THE RIGHT PLACE, INC.€¦ · 17/06/2020 · continued into 2020 with COVID. Rebound through 2024...

THE RIGHT PLACE, INC.Automotive Industry Update

Birgit KlohsPresident & CEOThe Right Place, Inc.

The Right Place, Inc.

Michael Robinet Executive Director Automotive Advisory PracticeIHS Markit

IHS Markit

Glenn StevensExecutive DirectorMICHauto

MICHauto

Confidential. © 2020 IHS Markit®. All Rights Reserved.© 2020 IHS Markit. All Rights Reserved.

June 2020

Michael RobinetExecutive Director, Automotive Advisory

Navigating a New Reality

Confidential. © 2020 IHS Markit®. All Rights Reserved. 6

Automotive AdvisoryLeveraging Analysis, Relationships and Insight Into Unique Engagements

Market Sizing

Will Thailand be the new China?”“Will there be a market for low cost LIDARs in North America?”

Unparalleled combination of industry-leading SMEs, ongoing forecasts and analysis integrated into critical client engagement. Structured to drive actionable insight amidst our shifting automotive environment.

Confidential. © 2020 IHS Markit®. All Rights Reserved.

The COVID Automotive Supplier Journey

7

UAJC / July 2018

Pre-COVIDJan - March• Fall GM Strike Rebound• China then EU then NA

Output Ceased• Liquidity consolidation

starts

Prod ShutdownLate March to mid-May• System development

slows• A/R revenue continues• Fixed costs continue• Balance sheet fortification

Prod Restart Mid-May to July• PPE startup costs• Low efficiency/ premium

freight• A/R receipts end• Liquidity in focus• OEMs fund most

desperate suppliers

New RealityNext 4-6 Quarters• Erratic demand & lower utilization• R&D reduced and rescoped• Reduced margin renewal• Future programs delayed/

cancelled• Debt-burdened suppliers seek

funding beyond traditional banks

Pressure on supplier liquidity will be highest in

the July/August timeframe.


Navigating the Shifting Landscape – Seeking Sustainable Differentiation

8

UAJC / July 2018

Mega Tier 1s:Multiple System

Capability & Global

Midsize T1 & 2:Super-regional or Solo multi-region

Small & Start-up:Specialty Players

Multiple systems, global capability – focused on

next generation differentiation

Limited system capability, major region coverage or significant regional player

Specialists - Closely-tied to a specific capability –with limited capital risk

Seeking consolidation opportunities …• Expanding capabilities into EV and AV adjacencies• Strengthening ‘systems’ capability in key sectors• Exerting leverage & global capability

Able to pivot quickly ….• Lack of inertia – can shift to new sectors/capabilities• Ability to assume higher risk profiles• Multiple channels strategies are possible

Searching for optimal channel strategy as markets evolve …• Lack multi-system leverage and true global capability• Possible strategic lethargy – difficult to pivot• Seeking sustainable differentiation and channel strategies

Small/mid-market suppliers are most exposed to liquidity/debt service issues through the balance of the year


Supplier Strategy - Post COVID

Suppliers Re-Evaluate Their Position1. Take Stock

• Trajectory of current/sourced programs• Volumes, timing, scope changes, capital commitments

• Enterprise risk review

• State of your competitive set• Fiscal position, OEM sourcing deck status

2. Intersect New Market Dynamics w/Capabilities• Key takeover and re-source opportunities

• Weakened competitors, JV and acquisition possibilities

• M&A into new sectors, vertical integration or geographies

How to differentiate, build margin & reduce risk?

• Options to build/sustain margin amid risk reduction?

• How will regulatory and market shifts alter strategy?

• Competitive, customer & system analysis – Finding long-term differentiation?

