automotive supplier industry – general overview · streams (export opportunities and aftersales)...

Presentation @ TAYSADAssociation of Automotive Parts and Components Manufacturers

Istanbul, May 2017

AutomotiveSupplier Industry –General Overview

220170526_Roland Berger_TAYSAD_vF.pptx

Contents

This document shall be treated as confidential. It has been compiled for the exclusive, internal use by our client and is not complete without the underlying detail analyses and the oral presentation.

It may not be passed on and/or may not be made available to third parties without prior written consent from and .

© Lazard/Roland Berger

Record profits, but at slower growth

Looking back

Four main challenges in the supplier industry

Looking ahead

Key actions for automotive suppliers

Conclusions

@ Roland Berger

Contact

A B C D



Looking back


Looking ahead


Conclusions

@ Roland Berger

Contact

A B C D

420170526_Roland Berger_TAYSAD_vF.pptxSource: Company information; analyst forecasts; Roland Berger/Lazard

2015 was another excellent year for suppliers with record profits –However, at increased volatility and slower revenue growth globally

1) EBIT after restructuring items 2) EBIT after restructuring items/capital employed

Key supplier performance indicators, 2007-2015e (n=~600 suppliers)

130122

11411099

82

98100

134

151413121110090807 15

7.4

14

7.3

13

7.2

12

6.8

11

6.5

10

6.9

09

1.6

08

2.1

07

6.4

15

13.5

14

13.1

13

13.7

12

13.0

11

13.0

10

13.8

09

2.7

08

3.1

07

12.7

Revenue growth EBIT1) margin [%] ROCE2) [%]

Indexed [2007=100]

Y-o-Y [%]

367

4

11

21

-16

-2


Cross-industry comparison shows that automotive suppliers still generate far lower margins than other industry sectors

EBIT margin across selected industries1)

3.9

6.2

Healthcare

13.7

15.515.7

12.9

15.6

Energy

4.7

10.0

8.28.4

Airlines

9.7

Machinery

10.4

6.76.55.8

Automotive

Suppliers

Automotive

OEMs

6.4

9.2

6.57.4

10.3

Aerospace

& Defence

2015e20112007

1) Up to top 100 publicly traded companies worldwide of each sector (except for automotive suppliers)

Source: Capital IQ; Roland Berger/Lazard


Key driver of these results was growing vehicle production in the main markets – Although growth rate lower than in the past

1) Incl. light commercial vehicles 2) CAGR 2011-2015 3) Excluding CIS and Turkey 4) Greater China

2015201420132011 2012

+3%

17.517.016.215.413.1

World

NAFTA Europe3) China4)

South America Japan/Korea

2014 20152011 2012 2013

18.118.0 19.316.9

+7%

17.1

20142011 2013 20152012

17.623.0 23.7

+3%

21.318.6

2011 20142012 20152013

3.04.54.34.3

-20%

3.8

2011 20132012 20152014

76.9 81.5

+1%

87.484.7 88.3

20122011 20142013 2015

13.2

-3%

12.5 13.714.0 13.5

Source: IHS; Roland Berger/Lazard

Global light vehicle production volume1) by region, 2011-2015 [m units]

CAGR2): 7.4% CAGR2): 1.8% CAGR2): 7.7%

CAGR2): -8.3% CAGR2): 3.5% CAGR2): 1.4%


-30

-20

-10

0

10

20

30

2411109876543210

USUK

Turkey

Thailand

Spain

S. Korea

Slovakia

Russia

Mexico

Japan

Indonesia

India

Germany

FranceCz.Rep.

