High

Automotive

The green energy drive towards electric vehicles continues to have major implications for OEMs, dealers, and the wider automotive value chain.

Sector trends & challenges

  • Reduction in demand

    OEMs continue to produce low volumes with their range of vehicles and manufacturing footprints focussing on the most profitable models and regions. Changes in usage models could also reduce demand longer term into 2022 and beyond.

  • Electrification/sustainability

    The sector is seeing an innovation push towards electrification and hydrogen technologies. Momentum is only expected to accelerate given government legislation on ICE (combustion) vehicles and consumers pushing a green agenda.

  • Consolidation/rationalisation

    The shift to electrification and online selling will drive sector consolidation, partnering and rationalisation across the value chain from OEMS through to supply chain and dealers. Conventional ICE suppliers are most at risk.

Sector rating profile

There is medium stress in the automotive sector, but the distress is trending upwards due to the continued global chip shortage and requirement to invest in hybrid and electric vehicles.

Automotive

Prior to COVID-19, the automotive sector was already facing a range of challenges, including softening demand for new vehicles in established markets, a huge investment in electric, hybrid and hydrogen technologies, and potentially a longer-term move towards Mobility as a Service (MaaS).

As with most other parts of the economy, COVID-19 continues to add another layer of uncertainty for the sector as implications and constraints from the pandemic are still prevalent as we close in on 2022. Volumes of new orders have broadly declined over the course of 2020 and 2021 as the economic outlook remained uncertain, meaning 2022 volumes are still unlikely to return to 2019 levels. OEMs have taken strategic decisions to reduce their model ranges resulting in decisions to close less productive or non-strategic plants, creating an impact both at the plants themselves and the surrounding supply chains.

There is likely to be continued consolidation and rationalisation throughout the supply chain, with renewed focus on operational resilience with OEMs looking to decrease their exposure to smaller, less financially stable suppliers.

Issues around the continued reduction in supply of semiconductors for use in vehicles have also caused problems for OEMs in recent months, which have the potential to persist into 2022. In addition, the impact of Brexit rumbles on.

Although the traditional dealer network is likely to remain the primary sales route in the medium-term, we expect growth in alternative sales channels such as online B2C market disruptor platforms and OEM direct online sales. These are likely to appeal to a younger demographic and create opportunity for ‘start-up’ manufacturers who will not necessarily need a dealer network in the future.

Manufacturers are now making large investments into electrification of their model ranges as part of the switch to hybrid and 100% battery-powered electric vehicles. A number of manufacturers have already announced, on the back of the UK Government’s Energy White Paper, their intentions to have full electrified ranges by 2025 and have fully battery-powered electric vehicles only by 2030.

There has been and will continue to be an increase in the level of partnering and alliance agreements to allow the OEMs to share the costs of such developments. The impact on the wider supply chain is likely to be fast paced, and the traditional manufacturer model may also be at risk as new start-up electric vehicle companies potentially look to contract manufacturing options.

Project Risedale

Working for an OEM client, we ensured continuity of supply with a distressed powertrain supplier.  After a period of several months assessing options, we developed an innovative solution whereby the OEMs involved would back-stop a sale transaction, continuing to fund the business through the transaction and commercially supporting the purchaser.

Project Pool

Working with a large car retailer, we helped prepare for a site rationalisation programme by analysing underlying and potential performance and alternate use values. We also assessed the ability to reduce central costs and overheads in line with the proposed reduction in dealer sites and other cost reduction and process efficiency initiatives.

Find Your Expert

The automotive team at Interpath is one of the strongest anywhere in the market. Andrew Burn, former Head of Automotive for KPMG UK, leads our expert team. Andrew is supported by a number of professionals boasting decades of automotive experience, both in practice, and as part of the industry itself. Key members of the team include Lee Swinerd, Nicky Ogden and Mark Raddan.  For a full list of our senior people with experience in this sector use the button below.

Our senior team