global automotive supplier study 2013 · 2013-11-15 · global automotive supplier study 2013 -...

1 Global Automotive Supplier Study 2013 - Driving on thin ice.pptx

September 2013

Global Automotive Supplier Study 2013

Driving on thin ice


2

Contents

Current situation – Stable profitability at a high level

A. The challenge – Growing business, but risks and complexities on the rise

B. The conclusion – Closer risk monitoring and fast responses are crucial

C. Contacts – Roland Berger and Lazard Automotive teams

D.

7 Global Automotive Supplier Study 2013 - Driving on thin ice.pptx Source: Company information; Analyst forecasts; Roland Berger/Lazard Global Supplier Database

13e

~145

12

136 136

11

129

10

116

09

98

08

116

07

120

06

110

05

100

13e

~6.5

12

6.5 6.5

11

6.5

10

6.9

09

1.7

08

2.0

07

6.4

06

5.8

05

6.1

07

3.7

10

13.5 12.5

12

11.9

11

12.3

13e

~12.0

06 09

2.9

08

10.9

05

11.2

The overall financial performance of the global automotive supplier industry remains stable at a high level

Key supplier performance indicators 2005-2013e (n=~550 suppliers)

Revenue growth [2005=100] EBIT1) margin [%] ROCE2) [%]

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

8 Global Automotive Supplier Study 2013 - Driving on thin ice.pptx Source: Roland Berger/Lazard

One of the key drivers for this globally positive development was the continued growth in China – Despite the weak situation in Europe

Main drivers of global automotive supplier performance, 2012 and 2013

Revenue EBIT ROCE

> Continued growth of global light vehicle sales (+5% in 2012 and 3% in 2013) and production (+6 % and +2%), particularly in NAFTA and China – Weak demand in Europe as an exception

> Favorable segment mix with high demand for premium vehicles (production +18% from 2011 to 2013 compared to 8% overall)

> Growing component value per vehicle driven by increasing technology requirements/ features – Compensation for price reductions

> Considerable number of very large suppliers with EBIT margins of close to or even above 10%

> Favorable segment mix with strong demand for high-margin features

> More efficient capacity utilization globally – Higher production volumes meeting optimized manufacturing structures

> Moderate development of raw material prices

> Disproportional increase of capital employed

> Expansion of supplier manufacturing/development footprint in overseas markets

> Pre-financing of new products/technology/process developments


10

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

Source: Roland Berger/Lazard

Profitability trends in the global automotive supplier industry

1

REGION

> Suppliers headquartered in Europe maintained an average EBIT margin of around 7%

> Chinese and Korean suppliers still have high margins, but ~3% drop versus 2010

> Japanese suppliers on average remain at a weaker profitability level

2

COMPANY SIZE

> Suppliers with >EUR 10 bn revenues currently achieve the highest profitability of ~7%

> Small/mid-sized suppliers (below EUR 1 bn revenues) with strongest margin decline since 2010

3

PRODUCT FOCUS

> Chassis and tire-focused suppliers have strongest margins

> Also powertrain suppliers still above average

> Interior focused suppliers with strong additional margin reduction and overall lowest profitability level of below 5%

4

BUSINESS MODEL

> "Product innovators" with stable above-average margins of ~7%

> Margin of "process specialists" below average

> 1%-point drop since 2010


Small and mid-sized suppliers lost ground in recent years, while large globally operating suppliers maintained their high margins

5.1

6.6

-0.2 -1.1 -1.5 -0.2 -0.2 -1.5

Source: Company information; Roland Berger/Lazard

Change 2012 vs. 2010 [% pts.]

2010 2012 2010 2012 2010 2012 2010 2012 2010 2012 2010 2012 2010 2012

Supplier EBIT profitability by company size [EUR], 2012 vs. 2010

<0.5 bn 0.5-1.0 bn 1.0-2.5 bn 2.5-5.0 bn 5.0-10.0 bn >10.0 bn ALL

2 COMPANY SIZE

-0.4

EBIT margin1)

[%]

1) EBIT after restructuring items

6.0

7.5

6.3 6.5 6.4 6.6 6.1

7.2 7.0 7.2 6.5

6.9


"Product innovators" have clearly outpaced "process specialists" in terms of profitability over the past few years

4 BUSINESS MODEL

Supplier EBIT profitability by business model1), 2012 vs. 2010

Product innovators Process specialists

-1.0 -0.4


Change 2012 vs. 2010 [% pts.]

