DACH Automotive Industry
ndeterred by talk of the end of the combustion engine and the possibility of autonomous taxi fleets – and with supposedly dwindling enthusiasm for cars in Europe – the worldwide 100 largest suppliers are again looking back on a successful business year. However, new competition looms and this will ensure movement, especially in the lower rankings.
To gain an overview of the 10 largest international car suppliers of the past year, it is enough to take a look at the Top 100 of 2016: there were no promotions and no demotions among the leaders in the past year. Bosch is unchallenged in first position, with €47.4 billion in turnover (company area – Mobility Solutions), followed by Continental (€44 billion) and Denso (converted to €36.4 billion).
The top three are stubbornly defending their positions and have occupied these rankings in Berylls’ list of Top 100 suppliers for the past two years. However, compared with the previous year, the distance between them and the occupant of fourth position (€2.9 billion in turnover) has grown markedly (2016: €1.7 billion). The reason for the top three’s success is the fact that globally very few cars leave the production line without any components supplied by these leading players. And this applies whether they are budget cars or luxury limousines, electric vehicles or conventionally powered models.
A glance at the broader Top 100 table reveals a divided picture: declines in sales can be identified in many places. Eight companies out of the Top 20 show negative sales developments, particularly Asian and American companies. However, it is not poor performance that is responsible for this, but particularly severe exchange-rate effects in 2017. The results of Berylls’ Top 100 are shown in euros, and all other relevant currencies lost value significantly against this over the period. The dollar was hit especially hard, and on the reference date of December 31, 2017, it lost more than 12 percent of its value against the euro. It is very unusual for all exchange rates to fall against the euro, and this was last seen in 2013.
In the current survey, the average increase in turnover among all suppliers was only 0.9 percent. In 2016 – a year when the dollar was considerably stronger – it was about 6 percent. If the exchange rate effect is removed, the supplier industry can look back on an average turnover growth of 8.6 percent – so on that basis, turnover growth strengthened in the past year.
For German suppliers in particular, things were running smoothly in 2017. There are 18 German companies in the Top 100. Knorr-Bremse (braking systems) is represented again, at number 87, after a sales increase of 16 percent. Freudenberg is among the big winners, with a jump in position from 84 to 60 after their full consolidation of the former joint venture, Vibracoustics. On average, German suppliers moved up five places in the rankings in the past year. One reason for this is the continuing innovation power of the Germans. For an example, we just need to look back at the number of patents applied for from 2010 to 2017 for technologies associated with autonomous driving. Here Bosch reigns supreme, ranked first with 958 applications, followed by Audi with 516 patents, and Continental third with 439 patents. Neither Asian nor American suppliers are ranked among the best 10 by this measure.
If we look at the other European suppliers we see a similarly positive picture, with one exception: IAC (International Automotive Components), an interior components specialist with American roots and its headquarters in Luxembourg. The company belongs to the US financial investor Wilbur Ross, and in 2017 it fell 21 places to rank at number 66. IAC had to absorb a sales collapse of 35.5 percent. Despite this, the company was able to announce the completion of a new round of financing in April 2018 and win over a new minority shareholder, Gamut Capital Management. According to its own reports, it had bottomed out at that point. GM also named IAC “Supplier of the Year” in 2017, but this was likely not much of a comfort.
The company Grupo Antolin (ranked 52) also recorded a slight sales decline, following a significant rise the previous year. The 2016 numbers were skewed by the takeover of Magna Interiors that year.
So up until now, the traditional car industry has generated good to very good sales. The so-called tipping point for combustion engines has not actually been reached: globally, components for conventional drive systems are still in high demand. We can assume that this situation is not going to change overnight. Even if the odd established brand such as DS, Smart or Volvo turn to electric drivetrains alongside newcomers like Byton, in 2025 the majority of new cars will still be rolling off the production lines with internal combustion engines (ICEs). The development plans of the Volkswagen Group are an important indicator for this. The company plans to sell 13 million cars globally in 2025, and up to 30 percent will be electric. So around 10 million models with petrol, diesel or gas engines will still be being produced. This forecast may apply to the other mass car producers, too.
However, suppliers are increasingly adapting to the electrification of mobility. One way the major suppliers are managing to do this is by demerging whole business areas which do not belong in the portfolio in the long term, and buying where there are gaps to be closed in future production. One example is Continental’s joint venture with Osram, which is meant to work on innovative light and laser technology for autonomous vehicles. Their goal is the development of intelligent light and sensor systems for the mobility of the future. These are meant to secure the communication of robo-cars (C2C) with each other, but also with other road users (C2X).
The recent takeover of the Austrian lighting specialist ZKW by the electronics giant LG for €1.1 billion shows the future significance of light – the most important driving assistance system of all. This was the Korean group’s biggest takeover deal and more than 9,000 employees were affected worldwide.
Interestingly, companies making conventional products that do not fall within the CASE (connected autonomous, shared and electric vehicles) boom and whose importance will decline in line with the combustion engine, are still able to find buyers. Bosch had no problem finding a buyer for its starter-generators business, or for the Bosch Mahle turbo systems area. These divisions were bought by Chinese investors or suppliers.
