Time to act?

For several years now, the automotive industry has been undergoing a rapid transformation. A combination of technology trends, changing customer behaviour, the various supply shortages, and the proposed regulation of the European Union (EU) have put companies under pressure. Electrification is also expected to massively impact the forces at play in the European and global aftermarket. 

A joint study by the strategy consultancy Roland Berger and CLEPA, the European Association of Automotive Suppliers, found that the increased market penetration of battery-electric vehicles (BEVs) will change both the importance of the various product categories in the aftermarket and the roles of the companies that operate therein.

After analysing 250 components from 53 vehicle systems, the authors expect BEVs to offer about 30% lower sales potential for traditional aftermarket components compared to internal combustion engine vehicles. The reasons? Among others, BEVs are built with fewer components and there is less wear and tear on the engine, drivetrain, and brake components.

For each of these components, the study estimates the impact – both negative and positive – of “gross” demand on the aftermarket. This excludes additional demand for new components and services, such as labour in workshops or software updates. To show the impact of electrification clearly, the study specifically excludes other macro factors, such as the impact of inflation or the expected overall growth of the vehicle parc, as well as technical trends such as advanced driver assistance systems. 

“For automotive aftermarket players, planning for the transition to electrification is a very complex business because many vehicles in our fleet will still have an internal combustion engine after 2035,” says Hasmeet Kaur, partner at Roland Berger. “Even though electric vehicles currently make up only 0.8% of the vehicle parc, players need to reposition themselves now to ensure their success going forward.”

Deloitte UK, in its piece “Battery electric vehicles in the aftersales market”, highlights that original equipment manufacturers (OEM) currently make close to a quarter of their total profit through aftersales. “We believe that aftermarket profit of a typical OEM could reduce by as much as 55% by 2035,” writes Geoff Hurst, an automotive expert who specialises in aftersales and is a senior manager at the company.

“It is critical for OEMs to start planning for the emergence of BEVs as this trend has the potential to have the biggest impact on aftersales in the short term. Global sales of BEVs reached more than one million units for the first time in 2017 increasing 54% over 2016 and surpassed two million units in 2018,” Hurst continues.

“The growth of BEVs will have an impact on the entire market, but will hit the OEMs’ core aftermarket business first and hardest. Businesses that are over-dependent on aftersales revenue from vehicles aged between zero and three years old are particularly at risk,” he expands. “No matter what strategies are put in place, current levels of profitability from aftersales appear unsustainable. There are ways to mitigate against potential losses, but failing to act could prove an existential risk for some OEMs.”

To prepare for and minimise the impact of this potential lost revenue, Hurst believes that OEMs must address three fundamental questions:

• How do they protect and grow profit in their core business which relates to new and nearly new vehicles (zero to three years old) maintained in a manufacturer approved dealership?
• How can they compete in an intensively competitive older (four years or more) vehicle market?
• Where in their aftermarket parts supply chain can they increase efficiency to reduce costs?

New opportunities for industry players across the board

The Roland Berger and CLEPA study highlights that electrification does, however, open up new opportunities along the value chain for the various suppliers in the industry. Parts manufacturers, for example, can shift their portfolio to battery-specific components, as well as expand their business model by remanufacturing or refurbishing components.

A further opportunity is to offer diagnostics and flashing solutions to support workshops, particularly with the challenging software and data management of BEVs that have new electronics and connectivity platforms. Partnering with battery specialists can help both the traditional aftermarket supplier and the battery specialist.

“It will be especially important for aftermarket players to develop remanufacturing and repairing capabilities for battery systems, electric motors, e-axles, and power electronics,” says Frank Schlehuber, senior consultant of market affairs at CLEPA. “We expect to see a shift in aftermarket services from hardware to software. Preventive maintenance will also gain relevance, given that the battery is safety-critical.”

Wholesale distributors will be able to assist in the management of end-of-life components, becoming providers of recycled materials or offering their logistics networks to new customer groups. Workshops have the option of positioning themselves as battery-electric vehicle specialists and offering services to generalist workshops in their area. “Ultimately OEMs and their partners will need to accept that the future of the automotive industry will be fundamentally different,” warns Hurst. “Businesses need to adapt or face the consequences.”