Iran

Canada

Brazil

China

-30

-20

-10

0

10

20

30

109876543210

Tata

FCA

Ford

GM

Hyundai

BMW

SAIC

Mazda

Changan

Mitsubishi

Geely

BAIC

Fuji Heavy

Great Wall

Daimler

Suzuki

PSA Honda R-N VW

Toyota

Major decline in Brazil and Russia – Chinese manufacturers and premium OEMs keep on fueling the growth – Turkey as Winner

Top 20 by country and by OEM group, light vehicle production1)

Source: IHS; Roland Berger/Lazard

1) Incl. light commercial vehicles 2) Year-on-year growth rate

Production ∆∆∆∆ 2015 vs. 2014 [%] 2)

Avg. 1.0%

By production country By OEM group

Total production 2015 [m units]

Winners

Losers

Winners

Losers


Financial performance of suppliers varies greatly depending on region, company size, product focus and business model

Profitability trends in the global automotive supplier industry – 2015 vs. 2007

Source: Company information; Roland Berger/Lazard

> NAFTA-based suppliers currently achieve the highest margins with >8% EBIT

> Europe-based suppliers con-tinue to show a strong perfor-mance due to their leading technology positioning

> Chinese supplier margins have dropped to industry average due to intensified local competition

> Japanese suppliers remain at a low margin level of ~6% EBIT

> Large suppliers with >EUR 10 bn revenues maintain strong margins of ~8% EBIT

> Lower midsized suppliers (EUR 0.5 to 2.5 bnrevenues) have improved and remain above average

> Upper midsized suppliers (EUR 2.5 to 5 bn revenues) remain below average

> Small suppliers (below EUR 0.5 bn revenues) have the lowest margins at ~5% EBIT

> Chassis suppliers clearly improved margins to almost 8% EBIT driven by ADASand active safety

> Tire suppliers maintained strong margins based on their aftermarket business

> Powertrain suppliers gradually lost ground and achieve below-average margins in the meantime

> Interior suppliers still trail their peers, but have shown signs of recovery recently

> Product innovators are generating stable above-average margins of ~8% EBIT based on technology leadership translated into higher prices

> Process specialists continue to face below average margins of ~6% EBIT due to a lower innovation level and higher competitive pressure

Region Company size Product focus Business model1 2 3 4


However, top performance is not necessarily related to (product) innovation only

Key performance indicators of top vs. low performing suppliers1)

1) Top (low) performance based on above- (below-) average revenue growth 2007-2014, ROCE 2007-2014 and ROCE 2014 2) EBIT after restructuring items

Source: Company information; Roland Berger/Lazard

Revenues CAGR 2010-2015e

0

1

2

3

4

5

6

7

8

9

10

11

12

13

0 1 2 3 4 5 6 7 8 9 10 11 12 13

Low product

innovators

Top process

specialists

Low process

specialists

Top product

innovators

Avg. EBIT2) margin 2010-2015e

> Product innovators lead process specialists in terms ofaverage profitability – no real difference in terms of growth

> Top process specialists, though, achieve average margins close to those of the top product innovators

> Large difference in growth rates between top and low performing process specialists indicates the relevance of scale economies

Ø = 6.3%

Ø = 7.0%

Revenues 2014



Looking back


Looking ahead


Conclusions

@ Roland Berger

Contact

A B C D

1120170526_Roland Berger_TAYSAD_vF.pptxSource: Company information; Roland Berger/Lazard

Supplier global revenue and margin outlook, 2016/2017e

09

82

08

98

07

100 99

114

11 12

110

10

122

17e16e15

134

14

130

13

Revenue growth [2007=100] EBIT1) margin [%]

12 17e16e15

7.4

14

7.3

13

7.2

6.4

1.6

1109

6.86.9

08 10

2.1

6.5

07

Short term, we expect even slower growth and margins still at a high level – Due to increased volatility, risks outweigh opportunities


A potential market cool-down in 2016 and future technology changes stay at the top of the supplier CEO agenda

Source: Roland Berger/Lazard

Note: Excluding product segment specific technology and operational issues

Supplier CEO radar screen for 2016 and beyond

Car buyers

OEMs

Competition Supply base

Capital markets/financing

Technology/legislation

Long-termShort-term

Volatility of capital markets

"Zerocasualties"