• Impact of production co-location & globalization

9

Cap

ital &

Ent

erpr

ise

Ris

kRelevance

ICE to BEV, L0 to L3

New Focus – New Strategy


The COVID-19 virus pandemic will depress global output throughout 2020

10

-10.0

-7.5

-5.0

-2.5

0.0

2.5

5.0

7.5

2016 2017 2018 2019 2020 2021 2022 2023 2024

Perc

ent c

hang

e, y

/y

Real GDP Industrial production

Global real GDP and industrial production

Source: IHS Markit © 2020 IHS Markit


Real GDP growth in major economies

11

Real GDPPercent change 2018 2019 2020 2021 2022World 3.2 2.6 -5.5 4.5 3.9United States 2.9 2.3 -7.3 5.1 4.6Canada 2.0 1.6 -8.3 3.5 5.1Eurozone 1.9 1.2 -8.6 3.5 2.4United Kingdom 1.3 1.4 -11.9 4.9 2.7China 6.7 6.1 0.5 7.8 5.6Japan 0.3 0.7 -5.5 1.7 1.9India* 6.1 4.7 -1.8 5.2 4.2Brazil 1.3 1.1 -7.1 2.5 3.0Russia 2.5 1.3 -7.3 2.9 1.9* Fiscal years starting 1 April Source: IHS Markit © 2020 IHS Markit


0

25

50

75

100

125

150

2000 2003 2006 2009 2012 2015 2018 2021 2024 2027 2030

Dol

lars

/bar

rel

Current US dollars 2019 US dollars

Crude will begin to recover when demand revives and production is cut

12

Price of Dated Brent Crude Oil


• We expect a record decline in world oil demand of 10.3 million barrels per day (MMb/d) in 2020. In response, crude oil prices fell to below USD20/barrel in May.

• On 12 April, major oil-producing countries agreed to cut output by 9.7 MMb/d and manage supply through the demand cycle.

• A massive supply surplus has materialized in the 2nd Qtr, when global demand will be more than 20 MMb/d below its year-earlier level.

• Strong rebound in China and US is supporting prices through June


Global Production Output Scenarios

13

60

65

70

75

80

85

90

95

100

105

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

Glo

bal P

rodu

ctio

n Vo

lum

eM

illion

s

Global Production Scenarios

Optimistic (20%) Base (50%) Pessimistic (30%)

Pre-COVID COVID Impact Post COVIDScenario-based

Strategy• Significant shifts in

competitive sets, upstream supplier viability and financial structures

• Success is driven by differentiation, scale improvement and reducing enterprise risk

• Less is more – suppliers which focus on fewer sectors /systems – striving for technology and cost leadership

• Electrified propulsion will continue – transition from ICE to Hybrid to BEV

• Regulatory regimes will be highly variable.


Top OEM Cooperative Groups by Production Volume 2020 vs. 2025OEM Partnerships Enable Greater Scale, Risk Reduction and Cost Savings

0

2

4

6

8

10

12

14

16

18

20

Toyota/Suzuki/Mazda/Subaru

VW Renault/Nissan/

Mitsubishi

PSA/FCA Hyundai GM & SAIC Honda Ford Geely Daimler BMW Great Wall Changan Tata SAIC

Milli

ons

Global Production Volume

14

Toyota maintains strong domestic

OEM partnerships

VW & Ford: EU scale & AV

14

BMW & JLR e-motor JVBetter relations w/Daimler

Tata (JLR) urgently seeking partners

FCA & PSA drive scale

R-N-M alignment redefined

GM & SAICGM & Honda EV

Geely & Volvo consolidate

Smart JV w/GeelyMoving closer w/BMW & away from Nissan

VW & Ford: EU scale & AV

GM & Honda EV

Collaboration with GM


Capacity Utilization Becomes Critical

15

95

86

104

68

51

68

88

63

86

40

50

60

70

80

90

100

110

Europe Greater China North America

Cap

acity

Util

izat

ion

(%)

Capacity Utilization by Region

2016 2018 2020 2022 2024

• Weakness which started in China in late 2018 has continued into 2020 with COVID. Rebound through 2024 will not be sharp –consolidation required.

• Europe pullback in 2020 driven from COVID is significant, utilization improvement occurs with rationalization.

• North America dips below 70% in 2020 though the rebound into 2024 will be muted by new capacity by German and Asian OEMs.

Normalized Capacity rates all facilities at 8 hours, 2 shifts and 235 days no matter what the working pattern is.


