Strategic Focus Drives Profitability for Automotive Suppliers

Despite a widespread belief that large, diversified conglomerates drive the automotive supplier industry, two decades of data on the quality of returns per subsector tells a different story. Only suppliers that have focused on a few core offerings in trend-supported businesses have seen an uptick in profitability over the past 20 years.

Semiconductors, tires, and electronics players have grown their sectors’ profitability during the three healthy economic periods—namely, 2003 to 2007, 2010 to 2018, and 2021 to 2023—over the past two decades. Most segments remained flat. But conglomerates operating within multiple product segments suffered a severe 1.8 percentage point drop.

The data reveals that casting a wide net isn’t always better when it comes to improving profitability. Segments with clear focus and simple business models outperform those juggling intricate portfolios and multiple technologies. While the commonly held belief is that larger, more diversified companies have an inherent advantage, these findings highlight the value of having a strategic focus.

While innovation and the increased amount of technology in cars has boosted the profitability of leading segments, the battery sector demonstrates that underutilized capacity can still offset gains even in groundbreaking high-growth areas.

As the industry shifts from hardware to software and from combustion to electric powertrains, companies must adapt. Those that prioritize strategic focus and scale over diversification will be best positioned to increase their share of the industry’s profit pool.

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Navigating Ups-and-Downs in the Automotive Supplier Industry

The industry has maintained profitability for 20 years, but remains vulnerable to volume fluctuations.