The overall mood is deteriorating – suppliers are becoming less optimistic about electric mobility - Berylls

f you look at the current headlines around electric mobility, they are mostly negative. Car rental companies such as Sixt and Hertz are reducing the percentage of electric vehicles in their fleets, Audi wants to bring fewer electric models onto the market, and Mercedes is stopping a complete e-platform.

Wherever you look, the euphoria surrounding electric mobility is fading, mainly because there are still too many hurdles for electric mobility to become a widely accepted mode of transport. These include uncertain residual values, an inadequate charging infrastructure in some areas, and comparatively high prices or surcharges compared to vehicles with combustion engines. Although the current disillusionment is not a departure from the course we have ultimately set towards electric mobility, it is at least a further slowdown in speed and thus a shift on the timeline.

For suppliers who are already struggling with a variety of challenges (e.g., low volumes, short innovation cycles, low margins), the development comes at an inopportune point in time. While the mood among suppliers regarding electric mobility was still very optimistic (if not too optimistic) last year, according to this year’s Berylls Supplier Executive E-Mobility Survey 2024 it has meanwhile become a good deal gloomier.

Suppliers now less optimistic about the electric future

The results of the survey also show that the electric mobility course we have embarked on is here to stay. While 70% of suppliers still depend on combustion engine vehicles for at least a quarter of their revenue today, only 55% expect this to be the case in five years’ time. At 69%, the vast majority of respondents see electric mobility as an opportunity for their company – but compared to the previous year’s figure of 77%, the mood is now far less upbeat. The response is hardly surprising given the tougher market conditions, which are also reflected in the expected impact on revenue over the next five years. While 75% of respondents expected an improvement last year, this year’s figure has fallen to 55%. The same applies to margins: last year, 43% of respondents still expected electric mobility to have a positive impact in five years’ time, whereas in 2024 only 25% predict higher margins.

Selected results of the E-mobility supplier survey 2023 & 2024

Source: Berylls by AlixPartners

Strategic stalemate

Suppliers often find themselves in a difficult situation. In order to maintain or gain market share, they feel compelled to keep up with or even drive the rapid pace of technological development. However, in many cases innovation does not pay off in the form of high margins. After all, the large number of competitors are creating a highly competitive market with low prices and profit margins, which often means suppliers are caught in a dangerous vicious circle. Only if they sell more will there be a chance of achieving profitability through economies of scale. At the same time, selling more of the often loss-making electric mobility components means a deterioration in the overall margin or the need for it to be subsidized by the rest of the business.

Divestment or focused growth

Even though the overwhelming majority of suppliers surveyed (86%) are satisfied with their electric mobility strategy, it can be assumed that they are rather too optimistic in view of the further worsening of the situation described above. In any case, it is important for suppliers to take a critical look at the electric mobility business and, in many cases, to examine their economic rationale. There should be no taboos here, and divestments should also be an option that can or, in many cases, must be assessed. Major Tier-1 suppliers have recently led the way and withdrawn from supplying components such as battery packs, electric motors, power electronics, and battery management systems. Despite the supposedly attractive market size and prospects of growth, no positive result could be expected in the foreseeable future, which meant that return expectations could not be met or capital allocations justified.

If all the signs point to staying, the innovation strategy needs to be fundamentally scrutinized against the backdrop of shorter innovation cycles and often a lack of profitability. It is also important to organize start-ups efficiently and without errors, to “claim” missing call-offs directly from the OEMs and to define a well-thought-out competitive positioning. A high degree of flexibility and a certain openness to new technology should also be elementary parts of the strategy. After all, many OEMs are currently switching to the model of technology openness, similar to BMW. As a result, engine programs, for example, are being extended, which in turn benefits those suppliers who are still operating in these areas. OEMs are already realizing that their former supplier base in combustion engine-dependent components has shrunk and concessions have to be made on prices.

However, one thing is certain: the electric mobility business is likely to remain challenging and in many cases still needs subsidizing from other business areas before it can become attractive in the long term. Now more than ever, suppliers need to ask themselves how they want to position themselves in this fiercely competitive market.

Author

Dr. Jürgen Simon

Associate Partner

juergen.simon@berylls.com

Dr. Jürgen Simon

Dr. Juergen Simon (1986) is Associate Partner at Berylls by AlixPartners (formerly Berylls Strategy Advisors), an international strategy consultancy specializing in the automotive industry. He is an expert in sales and corporate strategies as well as M&A and can look back on many years of consulting experience.
Dr. Juergen Simon has been advising automotive manufacturers and suppliers since 2011 and has in-depth expert knowledge in the areas of holistic strategy development, business models and commercial due diligence. He also focuses on market entry strategies and topics related to the “Software Defined Vehicle”.
Prior to joining Berylls Strategy Advisors, he worked as senior consultant at the Droege Group, a consulting and investment firm.
As a graduate economist from the University of Hohenheim, he completed his doctorate at the Institute of Management at the Karlsruhe Institute of Technology (KIT) before joining Berylls.

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