欧洲汽车产业报告-2023-06-市场解读

TheEuropean

automotiveindustry

Unlikelytoreturn

tonormal

GlobalStrategyGroup

Hasthetraditionalautosectorpeaked?

Aperfectstormisbrewing

Recessionscomeandgo,yettheautomotiveoriginalequipment

manufacturer(OEM)sectorhascontinuedtogrow.Andthathasplacedthefocusonbuildingupcapacityandharnessingprocessefficiency.

Now,growthnolongerlookssocertain.Infact,webelievethatthe

automotiveOEMsectorhasenteredaperiodofdeclineanddisruption.Emergingoutofthepandemicisaperfectstormthatthreatensto

changethefortunesoftheautomotiveindustry.

Inourview,fivekeyfactorsaredrivingthisperfectstorm:

Dropindemand:Increasingeconomicuncertaintycouldmeanpost-pandemicdemandnevermaterializes.

Socio-demographicchange:Agingpopulationsanddecliningpurchasingpowercouldslownewcarsales.

Shifttoelectricvehicles(EVs):ThemovetoEVsisexpectedtoreducelaborintensityanderodemarketvaluefortraditionalOEMsuppliers.

Suppliersnearpeakdebt:ThemajorityoftraditionalOEMsupplierscouldfacefinancialdistress.

Priceparitycomesearly:Inflationandrisingcostscouldaffecttheinternalcombustionengine(ICE)andEVmarketdifferently.

1

2

3

4

5

MarketsizeforecastforpassengercarsinEurope(excl.batteries)

2019–2035,inconstant(2010)EURbillions

2019

2035

€298bn

€393bn

Source:KPMGanalysisbasedonEuromonitordata.DatapulledNovember2022.

Strategicimplications

Theautomotiveindustryisexpectedtoshrink,kickingoffaperiodofdecline.

Inourview,survivalcannotbeachievedthroughfinancialrestructuringalonegiventheforeseeablescenario.

Webelievetherewillbeaneedforanoperationalrestructuringwithintheautomotiveindustry.

Industrycoordinationwilllikelyberequiredtodecidewhichsuppliersstayandwhichonesgo.

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2

FivekeyfactorsdrivingtheperfectstormforautoOEMs

01

02

03

04

05

Dropindemand

Socio-demographic

ShifttoEVs

Suppliersnearpeak

Priceparitycomes

Salesforecastsforthenext

change

ThetrendtowardsEVshas

debt

early

decademostlypointinone

Thenumberofnewcar

thepotentialto

Continuouspressureon

Whileit’sexpectedinflation

direction:up.Yet,whatif

buyersisdeclining.Sois

fundamentallychangethe

marginsandupcoming

willcontinuetopushupthe

demanddoesn’t

theirpurchasingpower.

proportionatevalueof

debtrepaymentsposean

costandpriceoftraditional

materialize?Analysts

Indeed,statisticssuggest

productioninputs.Recent

existentialthreattomany

ICEs,EVscanmitigate

expectedtoseearebound

thatby2030,the45to64

studiessuggestelectric

suppliers.Mostsupplier

somepriceincreasesand

between2023and2025as

agedemographicwill

drivetrainsrequirearound

debtispayablewithin

maintainmarginsthrough

OEMsworkthroughorder

shrinkby10percent.Atthe

25percentfewerpartsand

2years.Ascashreserves

increasedefficienciesand

backlogsanddemand

sametime,realpurchasing

around65percentless

dwindle,anover-reliance

lowerbatteryprices.This,

accumulatedduringthe

powerhasbeenindecline

assemblytime.Battery

onshort-termdebtandthe

inturn,couldaccelerate

pandemic.Butnow,with

since2019.Andthe

aside,thetotalvalueof

needtoservicedebt

theconfluenceofprices

economicuncertaintyrising

currentinflationarytrends

partsinanEVisaround

repaymentswilllikelyput

anddrivemorerapidEV

andrecessionscenarios

indicatethatthe

15percentlowerthaninan

immediatepressureon

adoptioninthemarket.

seemingmorelikely,

purchasingpowergapwill

ICEcar,thusreducingthe

near-termprofitgeneration

there’sahighriskthis

likelycontinuetogrowin

valueofthetraditional

andreducesuppliers’

demandmaynot

theneartomid-term.

suppliermarket.

abilitytotransform.

materialize.

