The future of the automotive supplier industry: Four industry scenarios for 2030

The automotive industry is undergoing revolutionary change that poses an existential threat for suppliers. Hardware margins are under pressure; software and connected services are the likely future trends. Vehicle electrification is set to render entire categories of components obsolete. It is high time to pivot to a new strategy, but the viability of any strategic decision hinges on how the revolution plays out in the end, i.e., on the uncertain future for the technological, societal and economic landscape. For instance, if vehicles with internal combustion engines (ICE) still account for a significant share of the market in 2030, there might specific strategy paths available for companies with a large ICE exposure. This may not be a solution that secures the business for the long run, but it may still generate solid earnings for the next decade and perhaps even beyond. If, on the other hand, disruptive trends accelerate more quickly, they may have to take a very different approach. How can automotive suppliers deal with such uncertainty?

Don’t predict – prepare!

In the face of fundamental uncertainty, probabilistic predictions based on historic precedent have only limited value. Deloitte’s proprietary scenario method, driven by the Center for the Long View, offers a much better alternative. The approach is based on extensive research into industry drivers, facilitated by Deloitte’s AI tool Deep View. For the updated automotive supplier scenarios, we identified and analyzed one hundred economic, technological, environmental, political and social drivers, isolated eighteen “critical uncertainties” (high impact, high uncertainty) and derived two central dimensions for potential developments:

1. The state of the techno-economic ecosystem
2. The level of OEM reliance on suppliers

This setup enabled us to create four distinct narratives that depict plausible, if sometimes extreme, future scenarios. And these, in turn, help companies to prepare actions and strategies for a wide range of future developments, using Deloitte’s industry specific quantification models as a basis.

Scenario 1: Specialized Giants Rule

Scenario 1 describes a world with liberalized global trade, growing economies, and technological innovation, supported by international regulatory cooperation. Battery electric vehicles (BEVs) are increasingly popular, and software is now generating more value than hardware, which gives tech players an edge in data ecosystems and automotive operating systems. Large traditional suppliers are, however, well-equipped to benefit under this scenario as well, often by acquiring smaller players. Automotive suppliers have evolved into competitive “specialized giants” covering at least one crucial part of the value chain, while OEMs lose out by 2030.

Scenario 2: Mobility Islands

Scenario 2 projects a different future marked by geopolitical tensions and protectionism. Economic growth is stagnating, and regulatory priorities are diverging internationally, hampering technological progress. OEMs are increasingly focused on their home markets. Local suppliers become important drivers of innovation, while OEMs struggle to make investments. Automotive suppliers collaborate with tech players and form international partnerships to develop software solutions, vehicle platforms and purpose-built parts. By 2030, suppliers dominate the industry.

Scenario 3: The Lonely Road

The third scenario is similarly characterized by geopolitical conflict, slow economic growth and stagnating technological progress. In the aftermath of COVID-19, the global recession gave rise to increased protectionism. ICE vehicles still enjoy a significant market share in 2030. The global technological ecosystem is fragmented, with China retreating from international markets. Now that regional markets have been isolated, OEMs play a central role in software innovation. They increasingly integrate along the value chain, developing their own operating systems and investing in mobility platforms. In scenario 3, OEMs retain the upper hand in the industry.

Scenario 4: Scale to Survive

The fourth scenario presents a narrative of growth and liberalized global trade. International regulatory cooperation bolsters innovation and competition; there are significant advances in BEV technology. Production and sales increase in Asia, while stagnating in industrialized nations. OEMs consolidate around highly standardized vehicle architectures, becoming the new innovation leaders. They increase pressure on suppliers through backwards integration in certain areas of the value chain (software, battery management). The global expansion of Chinese suppliers creates additional competition for regional suppliers, as they find themselves dominated by OEMs by 2030.