status of the automotive supplier industry
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CONFIDENTIAL AND PROPRIETARY
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March 10th 2021
Status of the Automotive Supplier Industry
Pulse Check Results – Spring 2021 survey
DRAFT
McKinsey & Company 1
Your team for today's CLEPA McKinsey Pulse Check Webinar
McKinsey & Company
Dr. Dirk Breitschwerdt
Senior Partner
Leader of McKinsey's automotive supplier
sector in EMEA
15+ years of automotive experience,
focusing on automotive suppliers
Dr. Ondrej Burkacky
Partner
Leader of McKinsey‘s semiconductor practice
globally
12+ years of experience within semiconductor and
advanced electronics (incl. IDMs, foundries)
Dr. Lukas Michor
Partner
Leader of McKinsey's automotive supplier sector
in EMEA
10+ years of experience, and supported 15+
automotive suppliers
1
McKinsey & Company 2
CLEPA Pulse Check
Spring 2021
This CLEPA Pulse Check focuses on …
Status of the automotive supplier industry
Semiconductor shortage:
• Insights from Pulse Check
• McKinsey Perspective: Key reasons, implications and
recommendations
Imminent changes to the industry structure and supplier reactions:
− Product portfolio shifts & search for growth in adjacent
industries
− Role of new OEMs for growth aspirations
− Sustainability efforts and challenges
2
McKinsey & Company 3
Outlook for automotive supplier industry rebounds – almost 40% of suppliers with positive general outlook
Status of the automotive supplier industry
Source: McKinsey CLEPA Pulse Check Survey
General outlook significantly more positive than during last two years, healthy order intakes
drive faster than expected recovery
~80% of automotive suppliers expect increasing order volumes in the next 12 months
Positive Neutral Negative
41%
Feb. ‘21
18%
8%
Sep. ’18
60%
68%
12%Sep. ‘19
Sep. ‘20
31%38%
Note: Displayed percent values without accounting for "N/A" answers. N=40 (September 14th – October 4th, 2020), N=74 (February 8th - 26th, 2021)
What is your general outlook for the automotive supplier industry?
Survey conducted between February 8 th – 26th, 2021
McKinsey & Company 4
Positive trend also holds true for profitability outlook: Suppliers expect margins to continue to stabilize throughout 2021
Status of the automotive supplier industry
Source: McKinsey CLEPA Pulse Check Survey
“We need to replace
temporary measures taken
in 2020 with structural
ones in 2021.”
Selected quotes from
respondents
Note: Displayed percent values without accounting for "N/A" answers. N=40 (September 14th – October 4th, 2020), N=74 (February 8th - 26th, 2021)
“Our fast reaction and the
implementation of hard
structural changes start
to pay off. We expect
significant profitability
improvements from 2020
to 2022.“
Which profitability do you expect for 2021?
Above 5%
Sep. ‘20
-5% to -1% 1% to 5%-1% to 1%
For 2022 suppliers expect even higher profitability with structural
changes taking full effect
Feb. ‘21
11% 44%45%
15% 20%65%
Below -5%
Survey conducted between February 8 th – 26th, 2021
McKinsey & Company 5
CLEPA Pulse Check
Spring 2021
This CLEPA Pulse Check focuses on …
5
Status of the automotive supplier industry
Semiconductor shortage:
• Insights from Pulse Check
• McKinsey Perspective: Key reasons, implications and
recommendations
Imminent changes to the industry structure and supplier reactions:
− Product portfolio shifts & search for growth in adjacent
industries
− Role of new OEMs for growth aspirations
− Sustainability efforts and challenges
McKinsey & Company 6
Current semiconductor shortage is impacting majority of the suppliers
Semiconductor shortage
Source: McKinsey CLEPA Pulse Check Survey
Note: Displayed percent values without accounting for "N/A" answers. N=74 (February 8th - 26th, 2021)
How is your company affected from the semiconductor
shortage?