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3

Contents

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01

Dropindemand

0

5

02

Socio-demographicchange

0

6

03

ShifttoEVs

08

04Suppliersnearpeakdebt

1

0

05

Priceparitycomesearly

1

2

06

1

4

DocumentClassification:KPMGPublic4

Brexit

War

Inflation

Covid

Recession

01

Socio-demographic

change

ShifttoEVs

Suppliersnear

peakdebt

Priceparitycomes

early

EUdebt

crisis

Whatifdemandfailstomaterialize?

Dropindemand

Figure1:DevelopmentofcarsalesinEuropewithforecastandadjustmentforcrises

2005–2034,in#millionfortheEU27+1

20

10

0

There’sariskofbacklog/on-holddemandnot

materializingduetoglobaluncertaintyandthe

threatofaneconomicrecession

2005201020152020202520302035

Afterthoughts

.-6-ActualsForecastPossiblemarketdevelopmentwithoutrebound/backlogeffect

Source:Actualcarsales—Euromonitor(Passport)historicalandforecastdata.Datapulledon18October2022.

Thedeclinemaybeunderway

Evenbeforethecurrenteconomicdisruption,salesforecastsforthe

nextdecadewerelessthanenthusiastic.Mostsuggestedaslightincreaseinsalesoverthedecade.Someanticipatedvolume

stagnation.Buttheyallagreedthattheautomotiveindustrywouldenjoyareboundbetween2023and2025basedonexistingorderbacklogsandaccumulateddemandfromthepandemicperiod.

Inourview,thesituationhasclearlychanged.Macroeconomic

trends,risinginflationandeconomicuncertainty—coupledwith

globalgeopoliticaldisruption—suggesttheanticipatedreboundin

demandmaynotmaterialize.

Ifthatisthecase,theindustrymayalreadybeinastateofdecline

inEurope.OEMsandsuppliersmayhavelittletimetoreact.

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1.5

1.0

0.5

0.0

2020

%newcarpurchases→

29%

24%

10

8.1

02

Dropindemand

Socio-

demographic

change

ShifttoEVs

Suppliersnear

peakdebt

Priceparitycomes

early

Afterthoughts

Socio-demographictrendsforeshadowashiftindemand

Thekeycustomerdemographicfornewpassengerswilllikelyshrinksignificantly

InEurope’slargestmarket,Germany,themajorityofnewcarshavetraditionallybeenpurchasedbycustomers45–64yearsold.WhileGermany’stotalpopulationis

expectedtogrow,thiscohortwillshrink.Infact,overthenextdecade,thiskeydemographicwilldropbyapproximately2.5millionpeople,or10percentofthecurrentmarketsize(Figure2).

Figure2:Germany:Comparisonofdemographicstructurein2020and2030in#months

2030

45–64

-2.5million

(~10%)

0102030405060708090

Source:DemographicdatafromtheGermanNationalStatisticalOffice.Datapulledon15September2022.

47%

>64

<45

45–64

Figure3:Germany:Averagepassengercaragedevelopment

in#years

9.8

5

0

1960197019801990200020102020

Source:EuropeanAutomotiveManufacturers’Association—VehiclesinuseEurope2022.Datapulledon7September

2022.

Thesametrend,albeittoalesserextent,canbeseenonaEuropeanlevel

(EU27)—eveninthemostoptimisticsimulation,the45-64agecohortis

projectedtoshrinkbyatleast2percent.

What’smore,youngercohortstendtopreferalternativeownershipandmobility

options—suchasrenting,car-sharing,ormicro-mobility—overanoutright

purchase.

