Market Overview

The Top 100 Automotive Suppliers in 2018

| Author/ Editor: Jan Dannenberg and Tobias Keil / Alexander Stark

2018 surprised with high growth rates and new record sales. However, there were also strong signs of a slowdown: Many automotive suppliers were confronted with declining margins.

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2018 surprised with high growth rates and new record sales - although there were also strong signs of a slowdown: many automotive suppliers were confronted with declining margins.
2018 surprised with high growth rates and new record sales - although there were also strong signs of a slowdown: many automotive suppliers were confronted with declining margins.
(Source: ZF)

Actually, a veritable storm was to be expected: A US President who delights the world economy with landlord-style tariffs, China - the world's most important sales market - with a very bumpy start into the new year, Europe and Great Britain moved one step forward and two back towards Brexit, the WLTP exhaust test cycle brought many automobile manufacturers and their suppliers to their limits, and the general reservations against the diesel engine was certainly not helpful in 2018 either.

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In the end (almost) everything went well: The signs were once again pointing to growth among the 100 largest automotive suppliers: 85 companies were able to increase their sales compared to the previous year. On average, this even happened at a peak level, as the total sales of the top 100 increased by 7.6 percent and thus rose much more strongly than in the previous year - at the end of 2017, the world's largest automotive suppliers had only grown by 1.1 percent. In order to make it to the Top 100 Club, at least 2.9 billion euros in turnover were necessary last year. In 2017 it was still 2.6 billion euros.

Lower Profitability

However, the weakening economy did not remain without consequences, as profitability deteriorated almost across the board. A fate that the suppliers shared with many customers. Even premium OEMs disappointed with margins below those of 2017 and outside their own target corridors. High investments in future technologies and weak sales in China were often the reasons for this.

Of the 71 suppliers in the Top 100 who publish their profitability benchmarks, 48 reported declines in earnings. On average, profitability declined by 1 percentage point. Only 22 companies were more profitable than in the previous year.

Successful Companies from China

The ever-growing group of Chinese suppliers concluded the 2018 financial year on a very good note (6 companies, 2017: 4 companies). With an average growth rate of 31.5 percent, the figures are far ahead of those of the competition, and companies are improving by an average of 12 places in the ranking. Even the profitability is satisfying - despite the enormous growth: With an average of 8.7 percent, the Chinese average is well above the overall average of the top 100.

The South Korean automotive suppliers around Hyundai Mobis, LG & Co. could not keep up with the successes of the Chinese last year. On the contrary: This year they constitute the losing group, which dropped by an average of three places in the ranking. Exchange rate effects made life difficult for the South Koreans and allowed hardly any growth in euros. Turnover converted into euros even fell by 4.2 percent. With 4.3 percent EBIT/Operating Income, they also lagged in terms of profitability.

The results of Japanese companies are between the Chinese and the South Koreans, with a much larger number of 28 companies. Favorable exchange rate effects support solid growth in euro terms and an average of ten percent. However, with an average profitability of only 6.5 percent, Japanese suppliers tend to be at the lower end of the scale in regional comparison. Most Japanese companies were able to maintain their rankings due to their high growth rates.

Germans at the Top of the List

The major German suppliers Bosch and Continental are stable in the top two positions. On average, however, the 17 German suppliers were down two places last year. They partially dropped considerably in the list. Aunde, supplier of automotive textiles and seat covers, is the only German supplier to even disappear completely from the Top 100 ranking.

However, in view of the challenging conditions in 2018 an average growth of 3.3 percent among German suppliers is still a positive sign. With a profitability of 8.3 percent, they are at a similarly high level as the Chinese - a respectable result against the backdrop of very challenging market conditions.

And the US Suppliers? Has the "America first" policy already had a positive impact? 13.1 percent average growth of the 19 companies is a remarkable magnitude, which is not exclusively due to organic growth, but in many cases to M&A activities.

Companies that promise no future success, do not contribute to the CASE issues (connectivity, autonomous driving, car sharing and electrification) and digitization are often sold by the Americans who are thus advancing their transformation regardless of traditions. Visteon, still in 81st place in 2017, disappears from the top 100 in 2018. Johnson Controls, currently ranked 38th, is likely to follow this year, as the last automotive division, Power Solutions, has now been divested to financial investors and operates under the name Clarios.