Rising energy costs

Availabilityof skilledworkforce

Supplierinsolvencies

Factor costinflation

Selective consolidation

BRA/RUSdownturn

"Rising star OEMs"

China cool-down

Globallocalization

Price pressure

Volumebundling

Emerging market

investors

New growth regions

Continued outsourcing

ADAS/ automated

driving

Further reduced

emissions

Comfort featuresNew players

(hardware and software)

Volatility ofexchange

rates

Demotorization

Connected vehicle

Triad stagnation

Investors' and banks' view

on auto suppliers

New mobility

concepts

Terms & conditions

Further reduced CO2 targets

Global recession

Diesel

Industry 4.0

1

23

4

New customers(IT/tech space)

Brexit


Development of global hotspot markets is drifting apart – China maturing, Brazil struggling, Iran revitalizing and EU faced with Brexit


United States Europe China

Brazil

> Sales of SUVs and pickups at high level driven by low fuel prices

> Vehicle emissions receive new attention due to COP21 and diesel controversy

> New mobility business models emerge with the US being a frontrunner

> Unexpectedly high growth of sales volumes across most markets in first months of 2016

> Controversy about emissions (and diesel in particular) in the public debate

> EV sales still not picking up yet

> Uncertainty arising from Brexit decision

> SUV and MPV boom continues, but overall growth slows down

> Chinese OEMs reinforce their market position as quality increases

> EV market starting to evolve

> Competition remains high in budget and premium segments

> Sales volume risks lead to profitability concerns of OEMs

> OEMs seek alternative profit streams (export opportunities and aftersales)

Iran

> Sanctions lift promotes growth of economy and vehicle demand

> Demand for high-quality cars increases

> Demographics develop in a beneficial manner

Overview of global "hotspots" 2016

1 Sales volume challenge


Most recent M&A deals were driven by technology and customer/ market access – Economics-driven consolidation still not picking up

Rationale

Empirical evidence in recent deals

Major types of M&A motivation

Dominant acquirers/ domains


Technology access

> Gain access to new or strengthen existing technology/material or process capabilities to secure/establish USP (horizontal and vertical)

> Easiest to communicate sustainable "value add"to investors

> Driver of many Chinese transactions

> Established, larger suppliers

> Recently, also OEMs in the field of autonomous driving

Market/customer access

> Gain access to regions or customers not served to date – via existing business or asset deals (e.g. capacity of production locations)

> Pure "expansion" deals without technology focusare rare

> Driver of many cross-border transactions, e.g. from Japan

> In the past, typically driven by established market players, today primarily led by emerging market players

Economics-driven consolidation

> Optimize highly fragmented and inefficient marketstructures

> Not favored by the OEMs in many cases

> Buyers often cautious about restructuring activities required

> Typically occurring in process-focused segments with pressure on revenues, margin and utilization

Financial value creation

> Due to healthy sector environment, rather muted deal activity in this area

> Create value by turning around under-performing or distressed assets and/ or divestments

> Manufacturing-focused financial buyers, mainly private equity firms

2 M&A challenge


Emission regulations increase pressure on automotive OEMs to improve CO2 emissions, fuel efficiency and exhaust gas emissions

GHG emissions/fuel consumption [CO2] Toxic emissions (NOx, PM, HC)

Passenger car GHG emissions/fuel consumption [g/km] and toxic emission regulations

> CO2 emissions target1)

> Fuel efficiency targets3)

> Inovar–Auto incentive program5)

> CAFC4) (phase IV)> Add. potential fleet

xEV target share

> CAFE2)

> Additional ZEV regulation CARB

≙ 2.01 MJ/km

≙ 1.82 MJ/km≙ 44.8 mpg

1) Weight-based corporate average 2) Footprint-based corporate average; converted to NEDC 3) Weight-class based corporate average; showing JC084) Weight-class based per vehicle and corporate average 5) Weight-class based corporate average; converted to NEDC