2010 2012 2010 2012

> Innovative products with differentiation potential

> Greater willingness among OEMS to pay (in return for higher R&D spending by suppliers)

> High entry barriers as a result of intellectual property

> Consolidated competitive structure (global market leader approx. 30-35% market share, top 5 approx. 75% market share)

> Product examples: Fuel injection systems, turbochargers, driver assistance systems, etc.

> Lower degree of innovation among the products

> Lower R&D spending

> Production process knowledge as a core competency

> Often fragmented competitive structure (global market leader approx. 15% market share, top 5 approx. 40% market share)

> Product examples: Sheet metal parts, plastic components, passive acoustics components, cast parts, etc.

2010 2012

ALL

-0.4

1) Excluding tire manufacturers

EBIT margin2)

[%]

2) EBIT after restructuring items

6.9 7.3

5.8

6.8 6.5 6.9


The gap between top and low performers in the supplier industry has further broadened during the past years

Key performance indicators of top vs. low performing suppliers1)

1) Top (low) performance classification based on above (below) industry average revenue growth and ROCE during 2005-2012 2) EBIT after restructuring items/capital employed

ROCE2) [%] Revenue growth [CAGR, %]

Top

performer

13.5

Low

performer

7.6

2005-2007 2010-2012

12.9

2.4

Low

performer

Top

performer

2005-2007 2010-2012

8.3

Low

performer

Top

performer

16.1

Low

performer

6.1

Top

performer

21.2

1.8x

5.3x

1.9x 3.5x


B. The challenge – Growing business, but risks and complexities on the rise


Good news: Driven by global megatrends, the OE component market is expected to grow from EUR ~560 bn to EUR ~710 bn by 2020

BY REGION BY DOMAIN

167

183

2012

186

83

150

709

2020

558

139

252

107

Exterior Chassis/driver assistance systems

Interior Powertrain

140

109

2020

89

70

709

103

151

184

165

150

106

2012

558

Rest of world Europe NAFTA Japan/Korea China

CAGR

Note: Global light vehicle production volume growth 2012-2020: CAGR: 3.2 %

Source: Roland Berger component model

Component market value by domain/production region [EUR bn]

+22%

+21%

+29%

+35%

2.5%

2.4%

3.2%

3.8%

+50%

-5%

+18%

+23%

+71%

5.2%

CAGR

-0.7%

2.1%

2.6%

6.9%

Total CAGR: 3.0%


However, an increasing number of potential risks needs to be closely monitored by automotive suppliers

Supplier CEO radar screen for 2013 and beyond


Focus topics of this study

Note: Excluding product segment specific technology and operational issues

CAR BUYERS

OEMS

COMPETITION SUPPLY BASE

CAPITAL MARKETS/ FINANCING

TECHNOLOGY/ LEGISLATION

Banks' view on automotive supply sector

Volatility of capital markets

Investors' view on automotive industry

Basle III

Zero casualties Oil price increase

Rising energy

cost Availability of skilled workforce

Insolvencies in supplier base

Factor cost inflation

Selective consolidation

Volatility in demand

Rising star OEMs

Maturing China Stagnation in

Europe

Global localization

Pre-contract pressure

Volume bundling

Emerging market

investors/ suppliers

Growth of emerging markets

Continued outsourcing

Connected vehicle

Further emission reduction pressure

Comfort features


Many of these risk factors have increased in the last two years. Suppliers' business is therefore more "at risk" than in 2011

Assessment of the "heat factor" of focus topics

FOCUS TOPIC low high

1 10 2 3 4 5 6 7 8 9

TECHNOLOGY/LEGISLATION

7 Technology (r)evolution1)

5 Volume bundling

4 Pre-contract pressure

OEMs 3 Global localization

2 Maturing China

CAR BUYERS 1 Stagnation Europe

2011

"HEAT FACTOR"

COMPETITION 6 Emerging market investors/suppliers


2013

1) Actual impact product-specific – yields risks and opportunities alike


Stagnating WE market volumes are expected to lead to under-utili-zation of structural resources and will require capacity adjustments

Stagnation Europe – Overview

CHALLENGE IMPACT ON SUPPLIER UNIVERSE

> Western European market volumes stagnating at "crisis level" – 2008 production levels are not expected to be reached in the next few years

> The global importance of Western Europe as a production hub is declining due to falling local sales and OEM globalization

> Production structure has been changing: German OEMs and premium segment are gaining relative importance

> Given the disappointing market situation, suppliers are facing structural resource underutilization – not only in production, but also regarding indirect functions (e.g. R&D and SG&A)