Secondarymarketwillbethenorm,ratherthanthealternative

Tenyearsago,theaveragecarinGermanywasaround8.5yearsold.Today,the

fleetiscloserto10yearsold—anincreaseof20percent(Figure3).Theaverage

ageofacarinthebroaderEUisevenhigher.

Thissuggeststheusedcarmarketisgrowingandgainingprominence

(particularlyamongyoungerdemographics)whichcouldunlockopportunitiesin

theaftermarketsectorforbothOEMsandsuppliers.

Source:Newcarpurchases(registrations)fromtheGermanNationalOfficeforTransportation.PublishedinJanuary

2021.Datapulledon8September2022.

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02

Dropindemand

Socio-

demographic

change

ShifttoEVs

Suppliersnear

peakdebt

Priceparitycomes

early

Afterthoughts

Newcarbuyersfacegrowingeconomicchallenges

Risingcarpricescoupledwithdecreasesinrealpurchasingpowermaylimitcarsales

Formorethanadecade,therehasbeenastrongcorrelationbetweenEuropeannewpassengercarsalesandrealpurchasingpower.Evenafteraccountingforthepandemic,supplychaindisruptionsandthechipcrisis,therelationshipbetweencarsalesandpurchasingpowerremainsstrong.

WithmostofEuropenowfacingrisingenergypricesandincreasing

ratesofinflation,therearegrowingsignsthatpurchasingpowermay

welldecreasefurtherasalargerproportionofrealdisposableincomeisallocatedtonecessitiesandwagesfailtokeepupwithinflation.

YetnewICEcarpricesarerising:thepriceofanaveragenewcar

increasedbyaround27percentbetween2012and2021.Andthetrendislikelytocontinue—astheConsumerPriceIndexcontinuestorise,

sotoocannewcarprices,potentiallypricingoutfuturepotentialbuyers.

Figure4:Germany:Purchasingpowerdevelopment

Year-over-yearrealdisposableincomevs.carsales

35

30

25

20

15

10

5

0

-5

27%

32

32

26

Corr.=0.77

26

+

20122014201620182020

●Realpurchasingpower(EU)

●Carsales(WesternEurope)

■Carprices(EU27+UK)

Source:OECD/EIU—PurchasingPowerParity.Datapulledon7September2022.

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Chassis

Chassis

29,920

Batterypack

Vehiclebody

Other

Drivetrain

Equipment

VehiclebodyOther

Drivetrain

Equipment

03

-4,585

ICE

EV

Source:KPMGanalysisbasedonthe:Marklinesdatabase.Datapulledon14September2022.TUMAutomotiveCentre—AnOverviewofCostsforVehicleComponents,Fuels,GreenhouseGasEmissionsandTotalCostofOwnership

(publishedin2017),KPMGproprietarydata.

TheshifttoEVswilllikelyshrinkthetraditionalsupplier

Figure5:Component-intensity

market

INDICATIVE

Dropindemand

parts

in#of

-27%

100%

73%

Electricvehicleproductiontypicallyrequiressignificantlyfewer

resources

Socio-demographic

change

EVsaregenerallylesspart-intensivethanICEcars(Figure5)—anEVengine

oftenrequiresfewermovingpartstodeliversimilarorbetterperformance.

ICE

EV

Consider,forexample,thatanaverageEVonlyneedsasimplesingle-speed

ShifttoEVs

Figure6:Laborintensity

inhoursofassemblytime

INDICATIVE

Suppliersnear

peakdebt

gearbox,yetdeliversahigherrevrangeandwiderpowerbandthananICEcar.

Moreover,alargeproportionofthecomponentsforanEVcomepre-assembled,

therebyreducingassemblytime.Astheindustrygainsmoreexperienceand

-67%

findsmoreefficiencies,additionaltimecanbesavedintheassemblyofthe

drivetrainitself.

30

Priceparitycomes

early

10

WhileEVsarestillmoreexpensivethancomparableICEvehicles,muchofthat

additionalcost(30–50percent)canbetracedbacktothebattery.Minusthe

ICE

EV

Afterthoughts

battery,theremainingvalueofthepartsisactuallyEUR4,585lessthana

traditionalICEcar(seechartbelow).

