control
emergency relief as well as government-funded and internal risk factors within their control. With 10
incentive and stimulus schemes demonstrate just such an exhaustive set of risk factors, companies
how existential the pandemic is for much of the and stakeholder like OEM, equity and debt capital 0
world population. Beyond creating a gloomy mid providers can make a tiered assessment not only 2015 2016 2017 2018 2019 2020
to long-term outlook, the crisis measures intro- of relevant risks but also of the risk preparedness
duced by most companies have also depleted among different supplier clusters as well as within
Actual observations
their financial reserves. And now with the savings an individual cluster.
*for the key words please refer to page 6
Source: Deloitte analysis based on factiva database.
08The Future of the Automotive Value Chain | Global Supplier Risk Monitor 2021
Open any newspaper today, and you are likely to find
multiple stories about disruption within the automotive
sector. This has only intensified in the wake of the
COVID-19 pandemic, with media stories putting both
winners and losers in the spotlight. Even as sales
figures for passenger cars plummet for most OEMs –
along with their share prices – electric carmaker
Tesla has seen its valuation soar. It will be crucial
for suppliers across the industry to draw the right
conclusions from the crisis if they intend to bounce
back stronger than ever before.
09Approach and key results
The Global Supplier Risk Monitor in a nutshell
Why? What? How?
Taking a proactive approach to detecting and Your guide to identifying and assessing the Start by assessing 23 leading indicators that cover
anticipating risk areas across different supplier cluster-specific risks facing the global automotive uncontrollable risks (external factors) in your compa-
component clusters is a key imperative when it supplier industry. ny’s competitive environment as well as global and
comes to your transformation strategy – the first societal trends.
step to securing your business for the long run
and navigating the massive changes taking place Next up are the controllable risks (internal factors)
in the automotive value chain. rooted in your company’s own operations, financial
situation and strategic positioning.
The starting point for your risk evaluation is the set
of 19 component clusters introduced in Deloitte’s
study series on The Future of the Automotive Value
Chain.2
2
Deloitte, The Future of the Automotive Value Chain – The Supplier Financial Transformation Model, 2018.
10The Future of the Automotive Value Chain | Global Supplier Risk Monitor 2021
Fig. 5 – Breakdown of vehicle component clusters
Infotainment & Interior
Climate Control
Communication
Electronics
Advanced Driver Assistance Wheels & Tires
Systems (ADAS) & Sensors
Electric
Drivetrain
Exhaust Systems
Transmission
Internal
Combustion
Engines (ICE)
Frames
Steering
Suspension High Voltage Battery/
Axles Fuel Systems
Fuel Cells
Brakes Seats
Body
11Key results
The Global Supplier Risk Monitor enables companies Clean your house Fig. 6 – Component cluster risk map
to continuously and systematically monitor risks In this quadrant, you have identified serious internal
in 19 separate clusters. We evaluate each cluster risks, but there are operational and financial meas- Highest
based on three external risk categories (market ures you can introduce to control them. Clean your house Fight the fires
structure and pressure, regulatory and societal Axles Interior
environment, future market relevance) and three Address market challenges
internal risk categories (cash-generation power, You need to minimize your exposure to the uncon- Suspension
cluster adaptability and capacity for innovation, trollable risks in this quadrant. Targeted use of HV Battery/ Steering
Exhaust
Fuel Cells Systems
credit rating) on a scale from 1 to 5. The value available resources will address market and strate- Brakes
ICE
assigned to each risk category combines multiple gic challenges.
risk indicators, which are rated based on our exten-
Wheels & Body
sive research and sector knowledge. This allows us Fight the fires Fuel
Tires Climate Control Systems
to rely on a big-picture view when we identify the Both internal and external risks are pronounced
Electric Frames Climate
relevant risks for a particular cluster. in this quadrant. The best course of action is to Drivetrain Control Case Study p. 50
Risk: internal factors
completely transform your business model, but that
Understanding the different risks that impact is challenging when internal resources are limited.
Seats
these factors, classified as either internal or
external risks, gives us a strong foundation to Due to the structure of ICE-related clusters – and Electronics Transmission
start developing countermeasures and mitigating the pressure for carbon-neutral drive systems from
risk. Based on its position within the risk matrix, both politicians and the general public – the expo-
as shown in Figure 6, we can develop an initial sure to external risks (uncontrollable) in this area is Infotainment &
hypothesis as to the origin or the primary driver high. Our analysis has also shown that, on average, Communication
of each risk and develop risk reduction initiatives. companies focused on ICE-related components
It is crucial, however, to work from an in-depth often face high internal (controllable) risks as well.
understanding of your company’s individual risk
structure. Not surprisingly, we also see clusters focused on ADAS & Sensors
new technologies with a lower overall risk profile.
Keep it going While risks for Electric drivetrain (lowest external
Even though the risk level is low in this quadrant, it risks closely followed by HV Battery/Fuel cells) and
is vital to monitor your risk exposure on an ongoing ADAS & Sensors (by far the cluster with the lowest Keep it going Address market challenges
basis. internal risk) score low, the situation for High Voltage
Lowest Risk: external factors Highest
Battery/Fuel cells is more nuanced: external risks
are classified as low, driven by the determination to New technologies ICE-related technologies Other technologies
advance electrification. Our data sample also shows
Lowest Risk Highest Risk
that there are relevant internal risks as well.