> Many suppliers have already announced countermeasures – Overall, we expect approximately 10% of the total 750,000 Western European automotive supplier jobs to be at risk

"Home-region-focused"

"Multi-regional/ global"

"Product innovator"

"Process specialist"

Strong impact – Chinese market as

compensation

Global reallocation possible – Compen-sation through export

markets

Potential to reallocate capacity – yet

stronger overall impact

Critical under-utilization of Euro-

centric assets


Relatively low impact Medium impact High impact

1 STAGNATION IN EUROPE


Western European production volumes are stagnating at below 2008 "crisis level" – Declining relative global importance as production hub


Medium-term outlook light vehicle production in Western Europe [m units; %]

… in m units … as % of global production

2008 2012 2016 2000 2004

14.4 14.7

11.8

16.0

29% 25%15% 14%

71% 75%85% 86%

64.2

2005 2000

56.4 81.5

2012 2019

104.5

World (excl. WE) Western Europe

Source: IHS; Roland Berger/Lazard

2019


Production structure has been changing: German OEMs and premium segment are gaining relative importance

1

Development of Western European LV production structure [m vehicles; %]

… by OEM origin … by price segment

31% 33%47% 45%

28% 28%

20% 20%

20% 19% 14% 15%

12% 7%

9% 12% 15% 15%

German

French

US1)

Other

European

Asian

2019

14.7

5%

2012

12.6

5%

2005

15.9

2000

16.5

24%24%

24% 25%

20% 26%37% 37%

Mid

Entry

Premium

2019

14.7

38%

2012

12.6

38%

2005

15.9

50%

2000

16.5

55%

STAGNATION IN EUROPE


1) Including Opel as part of GM


Overall, we expect approximately 10% of the total 750,000 Western European automotive supplier jobs to be at risk

25

Estimated impact on automotive supplier employment in Western Europe

Source: Eurostat; VDA; ACEA; Roland Berger simulation

Western Europe automotive supplier employment 2012 MID-TERM IMPACT (3-4 yrs.) High-level job split Mid-term "misalignment"

~750,000

~10%

R&D

SG&A

100%

~80%

~10%

~10-13% Adjustment to reduce current avg. supplier overcapacity (5-10%) and to compensate efficiency gains in the next 3-4 years in a more or less constant market

~5-7%

Adjustment to reduced "volume grid"

Adjustment due to "relocation" of activities

~75,000 ~65,000

~85,000

Employees at risk

Highest "relative" impact: FR, IT, ES

Highest "absolute" impact (due to large number of locations): GER


Operations


China has become a key revenue and profit contributor for global OEMs – No alternative to compensate for a potential volume slowdown

Maturing China – Overview





"Product innovator"


Indirect impact driven by exported vehicles – typically innovation

loaded

Decline of highly profitable key export

market volumes

Asset utilization – less critical than WE

stagnation effect

Asset utilization – less critical than WE

stagnation effect

> Emerging markets, particularly China, have gained significant importance – Today's share of 35% of global light vehicle sales expected to further increase

> Overall, the global automotive industry has become highly dependent on the Chinese powerhouse

– For most global OEM groups, China has become a key market, contributing approx. 15% of their total sales volume

– Besides the "volume effect": Chinese (premium) customers have a strong preference for high-end/fully-featured models, typically yielding above-average margins for the OEM

> Given the still high export ratio (especially for high-end premium vehicles), a volume slowdown would have a global impact for suppliers – which cannot be compensated

2 MATURING CHINA



For most global OEM groups, China has become a key market contri-buting ~15% of total sales volume today – With increasing importance

2 MATURING CHINA

China's share in total light vehicle sales volume by top 12 OEM groups [%]

European companies

7%

’19

35%

’12

31%

’00

Ø '00: 2% Ø '12: 16% Ø '19: 20%

2%

’19

14%

’12

11%

’00

0%

’00 ’19

20%

’12

18%

2%

’19

15%

’12

12%

’00

9%

1%

’19

14%

’12 ’00

0%

’19

22%

’12

20%

’00

6%

2%0%

’19 ’12 ’00

3%

’19

22%

’12

16%

’00

2%

’19

23%

’12

15%

’00

4%

’19

10%

’12

10%

’00

0%

’12

19%

’00 ’19

25%

1%

’19

22%

’12

15%

’00

Source: IHS

Volkswagen Group

Toyota General Motors

Renault-Nissan

Ford Hyundai-Kia Fiat/ Chrylser

Honda PSA Peugeot Citroën

Suzuki BMW Group Daimler


China's economic growth is expected to reach "maturity level" – The short-/medium-term outlook is increasingly uncertain