Production already delayed
or interrupted
No impact
26%
26%Production at risk
(e.g., due to very low stock levels)
Supply chain modifications
required
Commercial consequences
with OEMs expected or started
(e.g., regarding claims)
37%
21%
12%
>60%impacted by the
current
semiconductor
shortage
Survey conducted between February 8 th – 26th, 2021
50%of suppliers are not in favor
of governmental support
measures to alleviate
shortages
Selected quotes from respondents
“This effect will remain
limited to the short term.”
“The demand is higher than
required for the produced
cars so a reality check needs
to be done by all participants of
the real needs.”
McKinsey & Company 7
Faster recovery in other sectors leads to an overall demand increase for semiconductors compared to pre-COVID forecasts
Semiconductor 2019 sales by application1
USD billions
127
67
52
49
41
38
29
26
Server
Consumer electronics
Wireless communication4
PC
Storage, GPU, peripherals
Industrial
Automotive
Wired communication
1. Products include memory, micro components, logic, analog, discrete, optoelectronic, and sensors/actuators
2. The estimates for 2020 were calculated using a 2019 baseline and percentages have been rounded
3. As of December 2019
4. Includes Chinese inventory effect, growth rate w/o inventory expected to be -4 to -8%
2020 post COVID-19 growth forecasts2
YoY growth, percent
Source: Strategy Analytics; IHS; Expert Interviews
-20 0-10 10 20
429Total
-30 30
Actual IHS (Dec 2020)Pre COVID-19 IHS (Q4/19)3
Ø 5 Ø 9
Semiconductor shortage
McKinsey & Company 8
88
042000 1412
90
02 06 08 10 16 18 202060
70
80
100
In last 10 years semiconductor capacity only grew gradually with a high utilization
800
600
0
200
400
1,000
+179%
+4% p.a.
Semiconductor production capacityMillion square inches per month
Semiconductor production capacity utilizationPercent
Dotcom bubble
Utilization
range
Global financial crisis
IDM Foundry Total
Key takeaways
Capacity has been steadily
increased over the last two
decades by 4% p.a. with no
sudden increase visible and a
mild flattening during crises
Utilization was constantly high
and did not fall below 80% over
the last 10 years
With a total utilization of 88% in
2020 total capacity is nearly
exhausted
Source: IHS-Omdia, McKiinsey
Semiconductor shortage
McKinsey & Company 9
Trends claim capacity of trailing and lagging edge nodes which are essential for the automotive industry
1. <= 28 nm
2. > 28 nm
Leading edge1 Trailing & lagging edge2
Automotive overlap of trend
Electrifica-
tion
n/a Discretes
Power
management
Power supply units
5G Logic
FPGA
ASIC
RF switches
Duplexer
Antenna
IoT edge
computing
Main processing
unit
Memory
Sensor
Microcontroller
Analog
(communication)
High overlap Low overlapOverlap between trend and automotive nodes
Source: McKinsey
Semiconductor shortage
McKinsey & Company 10
Ongoing shift to foundries allows formore dynamic allocation of volume to other sectors
100153
208
288+8% p.a.
+8% p.a.
100 111145
173
202010 15 2024
+4% p.a.+5% p.a.
Foundries are gaining compared to the overall semiconductor
market
Source: IHS-Omdia, McKinsey
Insights
Foundries can more dynamically re-
allocate volume between customers/
sectors – many products are already
qualified in the fabs
Foundries have significantly outgrown
market over the last 5 years (8% vs 5%
growth)
This trend is even expected to accelerate
over the coming years up to 2024 (8% vs
5% growth)
Much lower capital requirements for
Fabless supplier enables trend to asset-lite
business models, also IDM’s with
increasing outsourcing share
This trend is driven by the increasing
CAPEX needed to go towards smaller
node sizes and the diverging business
models
IDM revenue,
indexed (2010=100 [USD 311 bn])
Foundry revenue,
indexed (2010=100 [USD 33bn])
Semiconductor shortage
McKinsey & Company
Forward contracts are standard in the semiconductor industry, example computer
Wafer foundry,
e.g., TSMC
Tier 1 manufacturer
of power supply
units, e.g.,
Customer,
e.g., computer
manufacturer Dell, HP
Power Semicon
Supplier, e.g.,
Infineon
Automotive suppliers, OEMse.g., Renesas, STM, etc.
