from distress to new competitiveness | strategy&

From distress to new competitiveness

The transformation status of the

automotive supplier industry

Strategy&

The Covid-19 crisis pushed the industry transformation temporarily into the back and yet amplified the conditions to transform successfully

Source: PwC/ Strategy& analysis

Automotive market trends

2

COVID-19-driven

market dip

OEMs with cost

saving programsDecreasing

profitability/insolvency

risks at many suppliers

Accelerated

e-mobility penetration and

ICE end-of-life

Erosion of traditional

and upcoming new

profit-pools

End-to-end digitization

and rise of the software-

defined car

Growing importance

of ESG

New ways of

working

Short-term

challenges

Medium- to long-term

challenges

Supply Chain

distortions/global

chip shortage

Consolidation wave

of suppliers

Strategy&

We see a significant increase of suppliers with a high distressed score,especially powertrain suppliers are more in the distress zone

1) Distress score represents a weighted average of scored KPIs (Altman Z-Score, Ohlson O-Score, EBITDA Margin, Equity Ratio, Net Debt/EBITDA Ratio, Operating Cash Flow). Data includes 423 global automotive suppliers, listed in Capital IQ;. Supplier Categorization by revenue.Source: Capital IQ, PwC/Strategy& analysis 3

Number of firms1) within score zones FY19 act vs. FY20 act

Distress score

Distressed: Financials and development shows stress signals and a high attention for the turnaround is needed

Healthy: KPIs show a healthy financial situation and development

Caution: Financials and development decreased and leads to a lower performance rating

Distressed supplier by categoryDistressed supplier by category

29%22%

44%

36%

27%

42%

20202019

115

supplier179

supplier

Powertrain

Exterior

Interior

Electronics

Other

Chassis

Strategy&

We did not see an insolvency wave since suppliers could drawon significant cash reserves going into the crisis …

Source: PwC/ Strategy& study “Automotive Market after COVID-19” (2020, Sep)

Overview on cash reserves of suppliers per region

4

Cash and cash equivalents in % of revenue

2007 vs. 2019

7.1%

Cash and undrawn

revolvers as % of revenue

9.8%

Cash as % of revenue

8.2%

14.8%

2007 2019

Cash and undrawn


Cash as % of revenue

10.9%

8.1%

10.6%

19.6%

Cash as % of revenue Cash and undrawn


8.1%

19.1%

14.7%

10.6%

USA EU-27 + UK APAC region

Strategy&

…and public subsidies provided support to buffer the worst impacts of the crisis

Source: Federal Ministry for Economic Affairs and Energy (23.03.2021), Statista, PwC/ Strategy& research

*Loans including various governmental fiscal support programs (e.g. KfW), **Economic Stabilisation Fund (WSF), ***Illustration contains only most relevant subsidies,

not exhaustive; partly available before COVID-19 crisis

Exemplary overview of public support programs

5

Acquisition: All federal taxes that depend on

fuel consumption are eliminated for EV. Tax

credit of up to $10,000 for EV (previously

$7,500). According to the GREEN Act, EV

subsidy will be expanded to 600k units per

manufacturer (previously 200k) – still under

discussion

Federal states subsidize electric cars

differently. For BEV, subsidies range from

$1,500 to $2,500, PHEV: up to $1,500

Acquisition: Tax exemption (10%) for electric

vehicles until the end of 2022. Reduction of

VAT on used car sales from 2.0% to 0.5%

until Dec 2023

BEV: ¥13,000 (€~1,6k), for vehicles with

range between 300-400 kilometers;

PHEV: ¥6,800 (€~0,8k), for vehicles with

range >= 50 kilometers

Company Cars: Reduction of benefit-in-kind

on BEVs and PHEVs from 1% to 0.5%, for

BEV ≤€60,000 from 1% to 0.25%;

Ownership: Exemption for BEV & FCEV

until Dec 2030

Extension of the ‘innovation bonus’ until

31 Dec 2025; Innovation +

Environmental Bonus: Car net list price

≤€40,000: €9,000 for BEVs and FCEVs,

€6,750 for PHEVs Car

net list price

>€40,000: €7,500 for BEVs and FCEVs,

€5,625 for PHEVs

Country Tax benefits*** Purchase incentives*** Granted and/or paid out Corona assistance in €bn, Germany status

23.03.2021

8.5

51.0

28.3

Loans*

491.5

49.0

14.3Non-refundable grants

Recapitalisation support**

Sureties and guarantees

100.0

42.6

500.0

4.6

Granted and/or paid out Remaining COVID-19 support

2

0

6

4

8

94 12 1492 96 0898 1002 04 06 16 18

Jan-2

0

Mar

20

Maiy

20

July

20

Sep-2

0

Nov-2

0

Jan-2

1

Mar

21

Short-time workers in Germany from 1992 – 2021 (in m.)