Historical GDP annual growth rate development and outlook for China [%]

Source: EIU; Press research;

8.6

7.7 7.5

7.8 7.6

8.0

Government

target (7.5)

8.2 8.0

UBS Citigroup

7.6 7.4

Goldman

Sachs

7.8

7.4

JP Morgan

8.2

7.4

Nomura

7.5 7.5

HSBC

8.2

7.4

June/July FC March/April FC January FC

FOCUS: 2013 OUTLOOK

2000 2005 2010 2015 2020

0

15

10

5

2 MATURING CHINA


Global localization is driving investment need and management complexity, without necessarily adding new profit pools for suppliers

Global localization – Overview





"Product innovator"


Potential chance to still compensate local

presence with superior solution

"Daily business" – to be carefully managed

"Daily business" – to be carefully managed

Unavoidable move to realize scale effects

and sustain business – Requiring capital strength, manage-

ment capacity

> OEMs follow the demand of emerging markets (proximity to markets, local content requirements, natural hedging, etc.) – Globalization efforts require suppliers to follow

> Requirements for doing business are changing – Increasing investment need and growing management complexity, without necessarily realizing (substantial) additional profit

– Investments in global R&D, production footprint and resource development

– Coordination effort to orchestrate own and global networks – but also the (more) complex global supply chain

– Sustaining own break-even point with sufficient "utilization" of decentralized network

3 GLOBAL LOCALIZATION



OEMs continue to shift their production capacity toward emerging markets – Suppliers are required to follow


Global localization of suppliers – Example Europe1)

Source: IHS; company Information; press; Roland Berger/Lazard

2012

81

16

66

2006

67

18

49

LV production [m units] Supplier sales [bn EUR]

~86 ~81

Production footprint [# of plants]

Europe Outside Europe

5970

29

69

2012

139

2006

88

650840

440

770

2012

1,610

2006

1,090

-13%

+35%

+22%

+18%

+136%

+58%

+29%

+75%

+48%

1) Sample set of 19 suppliers (>EUR 1 bn annual sales) headquartered in Europe

Ø sales per plant [m EUR]


Requirements for doing business are changing – Increasing investment need and growing management complexity


Changing requirements due to global localization – Examples

GLOBAL ENGINEERING

From tailor-made projects …

Europe A B C D

US A B C D

Latin

America A B C D

Asian

Pacific A C D B

… to global product-based projects

GLOBAL LAUNCHES AND SUPPLY CHAIN

> Global coordination of increasingly simultaneous launches

> Limited time for lessons learned and market adaptation

> Global standard processes and supply base compliance

Europe

US

Latin

America

Asian

Pacific

Global

USA

Mexico

Brazil

South Africa

Spain

Germany Slovakia

China

Thailand

Argentina

France

Russia

India

Indonesia

GLOBAL PRODUCT CONCEPTS

Example: global, simultaneous launch of Ford Focus

> Balancing global needs and local design particularities

> Parallelization of development and optimization of capex and change requests

> Global coordination of regional engineering centers and service providers

> Varying lead regions for global/standard components


Increasing investment need and growing management complexity

REGION A REGION B REGION C

Regional

Centre

Regional

Centre

Regional

Centre

Global lead

Global lead

Global lead

Interior

Engine

E/E

Style/vehicle


Emerging market suppliers are strengthening their capabilities through acquisitions – Intensified competition in their home markets and globally

Emerging market investors/suppliers – Overview





"Product innovator"


Financially strong competition with

excellent low-cost supply chain access

Still in most cases comfortable situation in the medium term

Potential threat of leveraging "high-end process tech" with low-cost footprint/

supply chain access

Financially strong competition with

excellent low-cost supply chain access

> The number and sales volume of competitive emerging market suppliers have rapidly grown over the past few years

> To drive their regional expansion, but moreover to strengthen their technological capabilities, emerging market investors – mainly from China and to a lower degree from India – are increasingly seeking attractive targets in the Triad markets

> Compared to the past, emerging market investors have significantly professionalized their deal process and "post merger integration" management

> As a result, competition from emerging market suppliers is expected to significantly increase – In the battle for attractive deal opportunities – On price ("price breakers" against established supply base)

but also technology – In emerging markets but also globally

6 EMERGING MARKET INVESTORS/SUPPLIERS



Emerging market suppliers are looking to strengthen their technology capabilities and overseas presence


