Automotive Supplier Viewpoint
Diversification may seem like a smart move for automotive suppliers, offering risk mitigation and access to growth trends. But results from our study of the top 100 suppliers find that that’s not necessarily the case.
Profitability varies significantly across the industry, with average EBITDA ranging from 7% for the interior segment to 38% for semiconductors. Semiconductors, however, are an outlier—vehicle manufacturers make up less than 20% of global demand, limiting their ability to negotiate prices as effectively as in other segments.
Excluding semiconductors, the revenue-weighted average EBITDA across segments is around 10%. But within all other segments, margins can swing by over 20 percentage points. Notably, top performers in less profitable segments often achieve better margins than weaker players in more profitable segments. In all segments except interior, the best players are achieving healthy EBITDA margins of 15% or more.
This illuminates a road to success. Strategically investing to become the scale and market leader in core offerings within a single segment can deliver better margins than pursuing diversification. The auto supplier industry rewards focus. Leading suppliers prioritize segment and technology expertise as well as a rigorous focus on operational and commercial excellence, including cash management. By sharpening their strengths and pursuing excellence, these suppliers outperform both segment laggards and diversified competitors, secure stronger margins, and ensure long-term financial health and resilience in a competitive market.
The authors are grateful for the support Torben Frenk and Ingo Stein provided to this study.
Auto Supplier Viewpoints
First published in November 2024