Economy

Daimler’s exit from combustion engines will cost suppliers 70 percent of sales

dpa

So now Daimler too. After Volkswagen’s large and high-profile electric offensive, the Stuttgart-based company now also wants to take big steps out of combustion technology. And this at a rapid pace: by 2025, the proportion of combustion engine variants in new cars is to be reduced by 40 percent, and by 2030 by 70 percent.

Instead, Daimler wants to invest in vehicles with electric drives – which, if CEO Ola Källenius has his way, primarily come from the luxury segment. Källenius wants to shorten the many vehicle variants at Mercedes and concentrate on the premium area. The new recipe for success in Stuttgart is: Instead of high sales with cheaper vehicles, for which there are significantly lower margins, the aim is to achieve higher margins and more exclusivity with more expensive cars. Even if sales are falling. And from 2030, hardly any of these vehicles will be equipped with a combustion engine.

Hard numbers, no theoretical talk

It remains to be seen today whether this change of course will work. However, it has a strong impact on the supplier industry, says Stefan Bratzel. He is professor for the automotive industry at the University of Applied Sciences for German Business in Bergisch Gladbach. “These are hard numbers, not theoretical talk. For suppliers who depend on the combustion engine and ancillary components, this means that there will be 70 percent less sales. That is very clear, ”says Bratzel.

That will be especially difficult for the small and medium-sized suppliers, because some of them are completely dependent on the combustion engine, in some cases on individual car manufacturers like Daimler, says the auto expert. Bosch or Continental, on the other hand, have a much broader product and customer portfolio. “You don’t have much time – you have that certainty now. The medium-sized companies are facing difficult times, ”says Bratzel.

An important aspect of the Daimler announcement is above all the reduction in the number of variants – not only in terms of the vehicle models, but also in terms of the equipment of the cars, says the auto expert. “Soon there will no longer be 250 different interior fittings. The wealth of variants of a certain model costs car manufacturers a lot of money. So the money that the suppliers earn. This strand is also shortened, ”says Bratzel.

The annoying thing for the small suppliers who have specialized in interior fittings and combustion engines is that the automotive industry has had really good years since the financial crisis in 2008/09. Some of these lasted until 2018/19. Many car manufacturers asked their suppliers for more and more capacities for combustion engines and new variants – and made them even more dependent on themselves, says Bratzel. Now the fat years are over, at least those of the combustion engine and the wealth of variants.

So what to do as a small supplier?

“Medium-sized and small suppliers now have to overturn their entire business model. You basically have two options. If a supplier has produced seat covers or headrests, for example, it can continue to do so, just producing fewer headrest variants for car manufacturers, but for other industries. The industry change is therefore the number one alternative. Otherwise, he should invest in technological know-how and focus on e- or hydrogen mobility. That’s variant two, ”says Bratzel.

One thing is important to the auto expert: In his opinion, numerous suppliers, including small and medium-sized ones, have already recognized the signs of the times and have adapted well. According to Daimler’s announcement, the rest of them now have a binding expiry date for their own business model, provided it depends on the combustion engine.

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