Overview of selected recent M&A deals in the automotive supplier industry

Source: Thomson; Merger Market; press research; Roland Berger/Lazard

ACQUIRER (ORIGIN) TARGET YEAR

At least one Chinese investor has typically been involved in each relevant M&A auction process

SEGMENT

Ningbo Huaxiang HIB Trim Parts 2013 Decorative interior trim

Amtek Neumayer Tekfor 2013 Machined metal parts

Bayraktarlar Odelo 2011 Automotive signal lights

Metalsa ISE Automotive 2012 Hinges, structural parts

Consortium of Chinese investors iee 2013 Safety sensors

Citic KSM Castings 2011 Light metal castings

Wanxiang Group A123 2013 Automotive battery technology

Bohong Wescast Industries 2012 Castings (focus: exhaust manifolds)

Hebei Lingyun Industrial Kiekert 2012 Hatches and actuators

Ningbo Huaxiang Sellner 2011 Decorative interior trim

Joyson Holding Preh 2011 Electronics/switches

CQLT Saargummi 2011 Rubber sealings

BHAP Inalfa 2011 Roof systems

Samvardhana Motherson Group Peguform 2011 Plastic parts & modules for interior/exterior


Approach and behavior of (Chinese) strategic emerging market investors have evolved – Focus on sustainable long-term development


Evolution of foreign investor approach and behavior (Example Chinese investors)


PAST

> Primary rationale is to conquer Triad market share by acquiring local capacity

> Weak professional deal process management and integration capabilities: often interfering in daily management without acknowledging cultural differences and market/ business dynamics resulting in loss of talents and declining market performance

TODAY

> Focus on generation of sustainable long-term development:

– Leveraging acquired technology know-how also in home market

– Providing access to low cost supply/manufac-turing base toward the "Triad front-end"

> Careful integration of acquired assets and resources: Providing the frame, while leaving freedom with local management


Electrification and systems integration will result in an evolution of the value chain – Some suppliers might lose their current positioning

Technology (r)evolution – Overview Actual impact product-specific –

yields risks and opportunities alike





"Product innovator"


Threat of missing the right trend to

participate in the shift of power

Threat of missing the right trend to

participate in the shift of power

Threat of losing current positioning,

being coordinated by system integrator instead of OEM

directly

Threat of losing current positioning,

being coordinated by system integrator instead of OEM

directly

> Changes in technology impact the current positioning and business model of established suppliers – examples:

– Technological changes (e.g. electrification) lead to new "rank orders" of power within the existing supplier set for a specific product

– Systems integration across functions/domains (e.g. integrated chassis) increases competition between suppliers of individual components

– Change of the existing "ecosystem" (e.g. infotainment/ connectivity) leads to new players entering the market and challenges current business models

> Without the right set of capabilities and system/development know-how, existing suppliers' current market and value chain positioning might be at risk

7 TECHNOLOGY (R)EVOLUTION



Three examples: Shift of power within transmission, chassis systems and infotainment

7

Examples of changing technologies – Technology (r)evolution


Shift by wire A

> Increasing share of shift by wire systems in automated transmissions

> Two-fold effect: Besides loss of conventional components, additional shift of responsibility within overall module (e.g. overall assembly) toward electronics players (and related OEM departments)

Integrated chassis B

> Trend towards overarching system solutions, combining several components across sub-domains

> Development know-how required to provide active solutions – Otherwise threat to be pushed into pure build-to-print position

Electromechanical/ electro-hydraulic braking system

Active/semi-active suspension

system

Electric power steering/

steer by wire Driving/driver assistance systems

Infotainment/connectivity C

> Change from proprietary to open ecosystem – Former proprietary system is losing power

> (R)evolution of business model from product to service

> Entry of new market players and business models – partnering/ network strategy needed

Closed ecosystem

New players

"2020"2011

Supplier OEM

Insurance Services

Open ecosystem

iCloud

PandoraAir-

biquity

Four-

square

iTunesGoogle

walletRWE bing PayPal

aha.

Google

New players

Finance Dealer

Rental

Assistance

Customer

TECHNOLOGY (R)EVOLUTION

C. The conclusion – Closer risk monitoring and fast responses are crucial


Supplier management teams need to analyze the risks, opportunities and their impact much more carefully than before

Systematic and regular review

TOP PRIORITIES

> Track "weak signals" of the market environment more closely

> Install and use early warning processes

> Apply scenario-based planning to assess new business/market opportunities

> React faster and proactively to market changes

> Carefully assess the success of strategic projects launched


global automotive supplier study 2013 · 2013-11-15 · global automotive supplier study 2013 -...

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