Source: Global Supplier Risk Monitor.
12
Internal and external risk factors on a scale 1-5 are weighted 50:50 to achieve the overall risk score (see next page)The Future of the Automotive Value Chain | Global Supplier Risk Monitor 2021
Tab. 1 – Component cluster risk league table
Risk rank Change* Cluster Risk score
The COVID-19 crisis has limited the
The highest risk is in clusters focused on
1 ICE 4.74 room to maneuver for automotive
Exhaust Systems and ICE. The highest internal
risk we observed is in the Axles cluster (low
2 Exhaust Systems 4.25
suppliers in every cluster, while
3 Interior 4.09
earnings and bad balance sheet structures).
The cluster with the highest external risk is ICE 4 Fuel Systems 4.01 governments are seizing the
(decreasing market volume, high market consol-
idation, high adverse impact of legislation).
5 Climate Control 3.55 opportunity presented by the crisis
to promote sustainability. As a result,
6 Axles 3.51
7 Suspension 3.45
8 Transmission 3.44 COVID-19 is having a particularly
9 Body 3.37
negative impact on demand for
10 Steering 3.19
11
Infotainment &
3.04
vehicles with traditional drivetrains, at
Communication
12 Brakes 3.03 least over the near term. The market
13 Electronics 3.02 for alternative vehicles, by contrast,
looks set to continue to grow.
14 Seats 2.98
The lowest risks are found in the ADAS &
15 Wheels & Tires 2.87
Sensors and Electric Drivetrain clusters. The
ADAS & Sensors cluster has the lowest expo- HV Battery/
16 2.68
sure in five out of six risk categories, among Fuel Cell
the five clusters with the lowest risk level. The 17 Frame 2.62
cluster adaptability and capacity for innovation
18 Electric Drivetrain 2.26
factors as well as credit rating have a particu-
larly positive impact on risk levels. 19 ADAS & Sensors 1.36
* This is the first time we are publishing these risk scores. In future issues,
this chart will include information about the change in risk score over the
previous period.
Source: Global Supplier Risk Monitor. 13Risk factors
To ensure that we take a holistic view,
each cluster is evaluated based on
three external risk categories – defined
as uncontrollable factors – and three
internal risk categories – defined as
controllable factors.
14The Future of the Automotive Value Chain | Global Supplier Risk Monitor 2021
Risk – external factors Risk – internal factors
These are defined as uncontrollable factors that are likely to have an effect on These are defined as controllable factors that can be either a multiplier or a miti-
either the present or future performance of a company but remain to a large gator for external risks. Whereas all companies within a cluster are affected to the
degree outside the influence of management. same extent by external factors, they vary with regard to their internal risks.
Market structure and pressure
Cash-generation power
These are risks arising from the competitive situation within a
The ability to adapt new trends and the consistently high pres-
certain cluster. It is important to consider the current market
sure from OEMs and the market as a whole make it imperative
structure (e.g., the level of fragmentation) relative to the cur-
for companies to stay profitable, i.e., to maintain flexible cost
rent market size. The outlook for key inputs such as raw mate-
structures and stable operating cash flow as well as keeping
rials and skilled talent is an additional factor in our assessment
locked-up working capital to a minimum.
of the market pressure for individual clusters.
Regulatory and societal environment Cluster adaptability and capacity for innovation
Besides the competitive environment, a company’s prospects We assess patents and the level of R&D investment over the
are increasingly being affected by societal and regulatory medium-term to determine a cluster’s readiness to capture cur-
norms and trends, such as current subsidies for electric vehi- rent and prospective market trends and a company’s willingness
cles or carbon emission caps. The overarching themes here to invest in the future of a market. In addition, innovative clusters
revolve around issues from security and sustainability to the offer opportunities for companies to set themselves apart from
predictability of the legislative framework. the competition through innovation or create a new profitable
market niche.
Future market relevance Credit rating
Besides the risks arising from global megatrends, there are Here, we evaluate a cluster’s ability to finance necessary changes,
additional risk indicators that may affect a cluster’s future mar- to fund new projects through external equity or debt capital and
ket relevance, such as entrepreneurial attractiveness or M&A to service existing loans. A high credit rating helps companies
attractiveness. Innovation and disruption from automotive source debt capital or equity capital providers, which in turn will
players as well as new entrants are expected to change the help fund future endeavors to expand the business, create a
current value-added process and, with it, the entire automo- niche, grow the product portfolio or drive consolidation.
tive supplier landscape.
15Leading indicators
This risk assessment covers a comprehensive set Fig. 7 – Overview of leading indicators and data sources
of leading internal and external risk indicators
that companies can measure and monitor. Risk – external factors Risk – internal factors
For the purpose of this study, we made sure
the indicator database is always up to date to Risk factor Leading indicator Risk factor Leading indicator
ensure that the assessments reflect the latest
Market volume development
developments.
