The automotive sector is undergoing major reconstruction across many regions. Regulators are pushing for net‑zero solutions at both the product and value‑chain levels and are increasingly penalizing noncompliance. Companies are deep into transformation efforts, which are straining their innovation capabilities and investment budgets.
Global shocks intensify cost and demand pressures in the automotive industry
At the same time, the sector continues to feel the impact of recent global events, including COVID‑19, inflation, and the war in Ukraine. This combination has created significant disruption and sharply increased costs. Demand is also beginning to soften and fluctuate, putting additional pressure on financial performance.
Not all players are carrying the burden equally. While original equipment manufacturer (OEM) margins have largely recovered since 2020 — returning to record levels of about 8% — supplier margins are running at only two-thirds of their historical levels, at just over half of OEM margins.
These margins have come under renewed pressure, raising concerns for the broader sector. No vehicle can be built without substantial supplier contributions, making this imbalance a systemic risk.
Automotive suppliers face limited options and rising risk
Based on the priorities of key stakeholders — regulators, OEMs, banks and investors, and suppliers — we examined potential solutions for suppliers and ways to reinvent collaboration across the value chain.
We see several strategic options emerging:
- Conflicts of interest among suppliers, manufacturers, banks, and policymakers will increasingly shape outcomes.
- Financial distress and rising investment needs will accelerate consolidation across the supplier landscape.
- Strong players may consider exiting the automotive sector entirely, while financially constrained suppliers face a growing risk of insolvency.
- Suppliers reliant on combustion‑engine components have limited strategic options and must act quickly.
The road ahead will remain uneven. But the path can be made far smoother — and the sector kept on track — if manufacturers, suppliers, banks, and regulators work together to find innovative ways to meet shared goals.
Originally published in November 2022.