Billions in Opportunity in Automotive Supply

Deloitte has published its fourth “Global Automotive Supplier Study” which analyzes shareholder value performance for more than 200 automotive suppliers.

In the new report, the firm reveals four disruptive mega-trends – shared mobility, electrification, technology convergence and new market entrants – that are driving the transformation of the automotive value chain and causing many senior leaders to entirely rethink their businesses as the future of mobility takes shape.

The study suggests that the change in the face of mobility will be driven by disruptive trends including connected and autonomous technology, shared mobility and electrification. Most importantly, these changes will likely force industry participants to rethink strategies in order to drive shareholder value creation in the future.Automotive suppliers have created $510 billion in shareholder value since the last recession, more than doubling the overall market value from the end of 2008. The top one-third of performers have accounted for more than 99% of that total value created while the other two-thirds accounted for less than 1%.

According to CapIQ, the total combined revenue of the global automotive supplier market was $1.7 trillion in 2018. Deloitte estimates that some segments could face as much as 20 percent in revenue erosion over the next five to seven years while, on the other hand, some higher growth segments could more than triple their current revenues.

Suppliers driving innovation in autonomous and electrified systems will likely see the most opportunity and growth – as much as approximately 300% in some segments – while those operating in more commoditized automotive supply segments like frames, interiors, brakes and internal combustion engines could be at risk as these segments stagnate and decline between now and 2025.

“Industry players have operated in an automotive market filled with uncertainty throughout the past decade, and with the future of mobility in full throttle, massive changes are still expected,” said Neal Ganguli, managing director, Deloitte Consulting and US automotive supplier practice leader. “Suppliers and industry participants must recognize that past or current success is not an indicator for the future. These companies must analyze their portfolios and outlook to develop strategies to help them create superior shareholder value, regardless of the future their business portfolios face.”

Segments with the strongest growth potential and ability to differentiate will be the most attractive and include advanced driver-assistance systems; infotainment and communication; batteries and fuel cells and electronics and electric drivetrains. Suppliers in these segments might consider expanding by developing and acquiring new technologies, defending their position by acquiring competitors to increase base and maintain growth in shareholder value or pivoting by spinning off growth businesses to focus strategic priorities and resources.

For more information on Deloitte’s “2019 Global Automotive Supplier Study” or to download a copy, click HERE.

Deloitte provides audit, consulting, tax and advisory services to nearly 90% of the Fortune 500 and more than 5,000 private and middle-market companies. The firm is based in New York (www.deloitte.com).

© 2019 Private Equity Professional | August 5, 2019

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