Auto suppliers are grappling with the shift to electromobility and weakened demand. It was recently disclosed that Bosch plans to cut 1,500 jobs at two locations in the Stuttgart region. Continental announced the reduction of a mid-four-digit number of positions, and ZF intends to cease production with around 200 employees in Gelsenkirchen.

The reasons for these measures include relatively low profitability and, in the case of ZF, a comparatively high level of debt. Pressure on traditional auto suppliers is increasing. On the other side of the industry, there are "new, highly profitable companies that mainly focus on battery, semiconductor, and software issues," as consultancy firms Lazard and Roland Berger note in their study on the auto supplier industry, which analyzed 600 companies worldwide.

These new competitors are growing strongly and achieving high earnings before interest and taxes (EBIT) margins. In the battery segment, the EBIT margin reached around 8% last year, approximately 30% in the semiconductor business, and even 34% with software. In contrast, for traditional providers, EBIT margins of 5% are "the new normal": "The record results from the last decade are a thing of the past."

"European suppliers mostly find themselves at the lower end of the profitability scale," notes Christian Kames, an automotive expert from Lazard. Traditional companies with a diversified product range are at a disadvantage: "Conglomerates earn the least money, while specialists often earn significantly more." One factor, according to Kames, is that traditional suppliers must simultaneously manage their existing business and invest a lot of money in new ventures. "That is the curse of transformation," says the expert. "In part, it is even a disruption."

The authors of the study attribute the better performance of new competitors with innovative solutions not only to their products. They respond flexibly to market developments and customer requirements and can invest capital in attractive growth segments.

Kames recommends that suppliers in Europe and the US align themselves more with the rapidly growing manufacturers of battery-electric vehicles in Asia. One country, in particular, is on his radar: "Many Western suppliers are underrepresented in China." Their business depends to a considerable extent on traditional automakers, which are not growing as strongly.

"The size of companies is a very relevant issue, even more so than in the past," emphasizes the consultant. It is about economies of scale and financial strength. To share investments and risks, Kames recommends collaborations.

He also sees collaboration as a sensible measure because of the capabilities of specialists – for example, with software companies, especially for autonomous driving. "The digital and financial competencies of software companies are significantly more pronounced. And the pace of their developments is correspondingly much higher," says Kames. He suggests that suppliers who continue to operate in the internal combustion technology sector should focus on attaining substantial economies of scale. This approach would enable them to better navigate through an unavoidable industry consolidation.

Additionally, they must seize market opportunities in emerging countries where vehicles with internal combustion engines will persist for a longer period.