Chinese suppliers are gaining in importance, not least through transactions like these. Their number in the Top 100 has increased to four companies. Two of them have been on the list for years: Weichai Power (ranked 17, a producer of diesel engines among other things, shareholder with KION in Linde Hydraulics) and Yanfeng Automotive Interiors (ranked 33, formerly the interiors business of Johnson Controls and a producer of interior components). These two are joined by Citic Dicastal (ranked 74, producer of aluminum die-casting components and alloy rims) and Ningbo Joyson Electronics (ranked 75).
Chinese suppliers recorded huge growth rates in the past year: Weichai increased by 68 percent and Ningbo can look back on an increase of nearly 31 percent. Both are blue-chip companies, well fueled by state programs in China.
However, behind the rise of Ningbo lies the fall of Takata. In 2016, the passenger systems specialist had a solid middle ranking at number 51 – then faulty airbags resulted in the biggest product recall of all time and insolvency for the company. So the Japanese manufacturer disappeared from the survey and Ningbo Joyson took the stage. The Chinese company, only founded in 2004, has owned the US supplier Key Safety Systems (KSS) since 2016, which then took over Takata. Joyson itself produces electronic components such as control units for air-conditioning but also charging controllers for electric cars and steering wheels; the German premium manufacturers are among its customers.
An analysis by Berylls Strategy Advisors suggests that there could be significantly more Chinese companies in the Top 100 soon. The analysis examines the Chinese supplier market, where, perhaps unnoticed, new champions are developing. Especially promising are the Wanxiang-Conglomerate (suppliers of products including steering columns, drive shafts and front axle modules), but also the Minth Group, which is already producing interior and exterior vehicle components for international customers. The rechargeable battery producers CATL and BYD are also making their way up onto the list of the world’s 100 biggest suppliers.
To join this club, companies had to achieve a minimum turnover of €2.6 billion in 2017; the threshold was only 100 million and not far above the 2016 ranking. But a company needed to have had a strong year to join the Top 100 again and Japanese suppliers did manage to achieve this feat. With 27 representatives, they are again the biggest group in the Top 100: five companies even made it to the Top 20. The profitability of the Japanese is at the same level as in the previous year, even if the group is making a considerably worse impression in the rankings. The Yen carries the main responsibility for this, as it fell by 9 percent against the euro. If we disregard any exchange rate effects, only two companies (Yasaki, ranked 19, and Calsonic, ranked 32) recorded a decline in sales.
In South Korea, the situation looked quite different in 2017. It was a difficult year for the country’s suppliers, and in the end six out of seven companies reported falling profitability. Hankook Tyres (ranked 50) and Hyundai Mobis (ranked 7) were particularly hard hit, but Hankook was able to increase turnover slightly and even improve its overall ranking by two places.
Profitability was overwhelmingly in decline for the tire producers represented in the ranking, although if turnover is drawn up in local currency, tire producers are in the black.
The US dollar, considerably weaker against the euro, masked the success of American suppliers in the past year. There were even a few cases of sales growth far exceeding the average. The past year was particularly positive for American Axle, with an increase of 59 percent and a jump in the rankings from 65 to 51. The background for this is the company’s takeover of Metaldyne (supplier of silencers, exhaust parts and drive components), with 4,000 employees.
Much of the movement among US suppliers is due to continuing portfolio adaptions to future challenges. One example of this is the splitting up of Delphi into Delphi Technologies (focused on the production of components for traditional powertrains) and Aptiv (focused on components for new mobility solutions and connectivity). So Delphi drops out of the Top 20, but the spin-off Aptiv is ranked at 21 and even the smaller offshoot, Delphi Technologies, is at 62 with a turnover of €4 billion.
The wheel of takeovers and spin-offs has again been turning more quickly in 2017 than in the previous year and there is strong evidence that this will continue in 2018. The big players’ well-filled coffers and the general push to get even more involved in the digitalization of the automobile world indicate that 2018 will also be marked by quite major spin-offs and takeovers.
Creative start-ups wanting to join in with, and make their mark on, future mobility are also growing in importance. Their turnover in euros may be far below the Top 100 threshold of €2.6 billion, but their influence in the supplier industry is increasing in leaps and bounds. The Top 10 among the Silicon Valley start-ups (including Smartdrive, Greenroad, lytx, inthinc, nuTonomy, CRUISE) specializing in camera-based systems, driver attention and autonomous driving have raised €800 million to date, according to a recent M&A survey by Berylls Strategy Advisors. The Top 15 start-ups for car sharing have raised around €700 million (source: Berylls M&A Survey).
Financial backers increasingly include Tier 1 suppliers, who used to be more reserved about participating, as well as venture capital companies. But times are changing: the well-known car suppliers are now firmly on their way toward helping to develop the car of the future. That is because they have realized that, along with the tech titans from Silicon Valley, more and more of their Chinese rivals have joined the race.
Dr. Jan Dannenberg (1962) has been a consultant for the automotive industry since 1990 and became a founding partner of Berylls Strategy Advisors in May 2011. Until spring 2011, he worked with Mercer Management Consulting and Oliver Wyman in Munich, Germany, on international projects – for five years as Associate Partner, and another three years as Partner. He is a recognized specialist in innovation and brand management in the automotive industry, and primarily advises suppliers and investors on strategy, M&A and performance improvement. In addition he is Managing Director at Berylls Equity Partners, an investment company that specializes on mobility enterprises.
Bachelor of Arts in economics at Stanford University, USA; business administration and doctorate degree at the University of Bamberg, Germany.