Market consolidation Earnings
Market structure Cash-generation
M&A attractiveness Operating cash flow
and pressure power
Availability of commodities Cost variability
Talent availability
Legislative initiatives
Regulatory and Cluster adapt- Investment appetite
Impact of subsidization
societal environ- ability and R&D spending
Environmental pressure
ment innovative power Capacity for Innovation
Unforeseen events
Entrepreneurial attractiveness
Market capitalization Balance sheet structure
Future market
M&A attractiveness Credit rating Debt repayment capacity
relevance
IPO attractiveness Debt risk premium
Value-creation development
Deloitte The Future of the Automotive Value Chain study studies3 Deloitte benchmark database Deloitte research Deloitte specialist knowledge
16The Future of the Automotive Value Chain | Global Supplier Risk Monitor 2021
Risk monitoring and mitigation
Tab. 2 – Overview monitor and mitigation approach
Risk monitoring Risk mitigation It is important for each company
Analyze and monitor
macro risks
Identify key risks Define mitigation actions to establish a continuous
• Analyze leading indicators to • Consider and translate Global • Assess different transformation and systematic approach to
assess the risks of individual Deloitte Risk Index to a specific scenarios for own component
automotive component clusters. company scenario. clusters in general and in light of monitoring and evaluating
the Deloitte risk evaluation.
• Use leading internal and external • Analyze company-specific risks: • Define a transformation path
internal and external risks. To
indicators to enable an objective
risk assessment.
– Does one company have a
different risk exposure than its
and action plan to mitigate key
risks.
achieve long-term business
• Perform risk assessment on a
component cluster?
– How has the risk level
• Update action plan based on success, you need a structured
global basis, regularly updating changed risk exposure.
and publishing results.
developed compared to the
previous assessment?
methodology that enables you
• Track the development of risk
exposure over time, to allow
• Identify key risks based on their to identify risks at an early stage
expected impact on the com-
comparison with the previous
risk assessments of component
pany. and respond with the right
clusters. • Distinguish uncontrollable risks
from controllable risks.
countermeasures.
Focus of this study
Supplier-specific report
tailored to reflect the
relevant internal/external Focus of the Deloitte Supplier
risk level. Financial Transformation Model4
Deloitte, The Future of the Automotive Value Chain – The Supplier Financial Transformation Model, 2018.
3, 4
17Risk categories and indicators: Evaluation per component cluster Deloitte has developed a proprietary methodology that enables suppliers, OEMs, banks and investors to identify and monitor risks on an ongoing basis using a set of 23 objective leading indicators. These indicators are categorized into 6 different risk factor categories and updated regularly to support continuous risk monitoring. Suppliers, OEMs, banks and investors can rely on Deloitte’s powerful leading indicator database to benchmark different component clusters and automotive suppliers against one another. With regular updates of the database, we will be able to provide insight about how risks levels change over time in future issues of our Global Supplier Risk Monitor. 18
The Future of the Automotive Value Chain | Global Supplier Risk Monitor 2021
The following pages present all of our leading indicators
as well as their impact on the risk categorization of
each component cluster. Get in touch with us for
a chance to rank your company, your portfolio of
companies, your customers or your suppliers against
the competition; we look forward to helping you
identify the specific risks of your business and develop
possible mitigation measures.
19Market structure and pressure
Infotainment and Climate control are the Tab. 3 – Risk league table: market structure and pressure
riskiest clusters in terms of market pressure.
Infotainment gets the highest risk score in four Market- Market M&A Availability of Talent
out of five indicators. Development in this mar- volume devel- consolidation attractiveness commodities availability
ket is expected to remain low, moving market opment
players to try and stabilize their sales volume by
Risk score Indicator’s impact on risk score
buying direct competitors (i.e., consolidating the
market). Highest risk 5
Infotainment 5.00
At the same time, chances are slim of finding
investors outside the same cluster that are Climate Control 4.08
willing to invest in Infotainment. Players in the Fuel System 4.08
Wheels & Tires cluster face the lowest risk in
terms of market pressure. With market con- Exhaust Systems 3.86
solidation low, investors are willing to provide HV Battery/Fuel Cell 3.68
funds, and the necessary commodities are
…
widely available.
ADAS & Sensors 2.42
Talent availability and most recently the semi
Frame 2.42
conductor crisis pose significant risk onto new
drivetrain and connected driving and electron- Electric Drivetrain 1.87
ics clusters that are expected to remain. In both Body 1.86
fields the automotive industry is competing with
Wheels & Tires 1.00
players from the IT and consumer electronics
sector that are more established as attractive Lowest risk 1
employers and larger in scale as a customer
than the automotive industry combined.
High risk Medium risk Low risk Lowest Risk Highest Risk
Source: Global Supplier Risk Monitor.
20The Future of the Automotive Value Chain | Global Supplier Risk Monitor 2021
Description of risk indicators
Market volume development Availability of commodities
Expectations regarding the development of the global* market Analysis of the worldwide availability and corresponding price
volume for each component cluster. If forecasts indicate a strong trends in the raw materials required for production in a compo-
increase in market volume, this will typically lead to a less com- nent cluster. Scarcity of raw materials poses a risk for all market
petitive environment in the short term and, consequently, a lower participants in a given cluster.
risk level for all market participants.