Favorable exchange rate effects continued to contribute to the above-average growth of US suppliers. The profitability with an average of 9.5 percent EBIT/Operating Income and the average improvement of two places in the ranking are also a sign of the dynamism of the Americans.

Bosch Stays Ahead

In 2017, the sale of the Bosch starter unit to a Chinese consortium caused quite a stir, and in 2018, the diesel crisis overshadowed a lot of positive news. But despite the discussions about the diesel engine and the sale of individual business units, Bosch was able to report another record year and once again rank among the top 100, with a lead of 3.2 billion euros ahead of Continental. The decline in passenger car diesel injection systems was offset by additional sales of truck systems and exhaust aftertreatment systems.

With more than 1,000 patents in the field of autonomous driving, among other things, Bosch is becoming increasingly independent of the classic combustion business and is thus occupying a leading position in CASE technologies. Artificial intelligence is to find its way into all Bosch products by the middle of the next decade. In the field of electromobility, the supplier is already more broadly positioned than any of its competitors - after all, its product portfolio includes electric drives ranging from bicycles to heavy trucks.

Uncatchable Top Three

Bosch, Continental, and Denso, the top three, are currently so strong in terms of sales that a change in their positions or a displacement from the top positions in the coming years is hardly conceivable. However, the transformation of the industry is proceeding at a rapid pace, and the sale of parts of companies by means of large M&A transactions is the order of the day.

However, the splitting of Continental into the three business units Tire/Rubber, Supplier Business and Powertrain would result in a significant cutback. From the second half of 2019, the former Powertrain division will be managed largely independently under the name Vitesco Technologies. Denso would thus overtake Conti and become the second largest supplier in the world.

The Japanese supplier, which in 2018 will be the world's number three in the Top 100, is also pressing ahead with its transformation. Denso recently acquired shares in Infineon. The two companies intend to cooperate more intensively in the areas of autonomous driving and electric mobility. The share in Denso is quite a benefit for Infineon (81st place). After all, suppliers from abroad traditionally have a hard time to succeed in Japan. With this close connection, the Dax Group has a direct line to an important customer in this market.

As shown by the cooperation between Denso and Infineon, the major players in the top 15 are very actively pursuing M&As. They have the best prerequisites to take over smaller companies and start-ups, which often help them to position themselves in niche areas of the automotive future. However, these takeovers have little to no influence on the rankings in 2018, but rather serve strategic interests.

Magna Moves Up One Place

Two takeovers in 2018 did not lead to big jumps in the ranking for Magna (4th place). With the acquisition of the Dresden-based company Haptronik, a small software developer was acquired who contributes know-how for the control of mechatronic systems. Magna improved its know-how in the field of lighting technology with the integration of the Italian medium-sized company Olsa S.p.A. The acquisitions make sense above all in view of the increasing automation of the tasks of future vehicle generations.

The improvement of Magna by one place resulted in ZF to drop to 5th place. However, this will change again in next year's ranking following the recent takeover of the brake manufacturer Wabco. In 2015, the takeover failed due to the veto of the Supervisory Board: They did not want to follow the expansion strategy of the then CEO Stefan Sommer, which they considered as too fast. Not least by the acquisition of TRW in 2015, ZF has made a targeted move toward becoming an integrated system provider and in this role intends to benefit more strongly from the megatrends of electrification and autonomous driving in the future.

OEMs are ordering ever more complex systems, such as complete electric rear axles. Suppliers who are in a position to meet these requests are likely to become even more important. Magna swapping places with ZF is the only movement in the top 15. While there were no major changes in the top third of the revenue-based ranking, profitability fell sharply in some cases. Valeo had to revise its margin targets twice in 2018: Due to weaker sales figures in China and new rules for emission tests in Europe, the French company anticipated a decrease in profitability at an early stage. With an operating income of 6.3 percent, they fell short of the previous year's figure (7.8 percent).