Adjusted to automotive situation
e.g., TSMC
▪ Take-or-pay contracts from wafer/semicon suppliers with Tier
1s/customers are standard, Commitment for
1- year (via take-or-pay contract), e.g., for 80 thousand wafers per year
▪ In addition call option (to be called minimum 6 months before), e.g., for
40 thousand wafers per year
Customer needs to provide binding
volume commitments 6 months ahead to
Tier 1
(Take or pay)
Long-term take or pay contracts
are new for the automotive industry
Semiconductor shortage
11Source: McKinsey
McKinsey & Company 12
Current steepening demand in automotive faces limited available supply with >4 months lead times for new orders
Source: McKinsey
Product development & productionCapacity build-up
1. Chip design can be driven independent of Fab manufacturing capacity
2. E.g., ~12 product lifecycle for mobile phones, 24-36 months development time for Automotive MCUs
Semiconductor development & production timescales Key takeaways
Capacity increase takes >6
months even in existing Fabs
Launch of Automotive products
by additional vendors
typically take >12 months
Production takes >4 months –
even when Fab is not fully
loaded
Additionally, complex
qualification process of
alternative suppliers in
automotive industry
Typical
durationMonths
~12-18 >6 >4~12-362~6-18
Influencing
factors
Cleanroom
building
Facilitation
(HVAC, gas,
electric etc.)
Product
complexity
Fab utilization
Product
complexity
Physical and
chemical
processes
Fab utilization
Product
complexity
Tool lead times
Hook-up and
qualification
Also required for
expansion of
existing Fab
Also required
when transferring
existing product
between Fabs
New Fab
build-upFab ramp
Chip
design1
Yield &
volume
ramp-up
Production
(cycle time)
Semiconductor shortage
McKinsey & Company 13
2021 forecasts show a continuing robust growth across segments
Semiconductor 2020 sales by application1
USD billions
138
80
59
49
44
38
31
29
Industrial
Wireless communication
Storage, GPU, peripherals
PC
Consumer electronics
Automotive
Wired communication
Server
1. Products include memory, micro components, logic, analog, discrete, optoelectronic, and sensors/actuators
2021 growth forecastsYoY growth, Percent
Source: Strategy Analytics; IHS
-20 0-10 10 20
429Total
-30 30
Forecasted 2020 to 2021 growth (as of Dec 2020)
Ø 9
Semiconductor shortage
McKinsey & Company 14
Current conclusions
Current semiconductor shortage revealed shortcoming of just-in-time low
upfront volume commitment automotive value chain competing with mainly
consumer electronics for high utilized semiconductor capacity
Short term recovery not expected before 3 months from now given production
lead times
Situation in Q3/Q4 to be closely monitored as increasing automotive demand
might collocate with historically strong Q3/Q4 electronics demand that might be
further fueled by „post COVID-19“ consumer spent behavior
Going forward, need to strenghten competitiveness of semicon sourcing:
longer term volume commitments, closely aligned OEM and tier-1 outlook,
leverage of common strategies in other sectors (e.g., corridor booking at foundries,
take-or-pay with call option agreements), consolidation of chip variants paired with
inherent automotive benefits: long production times and relatively stable demand
Semiconductor shortage
Source: McKinsey
McKinsey & Company 15
CLEPA Pulse Check
Spring 2021
This CLEPA Pulse Check focuses on …
15
Status of the automotive supplier industry
Semiconductor shortage:
• Insights from Pulse Check
• McKinsey Perspective: Key reasons, implications and
recommendations
Imminent changes to the industry structure and supplier reactions:
− Product portfolio shifts & search for growth in adjacent
industries
− Role of new OEMs for growth aspirations
− Sustainability efforts and challenges
McKinsey & Company 16
Significant disruption for the automotive supplier industry expected in the next 5 years
Industry structure & portfolio changes
Source: McKinsey CLEPA Pulse Check Survey
Note: Displayed percent values without accounting for "N/A" answers. N=74
(February 8th - 26th, 2021)
What changes to the automotive supplier industry
structure do you expect within the next 5 years?
