Automotive suppliers: preparing for transformation

Change is coming: Deloitte presents insights into business trends and strategic options in the automotive supplier industry

Published: May 30, 2022

As our ongoing discussions with Deloitte Global experts, Deloitte Global Automotive team find that our supplier clients are facing very different challenges depending on their regions as well as different market patterns and dynamics.

Deloitte Global launched Global Automotive Supplier Updated Q1 2022. It introduces the latest market trends of the Triad Markets (US, Europe, APAC); reflects our Global Point of View on the developments in the Triad Markets, covering the aspects of restructuring, digitalization and ESG; analysed kind of services clients are demanding in different regions, which will in turn allow us to better understand our clients' challenges and provide appropriate solutions.



Recent market developments

Chip shortage

The short-term chip shortage has had a major effect on the automotive industry, cutting production by roughly 7.7 million units and causing 210 bn USD in revenue loss in 2021.

When the pandemic hit in 2020, the initial slowdown or complete halt in demand culminated in a surge in demand for devices designed for remote work as well as online shopping and entertainment. Muddled, indirect information within the supply chain resulted in inaccurate or exaggerated demand forecasts. And with only weak links between automakers and foundries, it became extremely difficult to react to changes in demand. Auto chips are currently in short supply, we expect the shortage to continue until 2023.

Figure: Demand for automotive semiconductors plunged by 30 percent in spring 2020


CO2 regulations

Climate change and tighter regulation of CO2 emissions is a global development that will likely prevail for decades to come. It is the key driver of what is referred to as the "transformation of the industry". Yet even though this trend is global, the pace of regulation on CO2 emissions varies significantly depending on the region, which will strongly impact the world’s suppliers.

Figure: Countries with official targets to phase out ICE light vehicles


War in Ukraine

Russia’s recent invasion of Ukraine will also have implications for the supply chain and production of the automotive industry. The war puts additional strain on the automotive supply chain because Ukraine-sourced wire harnesses and other important components cannot be delivered anymore.

In addition to this, the war leads to a decrease in automotive demand from Ukraine due to the economic conditions as well as from Russia due to global sanctions against the economy. It is expected that this will lead to a global decrease in production of around 2.6 million units in both 2022 and 2023. Due to the high downside risk, the worst-case scenario estimates a large production loss of 4 million units for each of the years. Until 2030, the global light vehicle production is expected to be nearly 25 million units lower than assumed pre-war.

Figure: Global light vehicle production forecast scenarios (in million units)

Figure: Change in the global light vehicle production forecast (in million units)


Updates from the Triad Markets


North America

Asia Pacific


Corporate Transformation

Suppliers in the North American market are revamping businesses for the future and focusing on key disruptors, such as electrification, connectivity, autonomy and more.

Suppliers remain focused on timely trans- formation, particularly when it comes to electrification. Compared to their European counterparts, transformation is a lot slower among mega Tier 1 suppliers AP region, primarily due to more relaxed CO2- related regulations and a slower roll-out.

Suppliers in Europe face the strictest CO2 regulations. ICE vehicles are expected to disappear from the European Union market by 2035.

Suppliers with focus on ICE-related products need to shift their business towards other products or face extinction.

At the same time, automotive businesses that are either unaffected by or benefit from the transformation will attract lots of M&A interest.


Mergers and acquisitions (M&A) activity remains very brisk in the North American supplier market.

We have not seen as many restructuring or distressed deals as feared since the pandemic hit.

Restructuring aspirations around loss-making subsidiaries overseas remain active, even as business continuity issues draw keen attention from OEMs.

COVID-19 crisis let several sizeable mid-market companies have been sold out of financial distress.

Deloitte has been asked by various automotive clients to support on turnaround and restructuring projects targeting working capital and operational improvement.


The ongoing transition to electric and autonomous vehicles combined with pandemic-driven supply chain issues has motivated suppliers to drive the end-to-end digitalization of their processes.

The impact of COVID-19 in Asian countries motivated suppliers and OEMs to revisit their Business Continuity Planning (BCP) strategies, with particular attention to improving supply chain visibility through digital transformation.

Meanwhile, Cyber security is another topic of interest in the region.

The increasing share of software in cars and the associated necessity to build up own software development capacities is clearly in focus. Constantly high-cost pressure due to shortage of raw materials is slowing down investment opportunities.

The increasing complexity of supplier industry transformation is driven not only by digitization, but also by sustainability requirements and the need to build ecosystems


The North American auto supplier sector has not agreed on a single reporting standard, and many are even using multiple standards.

Suppliers still have significant opportunities to develop, implement and report their ESG strategies throughout the upcoming year.

Since 26th UN Conference of the Parties (COP26) wrapped up, a huge rise in inquiries from both suppliers and OEMs related to ESG strategy and carbon footprint visibility.


Most automotive suppliers consider sustainability as a core aspect in their business. However, only 40 percent take sustainability measures along the entire value chain, but ESG aspects become more and more important for the entire supply chain.

OEMs need to implement more sophisticated measures to ensure that suppliers comply with their ESG requirements.


M&A activity

Recent activity in the automotive supply sector:


Capital market perspective

There is no general earnings multiple for automotive suppliers. Valuations differ strongly between different product segments reflecting the future earnings potential of the respective product segment. In addition valuations differ over time, E.g. there is a jump in valuations during the COVID-19 period reflecting a short-term decline in earnings and they show a recent decline in valuations due to the war in Ukraine.

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