Figure7:AveragecostsplitofanICEvs.EV

inEUR

42,561

9–12%11–20%15–20%

22–24%

30–37%

30–50%

4–9%7–19%5–15%

8–20%

11–27%

Therearetwothingstotakefromthistrend.Oneisthatthetotalvalueofthe

OEMsuppliermarketislikelytofallasthemarketshiftstoEVs.Thesecondis

thatthedeclineofbatterypricescouldgiveEVsthecostedge.

-27%

Lowercomponentrequirement

(esp.drivetrain)

-67%

Lowerlaborintensityofproduction

-EUR4,585

Reductioninpart

omparedto

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”

03

INDICATIVE

WebelievetheshiftfromICEvehiclestoEVswillhaveasignificantimpactonOEMsupplychainsandoperations.

Forone,feweranddifferentcomponentsareneededforEVs,

requiringexistingsupplierstoinnovateandnewsupplierstobesourced.OEMsshouldstartprioritizingEV-componentsuppliers,particularlyasmoretraditionalsuppliersstruggletoinnovateandremainrelevant.

Ontheoperationsside,thedropinlaborintensityassociatedwithEVproductionisexpectedtobeprofound.Theavailabilityof

qualitypre-assembledcomponentsandthewideradoptionof

advancedautomationmeanslesscomplexityandlessmanpowerontheassemblyline.

Asaresult,it’santicipatedthattherelativeproportionsoflaborandmaterialwillreversedramatically(Figure8),forcingOEMstostartmovingawayfromdecadesoffocusonefficiencygains.

Instead,theleadersshouldbefocusingonrestructuringtheirexistingcapabilitiesandreorganizingtheirsupplynetworkstoremaincompetitiveinthelong-run.

ShifttoEVs

10%

58%

32%

-59

Suppliersnear

peakdebt

pp

30%

Priceparitycomes

early

TimeParts

Value

70%

11%

89%

OEMsshouldreorganizetheirsupplychainsandrestructuretheiroperations

Dropindemand

Figure8:Assemblysplitinmaterialandlabor

in%

Socio-demographic

change

OEMsshouldrestructure,notjustretool

Afterthoughts

ICEassemblyEVassembly

LaborMaterial

Source:KPMGproprietarydata/analysis.DatapulledSeptember2022.

AssemblingEVsrequiressubstantiallydifferentsupply

chainsandprocesses.DemandshiftshouldforceOEMstorethinktheiroperationsintheirshifttoelectricmobility.

JavierRodríguezGonzález

Partner,DealAdvisory,GlobalHeadofElevate,DealStrategyKPMGinGermany

9

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38%

34%

04

Socio-demographic

change

ShifttoEVs

Suppliersnear

peakdebt

Priceparitycomes

early

Afterthoughts

Morethanaquarterofsuppliersareatriskofdistress

Dropindemand

Thefinancialhealthofsuppliersisdeterioratingrapidlywithlittlereasonforoptimism

Lowerproductionvolumescoupledwithaforcedshiftintoalower-valuemarketcanputsignificantpressureonsuppliersastheystrugglewithanuphillbattleagainstrevenuedecline.Atthesametime,thereisdiminishingvaluetobesqueezedfromcost-cuttingmeasuresascapitalexpenditureisvitalforinnovationandworkingcapitalneedsareunlikelytochange.

Researchsuggeststheresultingnegativefreecashflowswillleadtoaspikein

indebtedness..Since2017,theproportionofsuppliersina‘bad’liquiditypositionroseby9percent(Figure10).Ifyouassumeacommonlyacceptedmaximumdebt-equityratioof3,ourdataindicatesthataboutathirdofsuppliersareatriskofimmediate

distress—afindingconfirmedbytheAltmanZscores(Figure9).

