Difficult market conditions for suppliers<\/strong><\/h2>

This level of optimism is striking, not least because one consequence of E-mobility is a more competitive and less certain market. For many suppliers, E-mobility will bring challenging levels of change, with low or even negative margins, high technological uncertainty and considerable financial risk.<\/p>

In the E-mobility era suppliers are confronted with high transition costs, rapid development cycles and a shortage of E-mobility skills. All these factors combine to compress margins and intensify competition.<\/p>

Despite rapid growth, absolute volumes for electric vehicles remain comparatively low, limiting the opportunity to offset high development costs through volume sales. Meanwhile short E-mobility innovation cycles force suppliers to develop and launch new product generations more frequently simply to keep pace with competitors even while OEMs remain focused on efficiency increases and cost reductions. In this environment it is unsurprising to find intense competition for E-mobility engineering skills from both OEMs and suppliers, forcing up labor costs and further squeezing supplier margins. This is only likely to increase as new suppliers attract staff and volumes increase.<\/p>

Such cost pressures against a background of furious competition from existing suppliers seeking to build their position in the E-mobility market and new suppliers, who may be free of the burden of legacy costs, mean that for many suppliers\u2019 prices are too low to support margins. In some cases, margins may actually be negative. Established suppliers risk becoming trapped in a vicious circle: they need more business to increase their volumes and strengthen their own market position, but that may mean lower average margins and often higher cross-subsidization from other business areas.<\/p>

In the long run this is not sustainable and sooner or later consolidations will be necessary \u2013 indeed, the first signs of this are already apparent.<\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t

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Clear strategy required<\/strong><\/h2>

Supplier optimism is good, but for this to be justified it needs to be supported by a clear transition roadmap. Strategy needs to take account not only of long-term positioning, but also of short-term market conditions and resourcing needs, and the implications for product margins.<\/p>

Above all, supplier strategy needs to target considered volume increases (whether organic or inorganic) to reach a critical size and achieve necessary economies of scale, and build on and extend skills to enable production start-ups.<\/p>

Strategy implies coordination and resource allocation. With increasing volumes in a product generation that is not yet fully mature, it becomes vital that all functional areas from development to production work together smoothly and efficiently. It is important to manage limited resources effectively because scaling usually requires high investment, with new production lines and sometimes entirely new production plants. Financing needs to be secured and additional technology and management expertise need to be introduced with care to encourage long-term loyalty to the company.<\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t

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Correct positioning necessary to seize opportunity<\/strong><\/h2>

E-mobility is a classic case of opportunity and challenge. Although most auto suppliers are still heavily reliant on combustion engines, they fully expect this will change in the next few years. And despite struggling with low margins and high competitive pressure, most suppliers are confident that they will prosper.<\/p>

Yet to make this optimism a reality, suppliers will need to position themselves properly and make strategic decisions to strengthen their market position and meet the innovation challenge.<\/p>

Only then will it be clear whether their optimism is justified.<\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t

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