> 2014: Euro 6b emission standard

> 2017: Euro 6c with implementation of RDE, WLTP

> 2015: CARB LEV III

> 2017: EPA Tier 3 Standards

> 2009: Post new long-term (PNLT)

> 2018: Post-PNLT (PPNLT)

Source: Press research; ICCT; Roland Berger/Lazard

95

127

-25%

2025

68-78

tbd

20212013

121

-1%

2025

tbd

2020

115

2012

171

-32%

2025

95

2020

117

2013

tbd

154

-10%

2025

tbd

2017

138

2013

97

2013

159

125

20252020

≙ 19.4 km/L

≙ 20.3 km/L

≙ 36.0 mpg

≙ 5 L/100km

≙ 7.3 L/100km

> 2016: China 5 and Beijing 5

-21%

3 Emission challenge


Launch horizon for AD functions

Market indicates that the first level 3 systems would be availableby 2017

~2013 ~2020~2016~2014 ~2015 ~2017 ~2018 ~2019 ~2025 >2025

Parking assistant (steering only) Valet parking

"Parking with app"

Emergency steering assistant

Lane change assistant City pilotIntersection assistant

Lane departure warning Traffic jam pilot Fully automated driving

Parking

Safety

Driving

Emergency cut-offConstruction area assist

Level 3 Level 4

Highway pilotTraffic jam assist Exit2Exit

Source: Press research; conference papers; Bosch; Roland Berger/Lazard

Emergency braking assistant and pedestrian detection

4 Automated driving challenge



Looking back


Looking ahead


Conclusions

@ Roland Berger

Contact

A B C D


261

171 858

Revenue

pool 2025e

Net price-

downs

-167

"Losing"

components

-112

"Winning"

components

Volume

growth2)

Revenue

pool 2015

~705

Global automotive component market development 2015 vs. 2025

The market for auto suppliers is expected to yield substantial further growth opportunities – Innovation will be key to capturing them

Component market value1) [EUR bn] Winning and losing components

1) Light vehicle OE market, excluding commercial vehicle and aftermarket portion 2) Change driven by vehicle production volume (volume per car at 2015 level)3) Additional growth/decline caused by change in product/technology content per car

Po

wer

trai

n/

xEV

H2 tanksBSG 48VFuel cellBattery cells Large e-motors

Diesel - Unit injectorDiesel - Indirect injectorsAT (3/4 stage)StarterGenerators

Ext

erio

r

A-Pillar - CompositeB-Pillar - CompositeRoof cross member - Composite Rear cross member - Composite Tunnel - Composite

Longitudinal beam - Steel Front wall cross beam - Steel Hood - Steel Rear lamps - Conventional Trunk lid - Steel

Inte

rio

r

AC compressor - ElectricPedals - ElectronicHVAC EVPTC heater - xEV heaters Seat structure (lightweight)

HVAC module (w/o AC)Parking heaterWindow lifter - Mechanical AC compressor - Conventional HVAC control - Manual

Ch

assi

s/

AD

AS

Electric/mechanical caliperCoil springs - Composite Leaf spring - Composite ADAS/HAD Electric parking brake

Power pack e-hydraulic Power pack hydraulic Power pack pinion EPS Brake booster (passive)Leaf springs conventional


Product mix3) Losers Winners

up to -10% up to -20% more than -20%

up to +20% up to +40% more than +40%



Looking back


Looking ahead


Conclusions

@ Roland Berger

Contact

A B C D


Thank you!

Source: Roland Berger

Alexander Brenner

PARTNER

Am Sandtorkai 41

20457 HamburgGermany

Source: Roland Berger

Phone: +49 40 37631 - 4318

e-Mail: [email protected]

Mobile: +49 160 744 - 4318

automotive supplier industry – general overview · streams (export opportunities and aftersales)...

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