00

Strategy&

Yet, it is of utmost importance to regain momentum after the crisis –a clear strategic perspective and increased competitiveness are in focus


Supplier tasks going forward

6

Short-term

challenges

StrategyLong-term and sustainable

realignment of the business model

Medium- to long-term

challenges

Performance improvementCost savings and portfolio optimization

to regain competitiveness and gain

financial leeway

“Stop the bleeding now”Secure liquidity

Recue costs

Stabilise turnover/price position

Manage global chip shortage

2020/2021

Strategy&

With a clear strategic perspective defined, a comprehensiveperformance improvement is essential


Value preservation and creation levers

7

Growth

opportunities

Entry value Business

model

Operational

efficiencies

Capitalize

on trends

Strategic

positioning

Technology

agility and

resilience

Potential

value

Headwinds Performance

opt

NWC and

Capex

Tax

efficiencies

Other

balance

sheet

items

Financial

value

increase

Multiple uplift

Performance

improvement

Strategy

Balance sheet and tax

structure optimization

Multiple

uplift,

purpose

Strategy&

Sales excellence

Operational excellence

Product excellence

Sales excellence

Administrative excellence

-5-10%

+5-8%

Most companies have untapped cost potentials to improve their situation – an EBIT-improvement by +3-9 pp is typically possible


Typical cost improvement potentials

8

Typical situation before optimization

in % of sales

Area for improvementTypical improvements

Production

Material

Distribution

R&D

Logistics

Administration

EBIT+3-9pp

-10-20%

-5-15%

-15-25%

-10-30%

-10-30%

Strategy&

We developed a unique offering to address the transformation need from multiple anglesPwC and Strategy& transformation and corporate restructuring offering

Winning proposition Our capabilities from PwC/Strategy&

Top ranked advisor for trusted financials

We have a wealth of expertise and experience in providing trusted financials that go beyond a pure P&L

view. This includes top-notch scrutiny and a holistic approach covering all balance sheet, cash or tax

aspects relevant in such specific situations

Unique operational excellence and transformation knowhow

We combine essential knowhow along transformation and corporate restructuring phases with deep

operational, financial and strategic insight, including local legal and labor law expertise from our global

network

High industry and functional expertise

Our functional and industry expert teams deliver unparalleled insights and best practices to ensure a fast

and impactful turnaround

Strong value creation focus

Our value based transformation approach identifies the key value areas fast and in combination with our

expert network we provide relevant insights to generate and implement value

From strategy

through execution

Leveraging the power of PwC/Strategy& to offera unique transformation set up

Global footprint can

deliver highest value

for global clients

9

Strategy&

Our 4R approach supports companies in all transformation stages –from short-term maneuverability to long-term competitiveness


PwC and Strategy& transformation and corporate restructuring approach

Immediate considerations on how to protect the

business and stabilize in the short-term

Rapid cost cutting

Cash management

Revenue stabilization

Repair

Rethink

Reconfigure

Accelerated value preservation and creation to

look forward and consider how to plan for

recovery and accelerate to emerge stronger

and more resilient in the short-/medium-term

Cost transformation

Operational tactical levers

Strategy redefinition

Definition of structural levers for create value in

the longer term and launch execution

(transformation, greater resilience, shifting

consumer habits, expectations of employees,

divestitures, acquisitions etc.)

Operating model

People and organization

Technology

Culture

M&A

“Stop the bleeding now” Strategy

Performance improvement

10

Report (creation of transparency during the whole transformation process to all stakeholders involved)

• Transformation office • Business recovery planning • Manage transformation process • Measure tracking and reporting

2020/2021

€

Strategy&

The coming months will be characterized by a mixture of dealing with late crisis effects and getting back on track for industry transformation


Trends for 2021/2022

11

5 Insolvency dent instead of wave

Supplier insolvencies were limited in

2020/2021 due to government loans. For

2022, we expect an increase in insolvency

cases, as the global chip crisis frustrates a

rapid return to pre-crisis conditions

2021

2022

4 Accelerated transformation

Powertrain suppliers in the conventional

powertrain have to meet the trans-

formation faster than expected, vertical

integration becomes an issue

3 2021/22 expected as record year

regarding deals globally

2021 is likely going to be another record

year in terms of number of auto supplier

deals globally, likely exceeding 250

deals2 Supply chain disruptions due to

supply shortages

We continue to observe severe supply

bottlenecks, especially for semiconductors.

Different recovery speeds between the

regions are also putting a strain on supplier

networks1 Profitability programs instead of

hard restructuring

In the automotive environment we

currently see more transformation/

performance improvement programs

instead of "hard" restructurings to gain

financial leeway

Strategy&

Contact us to support your performance improvement

© 2021 PwC. All rights reserved. PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Please see www.pwc.com/structure for further details. Mentions of Strategy& refer to the global team of

practical strategists that is integrated within the PwC network of firms. For more about Strategy&, see www.strategyand.pwc.com.

Partner, PwC Strategy&

axel.borowski@

strategyand.de.pwc.com

Partner, PwC Strategy&

joerg.assmann@


Jörg Assmann Axel Borowski

Director, PwC Strategy&

udo.specht@


Dr. Udo Specht

Partner, PwC

thomas.steinberger@

pwc.com

Thomas Steinberger

Senior Manager, PwC

daniel.steiner@

pwc.com

Daniel Steiner

Director, PwC Strategy&

raimund.wolf@


Dr. Raimund Wolf

from distress to new competitiveness | strategy&

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