Market consolidation Talent availability
Intra-cluster M&A: a company operating in a specific cluster Given the pace of technological change (electrification) and
segment acquires another company in the same cluster segment. increasing digitalization in cars (car to x), the availability of employ-
High intra-cluster M&A activity is an indicator of market consoli- ees with specialist skills is an extremely important factor. Finding
dation, which may result in strong market concentration with just talent with the appropriate background (education and experi-
a few suppliers and high risks for smaller, less market-dominating ence) is key to leveraging the market trends expected in some
competitors. component clusters.
M&A attractiveness
Inter-cluster M&A: a company invests in a company that is oper-
ating in a different component cluster. In this case, the investor
is only willing to enter a market with a positive market outlook. In
contrast to an intra-cluster M&A, this does not necessarily change
the competitive structure of the cluster.
211,312
Fig. 8 – Evolution of M&A activity by buyer group, 2016–2020 M&A activities outside the ICE-related clusters
were mainly driven by consolidation from 2018
Buyer invests in a target focusing on… to Q1 2021 (i.e., buyer and seller were direct
competitors in the same cluster), while there
Buyer was a complete reversal in the Electric drive-
… a different cluster … the same cluster train cluster from diversification (investing in
Diversification Consolidation targets with a business focus in other clusters)
to intra-cluster deals (driving consolidation).
2016–2017 17% 83%
New Taking a closer look at ICE-related technologies,
drivetrains
2018 - 2020 77% 23% it appears that buyers are almost evenly split
into two camps, either following a consolida-
Connected 2016–2017 70% 30% tion strategy (53%) or a diversification strategy
driving and (47%), targeting structurally important and
electronics 2018 - 2020 76% 24% innovative cluster groups that have the poten-
tial to be more relevant in future.
Traditional 2016–2017 68% 32%
technologies – While the traditional technologies exterior clus-
interior 2018 - 2020 72% 28% ter as a buyer group is predominantly focused
on consolidation (68%), buyers in this cluster
2016–2017 52% 48% are predominantly players from outside the
ICE-related
technologies supplier industry, e.g., financial investors (pri-
2018 - 2020 48% 52%
vate equity (PE) and other, 27%).
Traditional 2016–2017 92% 8% It’s noteworthy that M&A activity targeting
technologies – companies in the ICE-related cluster is predom-
exterior 2018 - 2020 67% 33%
inantly driven by consolidation acquisitions
(67%), with financial investors (PE and other,
Target inside the same cluster 15%) as the second-largest buyer group.
Target outside the same cluster
Source: Mergermarket; Deloitte Analysis.
22The Future of the Automotive Value Chain | Global Supplier Risk Monitor 2021
Key messages
A component supplier that is evolving The availability of commodities is The limited availability of skilled IT and
into a full-systems provider is a key important for digitalization and au- electro-technical specialists is expected
driver of diversification. More and tomation in particular, as well as for to launch a fierce battle for talent in
more suppliers are determined to the switch to electric drive systems. clusters such as ADAS & Sensors,
complete their product portfolio and Sourcing relevant raw materials such as Infotainment, E-mobility as well as the
provide OEMs with systems rather than cobalt and rare-earth metals hinges on Electric drivetrain and High Voltage
individual components. the political stability of the countries of battery/Fuel cells clusters. Conversely,
origin in addition to human rights and conventional specialist roles will remain
environmental issues. unaffected.
Especially the sectors ADAS & Sensors,
Electric Drivetrain, Electronics, Climate
Control and Infotainment were heavily
hit by the semiconductor crisis with ex-
pected longer lasting implications.
23Regulatory and societal environment
In terms of the internal regulatory and societal Tab. 4 – Risk league table: regulatory and social environment
environment, the ICE and Fuel systems clusters
face the highest risks. Legislative Impact of Environmental Unforeseen
initiatives subsidization pressure events
Increasingly strict legislation with respect to CO2
emissions, the impact of government subsidies
Risk score Indicator’s impact on risk score
and environmental pressure are the key drivers
of risk in the clusters related to ICE technology, Highest risk 5
such as ICE and Fuel Systems, while large unfore-
ICE 5.00
seen events hit all clusters equally.
Fuel Systems 3.29
We find the lowest risk in new technologies, Transmission 3.00
namely in the Electric Drivetrain cluster, as well
as in the HV battery/Fuel cells cluster. Although Electronics 2.72
one could never claim that the CO2 emissions Interior 2.66
from battery production are low, politicians
…
seem determined to promote electromobility.
This coupled with virtually ubiquitous environ- Suspension 2.25
mental pressure means risk in this area is low.
HV Battery/Fuel Cells 2.22
Steering 2.09
Axles 2.09
Electric Drivetrain 1.00
Lowest risk 1
High risk Medium risk Low risk Lowest Risk Highest Risk
Source: Global Supplier Risk Monitor.
24The Future of the Automotive Value Chain | Global Supplier Risk Monitor 2021
Description of risk indicators
Legislative initiatives Environmental pressure
Legislation can accelerate market trends in some component There is massive social pressure on today’s OEMs to move toward
clusters and slow them down in others. Where legislation is carbon-neutral production. As a result, OEMs will work to replace
restrictive, companies may be unable to fully exploit the market’s some components that have an adverse carbon footprint with
technological potential (e.g., autonomous driving), while legislative alternative components that improve the carbon-neutral balance.
activism may boost other trends (e.g., electrification). Uncertainty OEMs may also try to pass – at least in part – the price premium
due to the absence of legislation, on the other hand, means the associated with these solutions to their suppliers. That would
risk in this area is higher than other well-regulated markets. increase the risks for suppliers in this component cluster, who will
have to achieve even more efficiency improvements and innova-
tions to cover these additional costs.