Emergence of "super-suppliers“
with sizable (i.e. >30%) market share in
key components (e.g., Car OS, AV stack)
Shift of profit pools from traditional components
(e.g., engine, body) to software & E/E
Increasing importance of suppliers
focusing on key high-tech components
(e.g., for chips, CCU)
Consolidation of supplier landscape
22%
50%
68%
61%
Survey conducted between February 8 th – 26th, 2021
Only 4%
of suppliers believe there will
be no significant changes to
the automotive supplier
landscape in the next 5 years
McKinsey & Company 17
Industry structure & portfolio changes
Selected Key Elements
Changing supplier landscape
End of unit growth in the light vehicle market
Global light vehicle sales might not reach previous levels until 2030 and beyond;
growth in China/rest of Asia will not overcompensate stagnating or declining sales in
EU/USA – driving suppliers to search for growth outside of the automotive
industry
New OEMs entering the market
New players – either with strong tech-background or from growth markets – are
attacking incumbents and fight for market shares – thus increasing the importance
for suppliers to develop new relationships
Technology-driven portfolio shift (ACES)
Disruption of automotive industry along ACES trends is accelerating – resulting in
shifting profit pools towards new technologies (esp. E/E components, software)
Increased focus on sustainability
Increased societal focus on sustainability, backed with tightening regulation (e.g.,
Euro 7, green deal targets) accelerates structural change and decarbonization
Co
nso
lid
ati
on
Shifting profit pools
Adjacent growth
Digital
business
models Div
ers
ific
ati
on
Changing
component
demand
Shared mobilityElectric
vehicles
The supplier landscape is changing
Regulation
McKinsey & Company 18Source: McKinsey CLEPA Pulse Check Survey; McKinsey Center for Future Mobility
Industry structure & portfolio changes
Technology-driven portfolio shift: Component landscape is changing…
What type of portfolio changes are particularly being
considered?
Note: Displayed percent values without accounting for "N/A" answers. N=74 (February 8th - 26th, 2021)
of suppliers currently actively reshaping
their product portfolio>90%Sunset commodities Growth opportunities Stable components
Expected market size development, EUR billionsSurvey conducted between February 8th – 26th, 2021
1.200
2019
1.300
2030Growing
components, e.g.E-Motor
BMS
LV / HV Battery cells
Fuel cells
…
Stable
components, e.g.Exterior lightning
Wheels
…
Sunset
commodities, e.g. Body exterior
Suspension, wheels,
tires
Engine systems
…
… thus suppliers are reviewing and adapting their portfolio
Only half of components (by revenue 2030)
expected to remain unaffected by portfolio shifts
61%
29%
Inhouse development
of new technologies
Consolidate portfolio to core
business and promising markets
51%
Keep portfolio, but change
strategic focus for struggling
product groups
32%
Extend portfolio through M&A
McKinsey & Company 19
End of unit growth in the light vehicle market –Global car sales will likely not reach 100 mn units in the long term
Global light vehicle sales, millions
COVID caused 2020 global sales to decline by ~20% compared to 2019
Depending on resurgences and economic recovery, sales may be negatively impacted
for several years
Regional growth in China and Rest of Asia not sufficient to compensate
stagnating and declining markets in Europe and North America
Source: McKinsey Center for Future Mobility, IHS
2010
95
105
2812 1814 16
90
20
110
22 24 26 20300
75
80
85
100
115~111
(IHS Jan. 2020)
~97(McKinsey - Low
disruption scenario)
~104
(IHS Jan. 2021)
~87(McKinsey - Medium
disruption scenario)
Industry structure & portfolio changes
McKinsey & Company 20
End of unit growth in the light vehicle market is driving suppliers search for growth outside automotive
Industry structure & portfolio changes
Are you targeting new growth areas outside of the
automotive industry?
