Swiss automotive suppliers must dress warmly

Companies need cool strategies for the frosty climate of the auto industry. (Image: Nordli-Mathisen / unsplash)

Suppliers to the global automotive industry are facing tough times. There are practically only two ways out for Swiss companies.

The positive news might be better coming first. After three years of crisis triggered by the coronavirus pandemic, bottlenecks in chip production and the Ukraine war, the automotive industry is heading for a recovery in the coming year.

This is according to a market forecast by the Center Automotive Research (CAR) in Duisburg, Germany, reported in the latest edition of the newspaper “Welt am Sonntag“.

China and India on rise

According to the report, 74 million passenger cars will be sold worldwide next year, which would be an increase of 3.1 percent after this year’s 71.8 million.

“Growth is coming back, albeit initially at a low level,” CAR chief Ferdinand Dudenhöffer then told the paper, expecting global passenger car sales to rise by just under four percent in 2024.

As in 2022, China and India are expected to achieve the greatest percentage growth in the coming year.

U.S.A. in the red

Despite the many crises, China in particular is “a kind of locomotive for the global car market,” Dudenhöffer said. Without the growth there, the global market would have shrunk this year.

According to CAR’s projections, automakers in China will reach sales of 23.4 million passenger vehicles in 2022, up 11 percent from the previous year.

The U.S. follows with 13.8 million new registrations, but this represents a drop of 7.3 percent. India comes in third place, followed by Japan and Germany.

For the South Asian country of India, CAR expects around 3.6 million new registrations this year, representing a high increase of 16.5 percent.

Saving energy

So far so good. But if you believe the latest study on the automotive industry by the Boston Consulting Group (BCG), reported in the current issue of “Der Spiegel“, cars will become permanently ‘expensive’.

This results from the fact that the rising costs for electricity and for energy-intensive preliminary products will continue to burden the car industry around Porsche, Mercedes, BMW, Audi, Volkswagen & Co. for many years to come.

Accordingly, the energy crisis is having an impact along the entire value chain and is leading to rising costs, especially for energy-intensive materials such as steel, aluminum and chemicals.

Expensive electric cars

Although forecasts for energy costs in 2030 show them to be well below those of 2022, they are still twice as high as those in 2020, for example, i.e. before the entire crisis.

The energy costs for the production of a mid-range electric car would be 1,300 euros higher in 2030 than 10 years earlier, the report continued.

A vehicle with a gasoline or diesel engine would even become more expensive by 1,500 euros. Electric vehicles fare slightly better, the production costs for batteries according to the study due to technical progress less than for all other vehicle components.

Profit evaporates

The development of total costs differs widely for each type of drive. For combustion engines, the price pressure is enormous, the BCG consultants explained. If manufacturers do not pass on their additional costs in this segment to their customers, their entire profit margin would be lost.

The situation is somewhat better for electric cars, where mass production is just getting underway. These economies of scale would more than compensate for rising energy costs, the analysis revealed.

Switzerland under pressure

Overall, carmakers are likely to move to other countries and exert significantly more pressure on their suppliers in order to reduce their own cost burden, the renowned consulting firm concluded.

And this is where Switzerland comes into play, as it supplies numerous components and preliminary products to the German automotive industry, for example.

The relocation of production from Germany to other countries and the focus on energy efficiency are the consequences of all these developments.

Aligning with regions

This means that Swiss companies are likely to be on the safe side if, on the one hand, they align themselves with the major future markets of China, India, and also the U.S.A.

And on the other hand, Swiss automotive suppliers must be innovative and pay attention to energy efficiency in vehicle components, such as steel or aluminum, as well as to their own cost-effective energy production.


Swiss automotive suppliers must dress warmly

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