Impact of subsidization Unforeseen events
Government subsidies can drive demand for products that lasts One-off events – such as wars, pandemics such as the current
longer or provides a temporary boost, even if they are at a disad- crisis, ecological disasters, political instability (e.g., Brexit), acci-
vantage to competing products. Where initial production costs dents (e.g., exploding batteries in BEVs (battery electric vehicles)
are too high for some products (making them affordable only for or fatalities caused by self-driving cars) can have a direct impact
a limited group of buyers), subsidies can move products into the on the demand within a component cluster.
mass market earlier. Subsidies may reduce risks for companies
in a cluster, even as they increase long-term dependency and
decrease competitiveness.
25The repercussions of COVID-19 Global outlook
Actual impact From a global perspective, the COVID-19
The COVID-19 pandemic may be one of the crisis is having a particularly negative impact
biggest crises to hit the automotive industry on demand for vehicles with traditional drive
in recent decades. We are seeing a significant technology, at least in the short term. The mar-
slump in new vehicle purchases in the Euro- ket for alternative vehicles, on the other hand,
pean Union, though it is manageable for vehi- looks set to continue to grow. We estimate that
cles with alternative drive systems. by 2040 annual sales of new alternative vehicles
will exceed 40 million worldwide.
Current measures – Germany’s example
Despite the considerable challenges we are Despite efforts in some quarters to soften
facing in the pandemic, governments have current CO2 targets during the current crisis,
seized this opportunity to step up their efforts we have also seen calls for tightening them
toward sustainability. Measures taken by the by 2030. The European Commission has
German government, for example, are compen- announced plans to discuss tightening its CO2
sating for the pandemic’s negative impact on regulations, already the world’s strictest, in
alternative drivetrains and promoting long-term 2021.
sustainable development.
While we expect a rather moderate
increase in vehicles with alternative
drivetrains by 2023, that trend is
expected to pick up pace as of 2024
and beyond.
26The Future of the Automotive Value Chain | Global Supplier Risk Monitor 2021
Fig. 9 – Annual sales of alternative vehicles in Germany, NAFTA and China in comparison to vehicles with internal combustion engine (in millions)
55 54 54 54 54 54 54
52 52 53 53 53
51 52
50 50
50 48
47 48
45
45
43
+13%
40
38
35
30
25
20
15
10
5
0
2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040
Total ICE
Vehicles with alternative drivetrains Germany
Vehicles with alternative drivetrains NAFTA
Vehicles with alternative drivetrains China
Source: Deloitte, Elektromobilität in Deutschland – Marktentwicklung bis 2030 und Handlungsempfehlungen, 2020.
27Key messages Legislative trends promoting the In addition to legislative initiatives, In terms of carbon footprint, battery transformation of the mobility government subsidies helping the production is the prime emitter of CO2 landscape, driven primarily by stricter industry face pandemic-related behind body, electric drivetrain and emission regulations, will have a challenges are clearly geared toward ICE production due to its resource- positive impact on e-mobility clusters – alternative drivetrains, as opposed to intensive processes. and to a certain extent on the Exhaust ICE-related systems. Systems cluster. 28
The Future of the Automotive Value Chain | Global Supplier Risk Monitor 2021
The regulatory environment can have a massive
impact on risks within a component cluster. On
the one hand, restrictions may make certain
products obsolete or, at a minimum, increasingly
less profitable, as is the case for ICE and ICE-related
components. On the other hand, government
subsidies may boost trends such as BEVs and
increase the pace of change in this area. While we
expect annual sales of new alternative vehicles to
reach approx. 17 million across Germany, NAFTA,
China by 2030, this figure could increase upwards of
40 million by 2040.
29Entrepreneurial attractiveness
Experts expect internal combustion engines to Tab. 5 – Risk league table: future market relevance
become significantly less relevant in the future.
Our risk indicators confirm this: Entrepren- Market M&A IPO Valuecreation
eurial attrac- capitalization attractiveness attractiveness development
• Very low start-up activity tiveness
Risk score Indicator’s impact on Risk score
• A sharp decrease in market capitalization
Highest risk 5
• Low EBIT multiple and fewer opportunities to
ICE 5.00
refinance through an IPO
Exhaust Systems 4.99
Despite a lack of entrepreneurial activity (due to Fuel Systems 4.73
high market-entry barriers) and low IPO attrac-
tiveness, the High Voltage Battery/Fuel cells Transmission 4.61
cluster has the lowest risk scores. Body 4.61
…
Electronics 2.60
Suspension 2.50
Electric Drivetrain 2.27
ADAS & Sensors 2.19
HV Battery/Fuel Cells 1.00
Lowest risk 1
High risk Medium risk Low risk Lowest Risk Highest Risk
Source: Global Supplier Risk Monitor.