Adjacent areas to the automotive
industry (e.g., charging infrastructure)
Areas not connected to the
automotive industry (e.g., household)
New digital offerings connected
to our current business
72%
50%
33%
Respondents show particular interest in new
industries, with >70% looking for options
completely outside of automotive
Note: Displayed percent values without accounting for "N/A" answers. N=74 (February 8th - 26th, 2021)
Source: McKinsey CLEPA Pulse Check Survey
Which target areas outside of the automotive
industry are you exploring? (% of yes)
49% 51 %
Survey conducted between February 8 th – 26th, 2021
Yes, we actively
seek opportunities
No, we focus on
the automotive
industry
McKinsey & Company 21
New OEMs are entering the market – but suppliers see limited relevance until 2030
Industry structure & portfolio changes
Source: McKinsey CLEPA Pulse Check Survey, McKinsey Center for Future Mobility, CapitalIQ
Note: Displayed percent values without accounting for "N/A" answers. N=74 (February 8th - 26th, 2021)
Which relevance do you expect that new OEMs will have
for your company’s revenues in 2030?1
Medium
High relevance
Low – medium
Medium – high
18%
Low relevance
1%
15%
32%
34%
66%expect no significant
exposure to new
OEMs in 2030
Survey conducted between February 8 th – 26th, 2021
Only 34% think faster development cycles will be a challenge
when dealing with new OEMs
1 High relevance: > 30%; Medium – High (20-30%); Medium (15-20%); low-medium (5-15) 2. As of March 2021
Examples of new OEMs
As the regional relevance of China
and Asia will continue to rise, regional
new OEMs will gain additional
importance.
Further boost in relevance expected
through a massive rise in valuation
for new OEMs within L12M2:
+974%
+312%
+324%
+109%
McKinsey & Company 22
report an increase in the relevance of sustainability within their company in the last 12 months
Note: Displayed percent values without accounting for "N/A" answers.
N=74 (February 8th - 26th, 2021)
Survey conducted between February 8 th – 26th, 2021
What are the key drivers for the increased relevance of sustainability
in your company (% of respondents reporting an increase in relevance)
54%
61%
Other (e.g. local legislation)
Pressure from OEMs
(e.g., in RfQ process, contract requirements)
Pressure from society
(e.g., end-customers, talent)
Dominant opinion/belief
within the company
Pressure from capital markets
57%
29%
7%
~80%
Selected quotes from respondents
“Sustainability becomes
not a key competence
but more a condition”
“Curious how OEM will decide in case
supplier A with best CO2 footprint is
slightly more expensive than supplier B”
Industry structure & portfolio changes
Increased sustainability focus:
Source: McKinsey CLEPA Pulse Check Survey
McKinsey & Company 23
Increased sustainability focus:Most suppliers have started on their sustainability roadmap
Industry structure & portfolio changes
Note: Displayed percent values without accounting for "N/A" answers. N=74 (February 8th - 26th, 2021)
Survey conducted between February 8th – 26th, 2021
Majority of suppliers have set overall
sustainability targets…
…however, only one third has taken the next
step and defined measures
Defined general, overall
targets on sustainability83%
Did not define
sustainability
targets yet17% ... finding the right ambition level
... the cost assessment of decarbonization measures
... the appropriate sequencing of actions
Currently, suppliers predominantly struggle with:
Deducted high-
level measures
from overall
targets
35%Developed a
detailed roadmap
from high-level
measures
15% 7% Started
implementation
incl. due
diligence within
supply chain
Source: McKinsey CLEPA Pulse Check Survey
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