The automobile sector is going through a critical situation of transformation and difficulties. Spain plays a lot in the stake. The country is the second European producer of vehicles after Germany and the fourth manufacturer of components, with an auxiliary industry of a thousand companies prepared for a process of mergers and acquisitions that will sift the business. 12.5% of the economy (GDP) depends on how the sector faces this moment of change, according to the accounts of the association of automobile manufacturers Anfac and the association of automotive suppliers Sernauto. The general director of the latter, José Portilla, summarizes the situation as follows: the sector, he assures, “is immersed in an unprecedented transformation”. Above all plans commands the development of the electric car and the ban on combustion engines in the EU from 2035.
Once the stoppage of the pandemic has been overcome, the component companies are beginning to raise their heads. The leading companies —Gestamp, Teknia, CIE Automotive or Grupo Antolín— have come back and are making money again. In 2021, the sector as a whole had a turnover of 32,085 million, 6.3% more than in the previous year, marked by the covid-19 crisis. But they have not yet reached the pre-pandemic business (37,000 million). Despite everything, even with the uncertainty caused by the war at the gates of the EU, this year they expect to increase turnover by around 10%.
“The automobile industry is experiencing one of the most complicated moments in its history,” admits Ernesto Antolín, president of Grupo Antolín, a multinational with a presence in 26 countries, specializing in interior components for vehicles and originating in a mechanical workshop in Burgos in the fifties. The group invoiced 4,055 million in 2021, 2% more, and is confident of full recovery in the short term. “Analysts,” explains Antolín, “predict an increase in global vehicle production in 2022, especially in the second half of the year and despite the instability generated in Europe by the war in Ukraine.”
“We are optimistic about the future of the sector,” agrees a spokesperson for CIE Automotive, a Basque multinational that earned 267.5 million euros in 2021, 44% more than in the previous year. “We hope that after a few quarters of a difficult situation, especially in markets such as Europe, we will see a significant growth cycle.”
There is a lot on the table. “Everything that happens to the car is especially relevant, since it ends up definitively modifying the dominant guidelines of the industrial system”, assured a CC OO report in 2018. The analysis is still valid. At present, what is happening to the car has to do with the great stoppage of the pandemic, the breakdown of supply chains, the shortage of certain materials and components such as semiconductors, prices, and uncertainty due to the war in Ukraine. But even before the pandemic, manufacturers were in a rush through regulation and legislation to deliver a more sustainable, connected and autonomous type of vehicle.
The changes registered by the industry are relevant because the automobile has always had a dragging effect on the rest of the sectors, in organizational models and production patterns, and also because of its ability to impose new trends and consumption habits. Significant steps are being taken, such as the abandonment of the real-time work system without storage —just in time— to hug the just in case. It goes from “just in time” to “just in case”, a movement that will have consequences throughout the vehicle manufacturing chain.
Teknia, with 3,500 employees, 21 factories and a profit of 10.7 million euros in 2021 —five times more than in 2020—, is clear about it. “The industry is facing the consolidation of a more sustainable mobility, solidifying both the volume of production and that of sales”, they assure from the company. “This new concept is already causing important changes throughout the automotive value chain.”
The group born 30 years ago in Zaldibar (Bizkaia) considers it essential “to begin to bring light and regulatory clarity to our sector, which is a driving force in the economy”. Teknia participates together with Envision and Acciona in the project for recovery and transformation (PERTE) of electric mobility approved by the Government. “It is important that we move in an environment of certainty that allows us to adopt measures and strategies that can be developed in the long term,” says the company.
Begoña Cristeto, partner responsible for automotive, industry and chemicals at KPMG in Spain, explains how the industry is currently wondering where future profits will be. “Because with the change in consumer habits, we are not going to win as much in the production and sale of vehicles as in mobility management; that is, the management of data, fleets and recharging infrastructures”. “The automotive industry”, adds Cristeto, “has to position itself in the new mobility value chains; if not, those who acted collaterally with them will become their competitors in capturing the benefits”. Companies from other sectors such as Iberdrola, Endesa, Mapfre or Banco Santander are already entering the mobility business.
Potential Benefits
KPMG prepared a report for Anfac presented in February 2020 – the beginning of the pandemic – in which it estimated the potential benefits of the change from the automotive industry to mobility at 100,000 million euros: the right of each citizen to move as, whenever and wherever. In mobility, the private vehicle is one more element in the equation and, as there are no empty sets in the market, the benefits generated by the change will not be lost in the ether.
The benefits are going to be disputed by the big manufacturers —Renault, Mercedes-Benz, Nissan, Ford, Volkswagen, Seat or Stellantis—, but also by the auxiliary industry that makes a wide range of products and contributes more than 75% of the value of the vehicle . The playing field is wide. A vehicle with a combustion engine is made up, part above, part below, by 70,000 components —30% less in the case of electric vehicles— that require a wide network of suppliers, of proven quality, capable of competing on time and price.