30The Future of the Automotive Value Chain | Global Supplier Risk Monitor 2021
Description of risk indicators
Entrepreneurial attractiveness IPO attractiveness
The number of active and new start-ups within a cluster acts as a The IPO volume over the last few years allows us to estimate the
good indicator of the future competitive environment. At the same general attractiveness of a cluster's market. High IPO volumes
time, it says a lot about how attractive a particular cluster is for new indicate that the cluster is extremely attractive to investors, while
business opportunities, how positive its future outlook is and what low IPO volumes indicate the opposite.
potential threats could come from new young competitors.
Market capitalization Value creation development
The market capitalization of companies in different clusters Analyzing the (material) cost share of a cluster in an average
demonstrates how external stakeholders assess the potential mid-range car relative to the projected share for 2028 provides
returns on the purchase or sale of shares in these clusters, and insights about this cluster’s future relevance. For example, as
therefore the attractiveness of the market. When share prices demand for and therefore production of electric cars increases,
decrease, it suggests that the opportunities to raise capital the relevance of clusters focused only on cars with combustion
through outside financing will become increasingly limited. engines will decrease. This indicator also allows us to assess the
future attractiveness of a cluster.
M&A attractiveness
Similar to changes in market capitalization, the EBIT multiple
shows how external stakeholders judge a company’s market
attractiveness. A high EBIT multiple indicates a company’s strong
future prospects as well as an ability to sell off part of the com-
pany to pay for future transformation efforts.
31The ICE and Transmission clusters are expected Fig. 10 – Development of material cost share Fig. 11 – Market attractiveness in terms of EBIT multiple (in x)
to experience the biggest losses in terms of (baseline medium car)
the share in value creation, while we expect 58.5x
100%
this figure to be significantly higher for the
High Voltage Battery/Fuel cells and Electronics 14% Maximum 42.4x
16%
clusters. 90%
39.2x
Investors have indicated that they feel the 80%
19%
same way:
70% 29% 29.0x 32.2x
• ICE-related technologies trade at low EBIT 26.5x 30.2x
multiples, with companies focused on new 60%
drivetrains trading at the highest EBIT multi- Maximum 22.9x
31% 75th
ple. 50% precentile
40% 15.5x
36%
10.2x 13.5x 10.0x
30% Minimum 7.4x
7.9x 7.2x
25th
23% precentile
20% 5.0x 3.4x 7.0x
3.7x
Minimum 0.8x
10% 16%
13%
Traditional ICE-related Traditional Connected New
0% 2% technolo- technolo- technolo- driving drivetrains
2019 2028 gies gies gies and
exterior interior electronics
Traditional technologies-exterior
ICE-related technologies
Traditional technologies-interior Source: Mergermarket.
Connected driving and electronics
New drivetrains
32The Future of the Automotive Value Chain | Global Supplier Risk Monitor 2021
Fig. 12 – Change in market cap pre and post COVID-19 (Dec 18 = 100)
190
COVID-19 pandemic
170
Change in market cap (indexed)
150
130
110
90
70
Dez 18 Jun 19 Dez 19 Jun 20 Dez 20
Traditional technologies-exterior
ICE-related technologies
Traditional technologies-interior
Connected driving and electronics
New drivetrains
Source: Refinitiv Eikon.
33Key messages
Most of the new startup activity is in new In the 14-month period before The cluster group of Wheels, Frames,
technologies, such as ADAS & Sensors COVID-19 swept across the world, new and Suspension reported above-average
and Electric Drivetrains, highlighting the technology companies saw their market IPO volumes, which demonstrates that
potential for long-term growth in these cap outperform that of other clusters this cluster group will remain relevant
clusters, even as we expect stagnation with double-digit growth rates (>30%). and that investors see these clusters as a
or, at a minimum, slow growth for the The Fuel systems and Frames clusters potential safe harbor.
market as a whole. underperformed during the same period,
with double-digit negative growth rates.
34The Future of the Automotive Value Chain | Global Supplier Risk Monitor 2021
The markets are already anticipating that ICEs and
ICE-related technologies will be less relevant in the
future. Not only are companies focused on ICE-
related technologies trading at low EBIT multiples,
but since the outbreak of the COVID-19 pandemic
they have also seen the slowest increase in market
capitalization.
35Entrepreneurial attractiveness
In terms of internal financing power, the Axles Tab. 6 – Risk league table: cash-generation power
and Exhaust Systems clusters have the highest
risk in the automotive supplier sector. Earnings Operating Cost
cash flow variability
Earnings (EBIT-margin) and operating cash
flow are also the lowest in these two clusters.
Risk score Indicator’s impact on Risk score
Meanwhile, the high R&D investments and – as
of 2018 – still low capacity utilization rates in Highest risk 5
the High Voltage Battery/Fuel cells clusters Axels 5.00
are impacting earnings. The very flexible cost
structures, on the other hand, reduce the risk Exhaust Systems 4.01
exposure in these clusters. Steering 3.93
ICE 3.89
The areas with the lowest risks are the Info-
tainment and ADAS & Sensors clusters. High HV Battery/Fuel Cells 3.84
profitability and high operating cash flows com-
…
pensate for the relatively stable cost structure.
Frames 2.34
Transmission 2.07
Wheels & Tires 1.87
ADAS & Sensors 1.00
Infotainment 1.00
Lowest risk 1
High risk Medium risk Low risk Lowest Risk Highest Risk
Source: Global Supplier Risk Monitor.
