In the future, there will be more technically sophisticated cars on Germany's roads that will open up new sales opportunities for the supplier industry — because added value could rise around € 14 billion by 2030. Which areas offer the greatest potential?
A widespread theory says that automotive transformation will put conventional suppliers under severe pressure. However, a new PwC study shows that this is not an inevitable outcome. For the analysis, the experts divided the production costs of a car into seven functional groups and 40 components. Based on the PwC "eascy" Autofacts market model, the analysts then calculated in detail how the added value of the individual components will change in the coming years.
The result: The average manufacturing costs of a passenger car sold in Germany could increase by 10 % in real terms by 2030 from today's approx. € 18,000 to approx. € 19,800. These costs also correspond to the value added by suppliers and car makers in manufacturing. Contrary to what is often assumed, this does not reduce the value added in the German market. According to the PwC study, it will increase by 22 % in real terms from the current € 63.2 billion to € 77.2 billion by 2030.
"Trends such as autonomous driving, car sharing, or electric mobility call for far-reaching changes, but also offer great potential for the supplier industry. Those who adapt early to these changes will benefit accordingly," explains Felix Kuhnert, PwC Global Automotive Leader.
Germany: E-drives offer potential turnover of almost € 15 billion
As expected, today's most valuable vehicle system — the conventional powertrain — will gradually lose in importance in the course of the conversion to the electric motor. However, it will still make a value-added contribution of € 13.1 billion to the German market in 2030. By way of comparison, the current figure is an estimated € 15.9 billion, the maximum value will be € 17.4 billion in 2023. However, these losses will be more than offset by the additional sales of electric powertrain components.
The demand of the German market for electric drives is already generating added value of around € 1.3 billion. According to the PwC analysis, in 2030 demand will amount to € 14.7 billion, including the necessary battery storage. In total, the value of the drive components manufactured for the German market could increase by almost 60 % in real terms by 2030 — from around € 17.4 billion today to almost € 28 billion. According to Christoph Stürmer, Global Lead Analyst at PwC Autofacts, these findings are hardly known so far because the real character of the automotive transformation is not yet visible.
"The debate about the future of the supplier industry is still too much focused on the potential replacement of traditional drive technologies. Of course, many conventional vehicle parts such as the basic engine or the exhaust system will disappear in the electric car — but the internal combustion engine will still be needed for many years to come. In addition, the change is not limited to the electrification of the drive system. At the same time, other valuable technical components such as the autonomous driving system, connectivity modules or intelligent interior applications are coming our way," says Christoph Stürmer, Global Lead Analyst at PwC Autofacts.
Instead, automotive transformation means that mobility as such is changing — away from traditional individual transport and towards completely new forms of mobility such as self-driving Robo-Taxis, in which sometimes only one or two, but sometimes five or ten people are moved. That's why cars of the next generation will need different components — and in two generations completely different chassis, systems or interiors."
OEMs need to further differentiate their product range
The decisive question the automotive industry is asking is of course, where and by whom will future value creation be generated? The challenge for manufacturers and suppliers alike is that it is not possible to define exactly when the automotive transformation will begin — "and that we are likely to have to deal with regionally differing developments that are influenced not only by technology but also by political and cultural factors," says Stürmer.
In China, for example, where the government is providing clear incentives for the establishment of new forms of mobility, broad-based change is likely to take place much earlier than in the USA. And in the cities faster than in the countryside. "The automotive industry will therefore have to differentiate its product offerings more clearly over the next five to ten years in order to appeal to both traditional and modern user groups," says Christoph Stürmer.
There is much to suggest that the trend towards autonomous driving — in combination with car sharing — will change the industry much more severely than electric drive systems. One example: Today's cars in Germany are approx. 17 years old on average. The PwC study, on the other hand, shows that self-driving cars used in sharing operations will probably only be used for just under four years. This is due to the much higher wear and tear.
"The number of vehicles needed in traffic is therefore declining, while sales continue to rise structurally because there is more need for replacement," explains Kuhnert. "And logically, the volume of traffic will also increase once again, as individual mobility becomes more affordable, better and more comfortable. On the other hand, autonomous, shared cars will be parked much less frequently, thus freeing up valuable space. Likewise, intelligent connectivity solutions ranging up to central traffic management systems will sustainably increase the efficiency and safety of road traffic. As a result, much more mobility will be possible even on the basis of today's infrastructure".
New mobility needs new components
The consequences for the German supplier industry are: Although the future will be quite different, this does not necessarily have to be at the expense of sales opportunities — on the contrary. The PwC study predicts that self-driving cars (Level 4 and 5) will account for 36 % of new registrations in China and 28 % in Europe in 2030. “Because autonomous driving requires an active chassis with a wide range of compensation functions, a large number of new components will be needed in this area alone,” says Felix Kuhnert. In addition, the entire body must be designed to accommodate the much quieter electric drive – and the fact that in electric cars much less energy is available for heating and air conditioning.
Thus, for example, the value of electrical and electronic components such as power supplies, sensors and actuators, data connections and computing power is growing massively. According to the PwC analysis, the value creation to the German market alone is likely to increase by more than 50 % from just under seven billion euros to more than eleven billion euros — although individual components are likely to face drastic price drops.
"This foreseeable development could lead to the temporary growth in sales of autonomous driving functions and connectivity which would, however, soon fade away. This should lead to a consolidation of the technologies offered in this area in the medium and long term — something companies should be preparing for today," PwC analyst Stürmer continues.
Many new opportunities are opening up in the interior sector — "After all, we will ‘live’ quite differently in autonomous vehicles than we do today, where we usually sit behind the wheel ourselves,“ says Stürmer. A simple example: in so-called robo-taxis there will be no driver who centrally controls all functions, so all other seats in the car must be equipped with a variety of information and operating functions. Consequently, the interior design segment for the German automotive market could reach just under € 10.0 billion in 2030 from its current value contribution of € 7.0 billion annually. In this area, in particular, the added value currently resides almost exclusively with the suppliers. It is therefore entirely possible that car manufacturers will soon consider interiors a candidate for in-sourcing strategies.
Why German suppliers are still in pole position
“Many medium-sized German suppliers appear to be predestined to occupy these promising sectors due to their business-oriented structures, their high level of procedural and methodological expertise, and their close customer relationships,” summarizes Felix Kuhnert, PwC Global Automotive Leader.
However, this would require drastic changes to the business model. According to Kuhnert, the fact that the German supplier industry consists of mainly medium-sized companies is by no means a disadvantage. “The auto industry is entering a phase that is so transformative that it requires not just managers but true entrepreneurs to initiate and lead the necessary transition. In that sense, the owner-managed structure of these companies could even be an advantage.” Even very large, listed suppliers can implement the necessary agility and foresight as part of their strategic portfolio management.
However, fundamental changes to the business model also require a great willingness to take risks and capital strength. To this end, companies need the appropriate support from the credit sector: "German banks are good at financing traditional operating business, but have further tightened security requirements for companies since the major crisis in 2009. The transformations of the next few years will require high investments in business areas that are in some cases completely new — something that is difficult to map with traditional financing instruments," says PwC expert Stürmer. New, possibly unconventional sources of finance will therefore be needed to finance the transformation of the automotive industry. And this is one recommendation of the PwC study: traditional banks would be well advised not to miss out on the automotive business, which will continue to grow in the future.
This article was first published by Next Mobility