Mediaroom

• Automotive suppliers are proactively responding to supply chain disruptions and chip shortages, but cost pressures continue to prevent a full recovery post COVID-19
• New investments in R&D and talent acquisition are seen as the best way to prepare for future opportunities, although recruitment challenges exist
• 66% of suppliers plan to reskill a significant share of their workforce to respond to ACES (Autonomous, Connected, Electric and Shared Vehicles) trends in the sector
• European suppliers were already facing many challenges, and the Russia-Ukraine crisis will likely only intensify the situation for the industry

In this 11^th Pulse Check since its initiation in Spring 2018, results show that supply shortages and inflation concerns continue to impede the post COVID-19 recovery of the automotive supply industry. Out of those surveyed, only 22% indicate a positive outlook for the industry.

Despite the overall negative outlook, 63% of those surveyed expect revenue increases in the next 12 months, up from 41% in the fall of last year. But profitability suffers under higher manufacturing costs, and uncertainty in the supply chain. Inflation and semiconductor shortages reduce operation profitability (EBIT margins) by 3 percentage points on average. Average margins were around 2.6% in 2020 and around 5% in 2019. This pressures suppliers’ ability to maintain investments in green and digital innovation.

War to aggravate current pressure points

“CLEPA recognises the need for firm action and fully supports the measures being taken to respond to this unacceptable aggression. Our sector does its utmost to play its part, from delivering practical support to employees in the region, to implementing the new boundaries set by sanctions and making arrangements for alternative supplies to keep operations going. European suppliers were already facing many challenges, and the crisis will likely only intensify the situation for the industry. For example, the crisis could exacerbate the pressure on the global chip shortage, which began during COVID-19 and has been at the centre of the severe drop in vehicle production. Supply of critical raw materials and rising energy prices will also have a huge impact,” said Sigrid de Vries, CLEPA Secretary General.

At the edge of a turning point in Europe with the outbreak of war in Ukraine, CLEPA conducted jointly with McKinsey the regular Pulse Check in late February 2022. The results reflect the expectations of the automotive suppliers and provide an outlook into an increasing unsecure business environment. The war is expected to exacerbate many of the pressure points laid bare in the survey, notably where it concerns supply chain resilience. Please find CLEPA’s initial assessment of the impact on our industry here.

De Vries goes on to say, “This Outlook is indicative of an industry facing various pressure points. The ongoing global shortage of semiconductors, the increase in energy prices and material costs, and the economic and geopolitical ramifications of the Russia-Ukraine crisis, are creating business uncertainty. Transparency and flexibility are needed to mitigate and prevent future supply chain disruptions, as well as collaboration within the value chain and with policymakers.”

State of Play

In general, what emerges from the survey is an attitude of suspended judgment, pending the evolution of scenarios in the coming months. Among those surveyed, a negative outlook on industry’s future declines from 73% last autumn to 45%, but the positive outlook is also falling, albeit slightly (from 27% to 22%). A new, substantial component is formed by those who prefer to give a neutral answer, 33% of respondents.

The financial situation partly explains this attitude. Revenues are expected to grow for most companies (63%), but profitability continues to be at 2021 level, especially due to inflation costs caused by supply chains disruptions and semiconductor shortages. This is a phenomenon that, in the general perception of the industry, seems to affect Tier 1 more than OEMs or other Tiers.

At the moment, global supply chain disruptions continue to be perceived as the top threat to the industry. However, where before this was manifested by chip shortages, now cost inflations are the new factor, as evidenced by 61% of survey respondents. In terms of profitability alone, the shortage of semiconductors is reported as the main culprit.

New talent and skills needed

Since the last Pulse Check, sentiment has changed on the four key trends that are shaping the automotive industry: Autonomous, Connected, Electric and Shared Vehicles (ACES). While they seem to have the same or even less relevance as in the Fall 2021, suppliers report better preparedness at company level to meet these challenges, a clear sign of the actions already undertaken to remain a powerhouse for innovation in the European market.

The survey shows that R&D is considered a key area in which to invest, especially through the acquisition of new talent, even if there are widespread difficulties in recruiting for several specific functions. However, 66% plan to reskill a significant share of their workforce to build capacity for future technology production.

Portfolio and CO2 Reduction 

A strategic mobility transformation is already reflected in the production side of the business. Indeed, 96% of suppliers are already redesigning their product portfolios. Furthermore, suppliers increased investments in R&D related to the areas within ACES by 10%, on average. The number of suppliers feeling “very well prepared” on all these trends increased, though a majority feel less secure.

The transformation of the automotive industry is also leading to an increase in M&A activities. More than half of the respondents expect an increase in this type of activity in the coming year, while more than a third have increased screening or started discussions with investment banks.

Meanwhile, European legislation such as the Corporate Sustainability Reporting Directive (CSRD) and the Sustainable Finance Taxonomy are already driving more than half of the suppliers surveyed to invest in CO2 reduction, although 37% and 28% of suppliers have concerns around access to financing and technical implementation, respectively.

Note to the editor

CLEPA, the European Association of Automotive Suppliers based in Brussels, represents over 3.000 companies, from multi-nationals to SMEs, supplying state-of-the-art components and innovative technology for safe, smart and sustainable mobility, investing over €30 billion yearly in research and development. Automotive suppliers in Europe directly employ 1.7 million people in the EU.

CLEPA, in cooperation with McKinsey who aggregate the data, surveys the full membership twice a year to measure outlook and sentiment of the industry.

Interested in more information? You can contact CLEPA’s Head of Strategic Communications Filipa Rio.