36The Future of the Automotive Value Chain | Global Supplier Risk Monitor 2021
Description of risk indicators
Earnings Cost variability
In the companies we analyzed for our benchmark analysis (519 Cost variability is defined as the ratio of variable costs to fixed
suppliers in total), EBIT serves as a proxy for each cluster’s prof- costs in a cluster or company. A high proportion of variable costs
itability. We use the total earnings generated by a component is seen as positive, because it allows a company to more easily
cluster to understand how well or how poorly a certain cluster is adapt its operations to lower revenue levels in an economic
performing in the market and to what extent it has the ability to downturn.
adapt to future changes under its own power.
In our benchmark analysis, we compared variable costs to fixed
costs for each company under review.
Operating cash flow
Operating cash flow measures a company’s own financing power
earned from ordinary business activities.
We have adjusted EBIT for non-cash items and added working
capital to better analyze the operating cash flow of the companies
in our benchmark analysis.
37Fig. 13 – EBIT margin development With the exception of Electronics, Axles and Margins for Electronics, by contrast, have
Electric Drivetrains, we have seen profitability increased disproportionately, making it the
Struggling Stars Avg. 0.7% Adapted Industry Leaders decline in every cluster over the last two years. most risk-resistant cluster in the supplier
16%
industry.
High yields are driven by innovation, which also
ADAS & Sensor enables suppliers to set themselves apart from Suppliers typically need to have competitive
14%
the competition and build market-entry barri- advantage, best-in-class processes and strict
ers. There are many examples of this in the area cost optimization across the entire value chain
of new technologies. to achieve sustainably high margins. We have
12% Infotainment also seen players succeed by going on the
However, we have seen margin growth outside offense with economies-of-scale strategies
Wheels & Tires of these growth areas and novel technology or by driving industry consolidation. There is,
10% Transmission Electronics clusters as well. The Axles cluster, for example, however, no guarantee that they will secure
has reported increasing margin for the past two sustainable, long-term survival in a component
Average EBIT margin (%)
Fuel Systems
Climate years, albeit at a low level. cluster with declining relevance.
8% Control
Battery/FC
Brakes Avg. 7.3%
Interior
Frames Electric Drivetrain
6%
Suspension
Body ICE
Steering
Exhaust
4% Axles
Seats Systems
2% New technologies
ICE-related technologies
Victims of Disruption Upcoming Contenders
0% Other technologies
(3%) (2.5%) (2.0%) (1.5%) (1.0%) (0.5%) – 0.5% 1.0% 1.5% 2.0% 2.5% 3%
Change in EBIT margin last two years (P.p.)
Source: Deloitte Supplier Benchmark database.
38The Future of the Automotive Value Chain | Global Supplier Risk Monitor 2021
Apiet eationse comnisc
Key messages
While the Electronics cluster was able We can classify the Seats cluster as
iaecumNewfuga. Officatiatur si
technologies have the highest ratio
to increase its already competitive a victim of disruption, based on theomnis ofrestis
variable sae.
to fixed Nem reicil
costs, mainly due to
margins, the ADAS and Infotainment fact that its already low profitability comparatively low revenues coupled
clusters struggled to sustain their continues to decline. And although iuntem
the eiunt
with enectaquame
very necessary and very costly
above-average margins.
pelest uncertainty
solid EBIT margin, it is currently scaling
mod etandadio.
High Voltage Battery cluster generates a R&D investments. Especially given the
changing expectations
up production, which has negatively on today’s market, these companies are
impacted cash flow. This cluster will very vulnerable to sales declines.
need external financing to fund further
growth (investment and working capital).
39Cluster adaptability and capacity for innovation
Investment appetite, R&D spending and the Tab. 7 – Risk league table: cluster ability and capacity for innovation
capacity for innovation in the Suspension,
Wheels & Tires and Brakes clusters are all mov- Investment R&D Capacity for
ing in the same direction: relatively high risk in appetite spending innovation
terms of capacity for innovation.
Risk score Indicators impact on Risk score
High R&D spending and a high level of patents
in ADAS & Sensors make this the cluster with Highest risk 5
the highest capacity for innovation. As a result, Suspension 5.00
they also have the potential to set themselves
apart from their competitors. Wheels & Tires 4.85
Brakes 4.78
Steering 4.70
Interior 4.29
…
Electric Drivetrain 2.64
Electronics 2.62
Frames 2.61
Seats 2.49
ADAS & Sensors 1.00
Lowest risk 1
High risk Medium risk Low risk Lowest Risk Highest Risk
Source: Global Supplier Risk Monitor.
40The Future of the Automotive Value Chain | Global Supplier Risk Monitor 2021
Description of risk indicators
Investment appetite Capacity for innovation
The capital expenditure ratio compares the investments made Similar to R&D expenditure, the number of registered patents a
by one component cluster to those of other clusters. A high ratio cluster has can also be used as a parameter for its future viability.
implies that a cluster is very likely to invest in expansion, which R&D expenditure directly correlates to the number of registered
indicates that there must be market opportunities in this cluster. patents as well. The higher the number of patents, the greater the
Where this ratio is consistently low, it would seem to suggest that probability that the cluster will be relevant for the entire market in
companies in this cluster are pursuing a harvest strategy. the future, and the lower the number, the less likely it is to remain
relevant.