In Spain, this network of more than a thousand companies accounts for 4% of GDP. Translated into employment, there are 365,000 direct and indirect jobs. The network shares with the big car companies, its elders, a significant export vocation. If Spain exports 80% of the vehicles it produces, component manufacturers sell 60% of their production abroad.
Component companies don’t all play in the same league. There are large companies incorporated in Spain that sell all over the world; multinationals that compete in Spain such as Bosch, Valeo or Continental, and a myriad of SMEs, many of them specialized in a single product. Manufacturers are spread throughout the country, but in communities such as the Basque Country their weight is essential. In that community there are 300 companies related to the automotive industry sector. The great concentration in a small territory like the Basque Country is only comparable to that of some German Länder. The sector has become a mainstay of the Basque economy, along with energy and aeronautics.
At the rhythm of the multinationals, the auxiliary companies have been deriving products towards the new electric vehicle. They make new items and use new materials. They are preparing for a new era in the business based on six decades that have greased the activity and a firm commitment to R&D&I. The sector invests in research and innovation around 3.6% of turnover each year, well above the business average in Spain —0.7% according to data from Fundación la Caixa—. In 2021, Sernauto assures, suppliers increased their investment in R&D&i by 8.5%, reaching a total of 1,164 million euros. The average investment of 4% in the last five years is maintained.
Gestamp —8,100 million turnover and 155 profit in 2021— is an example of where the industry is going. The group chaired by Francisco Riberas is manufacturing new specific products for electrified vehicles with high added value, such as the battery box (battery box); the door ring, which integrates multiple parts in a single piece, and solutions to lighten the weight of the vehicle (giga stamping, battery-pack Y one piece floor).
“The strong investment in R+D+i”, assures the CEO of Sernauto, “is allowing us to transform products and processes and continue contributing to the mobility of the future: more electrified, connected and automated”. The transformation is going to reconfigure the sector. All companies are rethinking strategic plans because new challenges and new opportunities arise.
The reality pushes. Component companies have seen their margins reduced, largely due to the difficulty of transferring the extra costs due to the rise in prices of raw materials and energy. Component manufacturers expect the understanding of large multinationals to seal a “balanced and collaborative” relationship, thinking of long-term benefits. But it will not be easy. A reorganization of the large groups of manufacturers is underway, new competitors are emerging and companies that do not adapt are going to fall by the wayside.
sight mergers
“We are already seeing and we will continue to see an important consolidation process in the sector”, they assure CIE Automotive. “The pandemic, the fall in volumes for semiconductors, general inflation… all these elements have passed too high a bill on many suppliers who, unfortunately, are not going to survive.” Most companies agree: market share will be concentrated in a smaller number of providers. They will be the most flexible and the strongest financially. Nobody wants to be left out of the game. “Consolidation processes”, says Ernesto Antolín, “have been going on for a long time because, in the end, this industry is capital-intensive and requires strong investments in technology and innovation to be at the forefront. The current uncertainty may be one more element that encourages the process [de fusiones]”.
They all say they are ready. Gestamp “has been involved in the process of mergers, acquisitions and joint ventures for some time,” says its spokesperson. In 2021, the group bought the company Edscha (supplier of hinges), in 2011 it acquired ThyssenKrupp Metal Forming and is currently preparing novelties in Japan and China. Teknia, for its part, also takes positions. “We are in the process of buying a company that is going to provide us with an extra significant sales volume,” the company advances. “In addition, we are also studying the possibility of incorporating a second company of the same level,” he concludes. The development of the electric vehicle marks the times.
A puzzle with thousands of chips
A car is a puzzle of 70,000 pieces. All are important, but some are essential. The microchips, thousands of small structures of semiconductor material, barely square millimeters, make up the vehicle’s nervous system. Without them, a car is a dead box. The bankruptcy in the supply chain has drowned the sector.
With the pandemic, manufacturers stopped buying microchips. They didn’t need them. The handful of chip-producing companies looked for alternatives to sell. The problem arose when the automotive industry resumed orders: it was at the end of the queue. A disaster that is difficult to fix because the semiconductor market is an oligopoly: TSMC dominates the market along with other giants such as Nvidia, ATI Technologies or Xilinx.
Companies and States —Spain has approved a PERTE for microelectronics and semiconductors— are trying to alleviate the shortage. Is not easy. The chip market is capital intensive. Building a factory costs between 7,000 and 10,000 million and to be profitable it has to work at full capacity. The shortage will continue. Meanwhile, manufacturers manage. How? Placing the chips – scarce – in high-end vehicles, the most profitable. That’s why delivery delays affect the cheapest vehicles the most. It’s the market law.