8

10

12

14

16

18

20

22

24

Mill

ions

Europe LV Production

Production Outlook: Europe – Light VehicleRecovery quickly gives way to saturation

• Trends• Uncertainty within EU about

further destabilization – Hard Brexit and slow growth

• Export under pressure due to regionalization of supply

• Currency neutrality and focusing more resources on BEVs for the EU will pressure volumes (affordability)

• Mid-term Shifts• Localization will remain a

competing trend to exports; Shift of volume to Middle East and Central/Eastern Europe -expansion

4.5%

26.2%

40.6%

15.5%

11.9%

1.5%

1.1%

27.0%

42.0%

17.4%

11.5%1.0%

A B C D E FF

Segment Breakdown

2020

W

0%

10%

20%

30%

VW FCA/PSA R/N/M Daimler BMW

2026 Production Share

2026

16


18

20

22

24

26

28

30

32

Mill

ions

China LV Production

Production Outlook: China – Light Vehicle

• Trends• 2020 will be the third straight year of

declining volume for China – off 26% from the peak of 2017.

• Top 5 OEMs declined as a group by 15% last year – next five – only 10%.

• Western OEMs using their financial resources to drive near-term volume

• Long-term• The number of domestic OEMs is

likely to decrease as winners emerge and scale rises in importance.

• Long-term growth opportunities remain strong – A significant opportunity for vehicle sales growth exists in still “untouched” regions within China.

17

0%

8%

46%26%

5%15%

1%7%

46%29%

6%

11%

A B C D E FF Combined

Segment Breakdown

0%

5%

10%

15%

20%

2026 Production Share

2020

2026

17


Source: IHS Markit

US light vehicle inventory

© 2020 IHS Markit

US light vehicle salesInventory self-correction amid COVD-19 related shutdowns

18

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

2008 2010 2012 2014 2016 2018 2020

Mill

ions

Inventory/Sales Index US Inventory US Inventory (SA)

Inventory update Inventory to Sales Index

May 2020: -3.1% COVID-19 shutdowns from

retail to production affecting inventory

Inventory: May 2020 Stock: 2.63M units or 62

days’ supply Inventory/Sales Ratio: 2.35 Y/Y: -1.25M units or -32.2% M/M: -676K units or -20.4%

Inventory levels decreased despite US sales falling 30.1% in May 2020

COVID-19 related shutdowns led to inventory self-correction in two months

Stronger production needed across a variety of products and segments


US: Since 2010 fleet has averaged 2.6m units, pandemic having disproportionate impact on rental demand

0

50,000

100,000

150,000

200,000

250,000

300,000

Rental Commercial Government

Fleet outlook by sector


19

125

130

135

140

145

150

155

2010 2012 2014 2016 2018 2020

CPI used car/truck not showing price impact yet



North American Production Output Scenarios

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10

11

12

13

14

15

16

17

18

19

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

Glo

bal P

rodu

ctio

n Vo

lum

eM

illion

s

North American Production Scenarios

Optimistic (20%) Base (50%) Pessimistic (30%)

Pre-COVID COVID Impact Post COVID

• Optimistic (20%):• Stimulus measures and

low interest rates improve vehicle affordability in North America and boost demand.

• Significant shifts in competitive sets, upstream supplier viability and financial structures

• Pessimistic (30%):• Renewed lockdowns

cause US sales to slip 10% versus baseline or about 1.3m units in 2020.

• Containment measures combined with a prolonged manufacturing slowdown owing to coronavirus have immediate impact


NA Production: Monthly Volumes are Highly Variable – Supply Then Demand

21

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

Jan Feb Mar Apr May June July Aug Sep Oct Nov Dec

NA

Mon

thly

Pro

duct

ion

Fore

cast

(m)

2020 NA Monthly Production Forecast

Feb V1, 2020 Mar V2, 2020 June 2020

Q1 Q2 Q3 Q4 2020 Y/Y%

June Fcst (m) 3.79 1.22 3.91 3.65 12.6 -24%

Qtly Share 30% 10% 31% 29% 100%

• In 2019, Q1 & Q2 each accounted for 26% of output. 2020 H1 volume is forecast to be off 41% from 2019• June and July volumes come back quickly – inventory issues emerge in 4Q for several vehicles.