R&D spending
We can use a cluster’s expenditure on research and development
as an indication of its viability in the long term or of the degree to
which players in this cluster believe their products will be relevant
in the future. Where spending on research and development is
low, on the other hand, the cluster is likely to be in a much weaker
position to deal with future technological advances.
41Based on our analysis, clusters focused on new Fig. 14 – R&D spending per cluster
technologies are outspending all other auto-
motive clusters in terms of R&D spending as a Ø 4.6%
Frames 1.6%
percentage of revenue. Brakes 2.2%
Suspension 2.2%
Even without accounting for the different sizes
Fuel Systems 2.4%
of the markets, the majority of patents regis-
Wheels & Tires 2.5%
tered within the last 24 months are for new
technologies, with Electronics alone account- Climate Control 2.6%
ing for 19 percent of all patent applications. Body 2.8%
Although the Electronics cluster has the highest ICE Engine 2.9%
number of patent applications (2,208) in abso- Steering 3.2%
lute terms, the ADAS & Sensors cluster has, Axles 3.3%
in relative terms, a higher number of patent Exhaust Systems 3.4%
applications per company. Transmission 3.5%
Seats 4.0%
This finding is in line with the level of R&D
Interiour 4.5%
spending, where the Infotainment & Commu-
Electric Drivetrain 4.8%
nication and ADAS & Sensors clusters rank the
highest. Electronics 6.9%
New technologies
HV Battery/Fuel Cells 9.0%
ADAS/Sensors 11.2% ICE-related technologies
Infotainment 14.4% Other technologies
0 5.0% 10.0% 15.0%
R&D spending in % of revenues
Source: Deloitte Supplier Benchmark database.
42The Future of the Automotive Value Chain | Global Supplier Risk Monitor 2021
Fig. 15 – Patents per cluster
Axles 71
Wheels & Tires 140
Brakes 187
Steering 192
Fuel Systems 205
Seats 210
Suspension 243
Exhaust Systems 419
Infotainment & Communication 465
Electric Drivetrain 470
Climate Control 523
HV Battery/Fuel Cells 539
Interior 658
Transmission 807
Frames 823
Body 825 New technologies
ICE 913
ICE-related technologies
ADAS & Sensors 1,957
Electronics 2,208 Other technologies
0 500 1,500 2,000 2,500
Interest Spread
Source: Deloitte analysis, DPA.
43Key messages
Despite the questionable long-term Infotainment, with the highest share of With a strong presence in the new
outlook, ICE-related clusters are still R&D spending, is looking to redesign the value networks for electric vehicles and
reporting above-average investment. value proposition of the automobile and autonomous driving, the Electronics and
Continued investment in a shrinking establish these features as a significant ADAS & Sensors clusters are actively
market will only increase the financial point of differentiation. developing new technologies. Together,
pressure in these clusters. they currently account for about
30 percent of all new patents.
44The Future of the Automotive Value Chain | Global Supplier Risk Monitor 2021
We have observed a high level of R&D spending
and investment in production capacity in certain
component clusters (e.g., ADAS & Sensors and
Electric drivetrain). While this shows confidence in the
future development of the market on the one hand,
it also represents a challenge for these companies
due to their current financial situation.
45Credit rating
When the debt burden is high and the equity Tab. 8 – Risk league table: credit rating
level is low (due to low profitability), companies
will find it more difficult to refinance existing Balance sheet Debt Debt risk
loans or secure new financing. Credit ratings structure repayment premium
are comparatively low for companies in the capacity
Frames and Exhaust Systems clusters.
Risk score Indicator’s impact on risk score
As they demonstrate good balance sheet Highest risk 5
structure and strong debt servicing capacity, Interior 5.00
companies in the ADAS & Sensors cluster have
a higher credit rating. Capital providers see it Body 4.81
the same way: risk premiums in this cluster are Exhaust Systems 4.78
low as a result.
Frames 4.69
Axles 4.61
…
Seat 2.73
Infotainment 2.73
Transmission 2.40
Climate Control 2.28
ADAS & Sensors 1.00
Lowest risk 1
High risk Medium risk Low risk Lowest Risk Highest Risk
Source: Global Supplier Risk Monitor.
46The Future of the Automotive Value Chain | Global Supplier Risk Monitor 2021
Description of risk indicators
Balance sheet structure Debt risk premium
We use the ratio of existing debt capital to equity to assess how The interest spread is the difference between the average interest
likely it is for a cluster or a company to secure a loan in a crisis. A rate a cluster has to pay to service its existing loans compared
low debt ratio is a positive factor here, indicating that the cluster to the EURIBOR. The higher this spread is, the greater the risk
or company would be able to obtain outside capital a lot easier and therefore the less attractive a cluster is likely to be for future
and faster when they need it and can therefore rely on its own lenders. As a result, we refer to this interest spread as the risk
refinancing capacity to survive a crisis. premium for this cluster.
Debt repayment capacity
We use this indicator to assess how long it will take for a compo-
nent cluster to repay their loans. The net financial debt is expressed
as a ratio of EBITDA for this purpose. On the basis of this ratio, we
can establish how many years it would take a cluster with a stable
debt burden and stable earnings to repay all of its debt.
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