Automotive Suppliers Face Declining Profitability Amidst Stagnation and Rising Competition

Automotive Suppliers Face Declining Profitability Amidst Stagnation and Rising Competition

(IN BRIEF) The global automotive supplier industry faces tough conditions, with stagnant production volumes, geopolitical uncertainty, and increasing competition putting pressure on profitability. The 2024 forecasted EBIT margin of 4.7% marks a further decline from 2023 levels, with Chinese suppliers performing better than their European and South Korean counterparts. The industry’s struggles are compounded by slow EV adoption and rising software costs. Looking forward, suppliers must refocus on key technologies, adopt efficiency improvement strategies, and explore mergers and acquisitions to survive in the increasingly volatile market.

(PRESS RELEASE) MUNICH, 5-May-2025 — /EuropaWire/ — The global automotive supplier industry is currently grappling with stagnant production volumes, geopolitical uncertainties, and increasing competition, which have combined to create a difficult operating environment. According to the latest Global Automotive Supplier Study by Roland Berger and Lazard, profitability for the industry is expected to decline further, with the EBIT margin projected to fall to 4.7% in 2024. This marks a continued decline from 2023, when profitability had temporarily stabilized at 5.3%, yet remained significantly lower than pre-COVID levels. Despite these challenges, Chinese suppliers are still faring relatively well with an EBIT margin of 5.7%, while European and South Korean suppliers lag behind with margins of 3.6% and 3.4%, respectively. Further strain is anticipated as weak demand in the latter half of 2024 and tough price negotiations with original equipment manufacturers (OEMs) continue to affect supplier margins.

Felix Mogge, Partner at Roland Berger, comments, “The automotive supplier industry is currently facing what can be described as a phase of ‘stagformation,’ where stagnating volume growth and ongoing transformation demands are creating a challenging environment for suppliers. While there has been some revenue growth since the COVID-19 pandemic, profitability has structurally declined, with inflation and rising costs contributing to the financial strain.”

Five Key Trends Shaping the Market:

The study highlights five major trends driving the challenges faced by the automotive supplier industry:

1. Stagnant Global Production Volumes: Overcapacity, particularly in Europe, is placing significant pressure on suppliers, while regions like China and South Asia are seeing modest automotive growth.
2. Slower Transition to Electric Vehicles (EVs): The pace of EV adoption in Europe and North America is lagging, limiting the realization of anticipated cost benefits and economies of scale.
3. Growth of Software-Defined Vehicles: The demand for advanced connectivity and assistance features is increasing but comes with rising software costs, posing challenges for some suppliers.
4. Intensified Global Competition: The EV market is attracting new players, ramping up competition and driving cost pressures for suppliers.
5. Geopolitical Uncertainty: Tariffs and subsidies are altering global trade dynamics, complicating supply chains.

The financial outlook is bleak, with over 40% of the 25 largest automotive suppliers now holding a non-investment grade rating—a far higher proportion than in other sectors like medical technology or industrials. Dr. Christian Kames, Co-Head of Investment Banking for Lazard’s DACH region, notes, “This downgrade leads to higher financing costs at a time when significant capital is needed to drive innovation in areas such as electromobility, software-defined vehicles, and autonomous driving.”

Refocusing for Success in a Volatile Market

Looking forward, the study suggests that the era of continuous market growth is over. Florian Daniel, Partner at Roland Berger and one of the study’s authors, says, “We believe the automotive industry will continue to face a volatile environment, putting pressure on profits and earnings. However, suppliers can still succeed by implementing efficiency improvement programs, forming strategic partnerships, and focusing on key technologies.”

Christof Söndermann, Managing Director at Lazard, adds, “In stagnating markets, suppliers must focus on achieving economies of scale, often through mergers and acquisitions or strategic partnerships, and actively manage their portfolios to remain competitive. Some players may need to undergo complete repositioning to stay viable in the market.”

About Roland Berger
Roland Berger is one of the world’s leading strategy consultancies with a wide-ranging service portfolio for all relevant industries and business functions. Founded in 1967, Roland Berger is headquartered in Munich. Renowned for its expertise in transformation, innovation across all industries and performance improvement, the consultancy has set itself the goal of embedding sustainability in all its projects. Roland Berger revenues stood at more than 1 billion euros in 2023.

About Lazard
Founded in 1848, Lazard is the preeminent financial advisory and asset management firm, with operations in North and South America, Europe, the Middle East, Asia, and Australia. Lazard provides advice on mergers and acquisitions, capital markets and capital solutions, restructuring and liability management, geopolitics, and other strategic matters, as well as asset management and investment solutions to institutions, corporations, governments, partnerships, family offices, and high net worth individuals. For more information, please visit Lazard.com and follow Lazard on LinkedIn.

Media Contacts:

Silvia Constanze Zösch
GLOBAL PR
silvia.zoesch@rolandberger.com
+49 89 9230 8750

SOURCE: Roland Berger GmbH