Figure9:Automotivecomponentssuppliers

AltmanZscore,basedonLTMfinancialdata

28%

1,80–3,00

Greyzone

3,00+

Safezone

0–1,79

Distresszone

Source:CapitalIQ.Datapulledon16September2022.

Figure10:Developmentofdebt-equityratioofsuppliers

2017–2022,in%

+9%

40%

14%

+33%

201720182019202020212022

Verygood(<1)Bad(>3)Critical(>8)

Source:CapitalIQ.Datapulledon16September2022.

TheAltmanZmetricconsidersthestrengthofthebalancesheetandthe

company’sabilitytogenerateincometocalculatetheprobabilityofdefault.The

mostrecentdatashowsthataboutathirdofsuppliersareinthe‘distresszone’,

withafurther34percentinthe‘greyzone’ofimprovementpotential.

Supplierswilllikelyrequireadditionalfunding

Understrainthemselves,bankshavebecomemuchmoreselectiveabouttheir

distressedlending.Refinancingratesarehigh.Andinvestorsarelookingfor

growthopportunities.Sowherewilltheadditionalfundingcomefrom?

Thosewithabulletproofbusinesscasefortransformationareattractingalternative

sourcesoffinancing—includingcreditfromOEMs.

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04

Peakdebtdueisexpectedtohitsuppliersbytheendof2023

Dropindemand

Therewillbeapushtorefinanceshort-termdebtmaturities

Thejust-in-timenatureofmanycomponentcategorieshascultivateda

financingdynamicthatreliesheavilyonshort-termdebt.Theaverage

Socio-demographic

change

Manysuppliersarenowfacinganincomingpeakdebtwhichcouldhitinthelatterquartersof2023.Nowisagoodtimetoact.”

AndrésCaballeroPonce

SeniorManager,DealAdvisory,

KPMGinGermany

automotivesupplierdebtportfolioincludesaround49percentshort-termdebt

(withlessthan2yearsmaturity),31percentmedium-termdebt(maturingin

2–5years),andaround20percentlong-termdebt(Figure11).

ShifttoEVs

ThisisforcingmanyOEMstoconsiderhowtheycanprovideshort-termcredit

facilitiesandotherfinancingalternativestoprioritysuppliers,potentially

Suppliersnear

peakdebt

backedbyadegreeofbankinvolvement.

Figure11:Debtmaturitystructureofautomotivesuppliers

Priceparitycomes

early

in%

Afterthoughts

1year2years3years4years5yearsAfter5years

Source:CapitalIQ.Datapulledon16September2022.

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45

40

35

30

25

€2k

05

Socio-demographic

change

ShifttoEVs

Suppliersnear

peakdebt

Priceparitycomes

early

Afterthoughts

FallingbatterypricesandscaleefficienciescanallowEVstooffsetinflation

Dropindemand

ThecostofbatteriesforEVsshouldcontinuetodecrease

TheaveragepriceofanICEpassengercarisexpectedtokeepgrowingthroughthenextdecade,mainlydrivenbypriceinflation.

YetEVsstillhaveroomtomaneuver.Thecostofbatteriesisexpectedtocontinuetofall—notwithstandingfurthersupplychainandresource

constraints—asaresultofnotonlynewtechnologicalimprovements(suchassolid-statebatteries),butalsofromeconomiesofscale.

Figure12:AveragepriceevolutionforICEsandEVs

2005to2035,inEUR

50

€16,5k

20

2005201020152020202520302035

PriceICEPriceEV

Source:KPMGanalysisbasedontheMarklinesdatabase.Datapulledon14September2022.

Figure13:Developmentofbatterycostasa%ofEVcost

2016–2030,in%

49%

43%

37%

32%

28%

25%

22%

19%

20162018202020222024202620282030

Source:BloombergNewEnergyFinance—WhenwillElectricVehiclesbeCheaperthanConventionalVehicles,

publishedApril2017.

