The Future of the Automotive Value Chain 

In the last report The Future of the Automotive Value Chain 2025 and beyond, we gave an outline of what the automotive value chain might look like in 2025. In this piece we move further down the value chain, to shed light on supplier market implications. This study focuses on possible developments in supplier market volumes, their underlying trends as well as their implications for decision makers. We are bringing valuable support to the table for automotive decision makers to support them in times of great uncertainty.

Viewpoints / key findings

• Disruptive changes in the automotive ecosystem force the automotive suppliers to transform. From customers demanding new and costly features – often without showing additional willingness to pay. From regulators rightfully demanding strictest adherence to environmental and safety standards. And also from major tech players with pockets full of cash pushing investment in mobility business models and threatening traditional OEM dominance.
  
• From everything we know about the key trends and drivers for the automotive value chain, we created four plausible scenarios for automotive suppliers as part of the automotive value chain in 2025 (Figure 1):

Figure 1. Four scenarios for the automotive value chain in 2025 – adjusted with supplier focus

• Exponential developments are expected in automotive industry, especially in the areas of electric drivetrain technologies, advanced driver assistance systems as well as high voltage batteries. Stagnating or declining developments can be seen across scenarios and independent of the regional environment in the conventional component clusters, such as ICE, transmission, suspension, fuel and exhaust systems.

Figure 2. Impact versus uncertainty of material cost volume developments (2016–2025) across all scenarios

• Transformation demand in the automotive supplier industry. By using an integrated market volume forecasting model, the automotive supplier should assess six strategic fields of action when considering transformation initiatives:

1. Product portfolio shifts: Match pro- duct offering with demand in growing component clusters
   
2. Collaboration and platform strategies: Accelerate developments and share risks through partnerships
3. Consolidation and scaling strategies: Seek economies of scale by consolidating volumes of losing component clusters
4. Location strategy review: Re-focus production locations according to future market and customer demand
5. Digitization for cost leadership: Establish an integrated digital supply chain for next level cost optimization
6. Talent for future business demands: Create a forward-thinking talent model that considers changing requirements

Each company needs to evaluate product-specific material cost volume projections and scenarios according to their individual circumstances and environmental requirements. The high uncertainty forces robust and at the same time flexible options for reacting to short-term changes within the individual transformation path. A constant monitoring of market trends and indications regarding the anticipated scenario will help to actively shape suppliers' future and in a way that plays a significant role in the automotive supply chain of 2025 and beyond.