The European automotive supplier industry, for so long an engine of global innovation, is having to shed jobs and reshape its business to cope with disruption from electrification and the desire for car makers to make more parts in-house.
The most recent job cuts come from Germany’s Bosch and Continental, globally two of the biggest automotive suppliers. Bosch said it will cut 1500 positions by 2025 at two German sites, one of which makes high-pressure pumps and components for exhaust treatment.
Meanwhile, Continental has announced thousands of job losses as it looks to make “significant” cost cuts totalling $400 million (£344m) annually in its automotive division, again by 2025.
Across the European automotive supplier industry, job losses have outnumbered jobs created over the quarter to the end of September, automotive supplier association Clepa said in a recent report. In fact, since 2019, the supplier industry in Europe has shed 96,870 jobs while creating only 53,850 new positions.
Also indicating generational shifts in the industry was the move in October by German supplier Schaeffler – a key engine part manufacturer - to merge with more EV-focused parts maker Vitesco by buying out its shares. About 40% of Schaeffler sales are related to the combustion engine, banking firm UBS wrote in a note, meaning the company is effectively reducing its exposure to a dwindling technology.
European suppliers have been hit hard recently after a period when they essentially became indispensable to car makers. Back in 2007, car manufacturers accounted for two-thirds of all automotive research and development spend, with suppliers making up the other third. By 2020, that ratio had been reversed, with suppliers outspending car makers on new technology by two-thirds to a third.
But then came Covid and the subsequent disruption to the supply chain that left car makers unable to fulfil pent-up demand for their products because of a shortage of mainly semiconductors. While car makers were able to push up prices to compensate and subsequently racked up record profits, the reduced production volumes badly hit suppliers, who didn’t have the same pricing levers available.
That’s now getting better as supply returns to normal. Last year, a Clepa survey indicated that 76% of all European suppliers were recording profits below the point where they could sustain long-term investment. That figure in the same survey in 2023 is now down to half of suppliers canvassed, with almost one in five posting profit margins of over 10%.
However, while some form of production normality has returned, there are “darker clouds on the horizon” for the supply industry, according to a recent report from UBS.
The bank analysed teardowns of what it sees as key electric models – including the BYD Seal from China, the Tesla Model 3 and the Volkswagen ID 3 – to draw conclusions about the future for global parts suppliers, and they didn’t look good.
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