2018 also turned out to be a difficult year for the largest Korean supplier Hyundai Mobis. The position 7 in the ranking could however be defended. However, due to a currency-related decline in sales of more than ten percent, Bridgestone is now much closer to eighth place. In Hyundai's core markets, of all places, the crisis hit hard in 2018: Production stops due to supply interruptions are weighing on business in China, and in the USA the manufacturer cannot really score points with the SUVs in demand there. The OEM's weakness has a direct impact on Hyundai Mobis.

After all, in 2018, the company set a course for digitalization to counter the downward trend and has been working closely with the MIT (Massachusetts Institute of Technology). The supplier now has excellent contacts to 1,700 MIT startups that are working on virtually all relevant questions of the future. The Hyundai Motor Company, but also BMW, Honda, Samsung and LG cooperate with MIT in similar projects.

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Weichai Broadens Activities

Weichai Power, China's strongest company in the top 100 (20th place), dropped three places in the 2018 ranking, but sales and profitability indicate a continued positive development. The Chinese company is treading an exciting path with the strategic alliance with Ballard Power (manufacturer of automotive fuel cells): They deviate from the monothematic approach of a purely battery-electric vehicle. This cooperation is an important step in the renaissance of the fuel cell, which is a good alternative to battery-powered drives on long-distance journeys or for heavy commercial vehicles.

CATL, on the other hand, is counting on the breakthrough of battery-electric vehicles. The company ranks in the Top 100 and on 71st place is the most successful newcomer. 2018 could hardly have been better for the Chinese supplier of lithium-ion batteries: An investment in Valmet Automotive and the announcement that the company intends to manufacture battery cells for electric vehicles in Erfurt have led to a significant increase in the awareness of the Chinese company.

The economic situation was also promising - the increase in sales was at a record level of 46.5 percent. However, extensive investments are putting a heavy strain on profitability: With an operating income of minus nine percent, CATL is almost at the bottom of the top 100. Schaeffler, the systems supplier based in Herzogenaurach (23rd place), also produced many headlines in 2018, but rarely any positive ones. Trade conflicts, conversion to WLTP, a weak Chinese market - its market environment could have been more favorable and led to a profit warning, followed by a slight decline in sales (minus 0.1 percent). Measures to increase efficiency and an optimized portfolio are meant to put the company back on track for success over the next three years. The Schaeffler Venture Forum also promotes cooperation between startups and underpins the company's commitment to electromobility. Schaeffler has further strengthened its expertise in autonomous driving with the acquisition of the Swabian medium-sized company Paravan in 2018.

M&A Carousel Is Spinning

The midfield and in the lower places saw veritable takeover battles in 2018 - a clear indication that the transformation of the industry is being pushed ahead at a high speed. The CASE technologies require high investments, but in most cases at the expense of profitability. Many of the large suppliers are able to cope with these investments, but some medium-sized companies are increasingly overburdened.

Many small suppliers therefore slip under the umbrella of a larger one that offers the resources to manage the necessary investments. In addition, many OEMs demand that suppliers join in their internationalization and set up foreign plants. This, too, is hardly financially viable for smaller suppliers. For these reasons, the M&A carousel is spinning ever faster, the consolidation of the industry is gaining momentum and is causing a lot of movement in the Top 100. Tenneco buys Federal Mogul and improves by two places until full consolidation. Calsonic Kansei separates Magneti Marelli from the FCA group and improves their ranking by one position. The Chinese supplier Joyson completes the takeover of the insolvent airbag supplier Takata from Japan in 2018, thereby climbing 35 places to 38th place. GKN is acquired by financial investor Melrose.

The South Korean electronics specialist LG buys the Austrian lighting specialist ZKW and improves its ranking by four places. Autoliv separates its electronics division and floats Veoneer on the stock exchange (with a focus on lidar and radar components). Honeywell completely spins off its turbocharger division (Garrett, 98th place) and, like Johnson Controls, completely exits the automotive business.

Developments so far indicate that 2019 will not be any easier than 2018. On the contrary: The threats from Washington against Beijing have seamlessly turned into a trade war from which no one will benefit. And even the latest developments in the Persian Gulf do not bode well. Suppliers will therefore face strong headwinds this year. Not everyone is well prepared for this.

This article was first published by Automobil Industrie.

Original by Thomas Günnel / Translation by Alexander Stark

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