Published on: January 13, 2025 / Update from: January 13, 2025 - Author: Konrad Wolfenstein
Energy price shock and supply chain stress: The industry's major cost drivers - Why the crisis in the automotive supplier industry is turning everything upside down - Image: Xpert.Digital
Energy price shock and supply chain stress: The industry's major cost drivers
Why the crisis in the automotive supplier industry is turning everything upside down
The automotive supplier industry is facing unprecedented upheaval that has gained increasing momentum in recent years. Rising energy prices, global supply chain risks and a profound technological change towards electromobility are unsettling many companies and putting massive pressure on their margins. At the same time, the expectations of automobile manufacturers are very high: suppliers should provide innovative, sustainable and cost-effective solutions while they themselves are in a phase of intensive transformation. Medium-sized companies in particular find themselves in trouble because they often lack the financial and human resources to quickly implement complex future projects. But the industry has also proven that it has enormous adaptability and can open up new business areas with foresight. Anyone who takes advantage of the opportunities offered by digitalization and new mobility concepts has good prospects of continuing to play a decisive role in global automobile production. This analysis comprehensively examines the background, causes and possible solutions in order to provide a better understanding of current events and the future prospects of supplier companies.
The crisis facing automotive suppliers is complex and shaped by many factors: technological change, high energy prices, international crises and changing customer needs pose major challenges for the industry. At the same time, the transformation towards electric and sustainable mobility solutions also offers new opportunities if companies react flexibly, innovate and enter into strategic alliances. In the long term, those suppliers who expand their competencies, rely on stability in the customer base and consistently invest in future technologies are best positioned.
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Why has the crisis in the automotive supplier industry worsened in recent years?
The crisis arises from a combination of several factors. These include rising energy prices, supply chain interruptions, political uncertainties and, above all, the technological shift towards electric drives. These factors hit suppliers particularly hard because they are dependent in many respects on the specifications and strategies of the automobile manufacturers (OEMs) and at the same time are exposed to strong cost pressure.
What role does the switch to electromobility play in this crisis?
Electromobility is one of the most important drivers of change. Many suppliers have specialized in components for combustion engines for decades and now have to realign their product portfolio. This results in high development and investment costs, while classic products become increasingly less important. However, anyone who develops special skills in the area of alternative drives can benefit in the long term.
Why are rising energy prices particularly critical for automotive suppliers?
The production of supplier parts is often energy-intensive, for example in metal processing or surface treatment. If energy prices rise sharply, the additional costs cannot always be passed on to end customers because competition on the supply market is very tough. This squeezes margins and quickly leads to financial bottlenecks.
To what extent do geopolitical tensions and global crises influence the industry?
Trade conflicts, political crises and, for example, the COVID-19 pandemic have massively disrupted supply chains and driven up procurement costs. Material and raw material shortages as well as uncertainties regarding future markets lead to planning risks. Any delay in the supply chain has a direct negative impact on the production of the automobile manufacturers and thus also on the suppliers.
What are typical causes of insolvencies in the supplier industry?
Bankruptcies often arise from a combination of unfortunate circumstances, such as high energy and raw material prices, supply bottlenecks or failed investor deals. In addition, delayed series start-ups at automobile manufacturers, falling orders or management errors can be triggers. Since profit margins are often calculated to be tight anyway, small deviations in costs or revenue are enough to endanger the financial basis.
Why are supply chains so quickly affected by supplier restructuring?
The principle of just-in-time production has been in effect in the automotive sector for years. If just one supplier fails or delays deliveries, the entire production line at an OEM can come to a standstill. As a result, failures add up quickly, resulting in enormous costs and image problems for manufacturers and suppliers. Insolvencies among key suppliers are therefore particularly critical.
What opportunities does the change towards electromobility offer despite the crisis?
Although it entails high investment costs, the technological change also opens up new business areas. Anyone who manages to react in a timely manner to battery systems, control technology and other future-relevant components can reposition themselves on the market. Developments in areas such as lightweight construction, intelligent software and networked vehicles open up a wide range of possibilities that are also relevant in the commercial vehicle and two-wheeler sectors.
What role does the shortage of skilled workers play for suppliers?
With increasing electrification and digitalization, companies need more experts in areas such as electrical engineering, software development and data analysis. However, the shortage of skilled workers makes it difficult to develop these skills. Additional training, retraining and modern personnel planning are necessary to make the workforce fit for change.
Why is it particularly difficult for medium-sized companies in Germany to manage the transformation?
Medium-sized suppliers are often highly specialized and have occupied certain niches for decades. However, they often lack the financial cushion and human resources for major leaps in innovation. High energy costs and increasing competitive pressure are compounding the problem. Nevertheless, many of these companies are considered very adaptable if they can develop strategic alliances or new business areas.
Which political measures could relieve the burden on suppliers?
Possible measures include government funding programs for research and development, tax incentives for investments in new technologies or a targeted expansion of renewable energies in order to reduce electricity and production costs in the long term. Improved access to financing and more efficient infrastructure are also relevant. However, it is crucial that government support is not too bureaucratic and meets the companies' actual needs.
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How can suppliers maintain their position on the market in the long term?
They must adapt to new technologies at an early stage, diversify their skills and reduce close customer dependencies. Active risk management that also takes into account possible scenarios beyond battery electrics (e.g. hydrogen or e-fuels) is important. In addition, greater digitalization of production processes enables greater flexibility and efficiency, which can be crucial in competition.
Why is diversifying your customer base so important?
Anyone who is too dependent on one or a few large customers will quickly find themselves in trouble when these OEMs reduce their orders or postpone projects. A broad customer base, including across other industries, spreads the risk and can cushion financial losses. Some suppliers are also developing markets in aerospace or medical technology to reduce their dependence on the automotive sector.
To what extent can cooperation between suppliers be a solution?
Cooperations or alliances make it possible to share development and production costs, distribute risks and bring new technologies to market more quickly. This approach can be particularly worthwhile for medium-sized companies, which often do not have enough resources on their own to manage large research projects or expand capacity.
How does digitalization affect the competitiveness of suppliers?
Digital technologies make processes more efficient, create transparency in production and can better control supply chains. With Industry 4.0 concepts, for example, bottlenecks can be identified early and predictive maintenance can be carried out. This can reduce downtime and reduce costs. The winners of this development are those companies that quickly switch to digital production processes and build up IT expertise.
What role does sustainability play for the future of automotive suppliers?
Answer: Sustainability is becoming increasingly important as OEMs evaluate their suppliers based on climate and environmental standards. Companies that produce energy efficiently and have a low CO₂ footprint become more attractive in the competition. At the same time, many customers demand environmentally friendly and socially responsible products. This opens up new market opportunities and differentiation options for suppliers who invest in these areas early on.
What makes the supplier crisis a sign of a deeper transformation?
The current situation shows that proven business models come under pressure when technologies, markets and political conditions change. The supplier crisis is therefore a reflection of a fundamental structural change in which traditional manufacturing techniques, combustion engines and rigid supply chains are gradually being replaced. For the entire automotive industry, this means a redefinition of its value chains and strategies.
What prospects do suppliers have that successfully master their transformation?
Companies that manage to adapt in a timely manner and excel in new technologies can even take a stronger position in global competition in the future. You have valuable production technology know-how and can combine this with innovative ideas in the areas of electromobility, hydrogen, lightweight construction or digitalization. This means they are not just survivors, but potential market leaders in the new age of mobility.
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