The Automotive supplier market in Italy

Automotive suppliers in Italy are experiencing a period of great transformation that challenges them to rethink their value proposition and market approach

Italian supplier market trends

• Over the last three years, the market has experienced a slowdown due to COVID-19 and the supply chain crises.
• Italian Automotive suppliers have suffered from a growth rate reduction of 50% and a contraction of EBIT margin, mainly due to the surge in raw materials and energy costs, which were not adequately counterbalanced by the increase in prices to OEMs.
• Players focused on the direct supply to Automotive OEMs (OE channel) and with a local manufacturing footprint, representing 2/3 of the Italian market, have been further hit by the crisis.
• Margin erosion has affected primarily those manufacturers with above-average profitability as car makers have prioritised their support to suppliers with higher risk of distress, with the ultimate goal of preserving the continuity of the supply chain.
• Despite margin erosion companies have expanded invested capital, in particular increasing shareholders’ equity to ensure financial stability

The impact of e-mobility

• About 1/3 of total market revenues and 1/4 of margins are generated by suppliers operating in the ICE powertrain segment, and are at risk with the progressive penetration of e-mobility.
• The in & off-road heavy-duty segment has proven more resilient to technological substitution, while the Passenger Cars and Light Commercial Vehicles (<3,5t) segments exhibit higher risk with an outlook of approximately 50% of the global production tied to BEV and fuel cell powertrains by 2030.

M&A deal volumes and types

• After the slowdown triggered by the pandemic, M&A deal activity has resumed to historical levels, with a higher share of industrial investors.
• The majority of deals were aimed at consolidating the market in order to ease competitive pressure, achieve commercial synergies and benefit from economies of scale.
• Companies investing in inorganic growth have recorded above-average performance in terms of revenue growth and profitability.

Way-forward

The Automotive supplier market in Italy is undergoing a period of great transformation. To date, around 38% of Italian Automotive suppliers are focused on manufacturing components for ICE powertrains and therefore need to rethink their value proposition and approach to market.

• differentiate the offering, focusing on those segments more resilient to technological substitution, such as the heavy-duty vehicles segment
• fully exploit the potential of the most profitable channels with higher flexibility on pricing, i.e. the aftermarket
• optimise geographical coverage, by investing in areas that are less impacted by the transition to e-mobility
• invest in adjacent markets with higher growth rates, possibly leveraging M&A transactions