NA Production: Monthly Volumes are Highly Variable – Supply Then Demand

22

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

Jan Feb Mar Apr May June July Aug Sep Oct Nov Dec

NA

Mon

thly

Pro

duct

ion

Fore

cast

(m)

2020 NA Monthly Production Forecast

Jan 2020 Fcst June 2020 Fcst

• Despite an expectation of ~ 4 mil fewer units produced in 2020, slower economic activity, increased debt and a lack of fleet volume will impact 2021

Forecast Version 2021 CYJan 2020 15.1m

June 2020 14.6m


North American Light Vehicle Production OutlookDemand Dictates a Slow Climb Towards a New Norm

25

North America Light Vehicle Production

© 2019 IHS MarkitSource: IHS Markit

17.817.1 17.0

16.3

12.6

14.615.5 15.8 16.1 16.4 16.5

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

0

2

4

6

8

10

12

14

16

18

20

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

Shar

e of

Mar

ket

Mill

ions

Production SUV Share Pickup Share Non-NA Export Share

COVID Resets The Market Capacity utilization, risk mitigation

and shifting priorities dominate Incentives rise Fleet volume unavailable short-term Consolidation is possible

OEMs favor well-capitalize & global suppliers in critical sectors

Component localization (especially from China) to rise

Export share declines & S/CUVs approach 50% share of production by 2024.


North America – Program Launch by OEMOEMs delay several launches into 2021 – restage several launches over the mid-term

26

4 5 4 6 11 3 6 5 5 5 8 3 4 8 9 5 3

5 4

4

2

32 1

4

3

2

6

4 15

3

4

2

13

2

12

1

1

2

1

3

2 1

1

1

2

3

25

13

2

4

31

2

2

1

4

2

6

2

3

1

32

1 14

2

1

13

1

2

1

2

2

1 2

1

2

4

1

11

1

3

2 1

22 3

1

7

5

3

55

2

0

5

10

15

20

25

30

35

40

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

# of

Lau

nche

s

Other

VW

Daimler

BMW

Hyundai

R-N-M

Honda

Toyota

FCA

Ford

GM

18

34

24

18

31

18

21

Launch Definition: New Region+OEM+Platform+Program Combination

27

30

Confidential. © 2020 IHS Markit®. All rights reserved.

Electrified Propulsion in the POST-COVID Era

27

Europe ChinaNorth America

• New ‘SAFE’ emissions structure calls for a 1.5%/yr stringency rate vs. ~5% for ‘CAFE’.

• Lower oil and affordability reduces BEV rate with a more positive HEV and PHEV forecast.

• Electrified propulsion forecast largely unchanged as little relief expected for CO2 compliance

• Most electrified propulsion investment considered safe

• CAAM may loosed CAFC/NEV credit requirements and delay new emissions standards to 2021

• EV incentives may be extended to 2022


North America Autonomous Sales Forecast

28

39% 37% 34% 29% 28% 26% 24% 23% 22% 20% 18% 18% 18%

41%33%

33%36% 36% 37% 37% 36% 35% 33% 34% 34% 34%

20%30% 33% 34% 35% 36% 37% 37% 38% 41% 40% 41% 41%

1% 1% 1% 2% 4% 5% 6% 7% 7% 7%

1% 1% 1%

0

2

4

6

8

10

12

14

16

18

20

2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

Milli

ons

L4L3L2L1L0

North America Autonomous Technology outlook

NA has higher penetration for Autonomous technology compared with global levels


Summary

• The rebound from COVID will be slow and regionally even in this multi-speed world.

• Growth in electrified propulsion and ADAS will continue albeit at adjusted speeds driven by reduced capital.

• Already emerging as an issue pre-COVID, capacity utilization and risk mitigation is front and center.

• Number of launch opportunities is declining though content integration rises – propulsion, safety and ADAS.

2929

Consolidation of OEMs and suppliers will accelerate

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Thank You

Michael RobinetExecutive Director, IHS Markit AutomotiveAdvisory [email protected]

30

Thank You

THE RIGHT PLACE, INC.€¦ · 17/06/2020 · continued into 2020 with COVID. Rebound through 2024...

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Transcript of THE RIGHT PLACE, INC.€¦ · 17/06/2020 · continued into 2020 with COVID. Rebound through 2024...