OtherfactorsshouldalsohelpEVsgainpriceadvantages.Therampupof

EVproductionshouldleadtoanincreaseincapacityandnewproduction

efficiencieswhichshouldfurtherdrivedowncosts.Andtheintroductionof

additionalentry-segmentEVmodels—frombothtraditionalOEMsand

startups—couldfurtherdrivedownaverageprices.

Eventakingintoaccountrecentgeopoliticaldevelopments,our

conservativeestimatesuggestsEVandICEvehicleswillreachpriceparity

by2035.Otherestimatesandobserverssuggestanevenearlierdate—

someassoonas2025.

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accelerate

Priceparityshould

05

thedeclineoftheICEmarket

Europe(excl.batteries)

passengercarsin

Dropindemand

Figure14:Marketsizeevolutionfor

2005–2034,in#millionfortheEU27+1

Socio-demographic

change

400

350

300

ShifttoEVs

250

200

Suppliersnear

peakdebt

150

100

Priceparitycomes

early

50

0

2010

2006

2008

2012

2016

2014

2034

2018202020222024

2026202820302032

Afterthoughts

Marketsize(constantEUR)Marketsize(constantEUR)andmarketsize(constantEUR)(onlyICE)

Source:ICEmarketsize.Datapulledon18October2022.

Aswe’venotedinthisdocument,thereislittlehopeforarobustreboundandsubsequentsteadyincreaseinsales—tobelieveotherwisewouldbewishfulthinking.

WebelievethegreatestimpactwillbeintheICEmarket.Traditionalsuppliersunabletoinnovatecouldfacechallenges.AndOEMs

shouldworkefficientlytohelpprotecttheirsupplychains.

Can’tseetheforestforthetrees

AllthedataandanalysisseemstosuggestthattheEuropeanautomotive

marketsizeisindecline.Thisisnotarecessionarydiplikepast

downturns—thetrendsinfluencingthemarketarelikelyheretostay.

Theeventsofpastfewyearshavebeendramaticandcaptivating,making

itdifficulttoseethedevelopmentofthebiggertrendsbehindthe

headlines.

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06

ShifttoEVs

Suppliersnear

peakdebt

Priceparitycomesearly

Afterthoughts

NextstepsfortheEuropeanautoindustry

Dropindemand

Takingaction

Socio-demographic

change

TheEuropeanautomotiveindustryislikelytoenteraperiodofcontractioninvalueduetoacombinationoffactors,includingconsumption/demographictrendsaswellasashifttosimpler,lesslabor-intensiveEVarchitecture.Actingexclusivelyonfinancialleversmaynolongerguaranteethesustainabilityofthesupplybase.Inourview,acallforactionisneeded,asisacalltorethinkthesector.

Understandandassessthetrends.Diminishingdemand,shiftingsocio-demographics,risingpricepressuresandsupplierdistressarejustsomeoftheinterrelatedandcomplexissuesfacingautomotiveOEMsandtheirsupplychainstoday.Startbyunderstandinghowthesetrendswillinfluenceyourparticularorganization,marketsandoperations—andyourwidersupplyecosystem.

Identifytherisksandopportunities.ThisenvironmentiscreatingamyriadofnewrisksandopportunitiesforautomotiveOEMsandtheirsuppliers.Yeteachorganizationisdifferentandtheoptionsavailabletoonecompanycoulddifferconsiderablyfromanotherinthesamesector.Workwith

experiencedprofessionalstoidentifywhatrisksandopportunitiesyourorganizationmightbefacinginthefuture.

Quantifythecomparativevalueofdifferentoptions.Youcan’tdecideyourorganization’sfuturebasedonhistoricalexperiencesandsolutions.Ittakessmartdata,clearinsightsintotherelativevalueofeachriskandopportunity,anddeepmulti-industryexperiencetohelpdeterminewhatmovetomakenext.Buildconfidenceinyourdecisionsbyquantifyingtheactualfinancialvalueofyourdifferentoptions.

Movequicklytocaptureandretainvalue.Asthisreportindicates,thedeclineindemandandmarginsislikelytobecomemoreapparentandsteadily

erodethesector’sprofitability