Supplier Profitability at Record Lows: How Automotive Suppliers Can Regain EBIT Strength

The Perfect Storm: Structural Pressure and Cost Challenges

Automotive suppliers are facing an unprecedented combination of inflation, regulation, electrification impact, and geopolitical instability. These dynamics are reshaping the industry:

• Margins are under historic stress
• Transformation efforts are outpacing financial resilience
• Many suppliers are “riding two horses” — stuck between the old ICE world and the EV future
• Despite growing revenues in some areas, true profitability remains elusive

On top of this, Asian competition — particularly from China and Korea — is accelerating, creating a divide between resilient winners and struggling survivors.

Summary of Key Insights:

• Supplier profitability is structurally weakened: EBIT margins remain below pre-COVID levels, especially for small and mid-sized automotive suppliers
• Growth does not equal resilience: Only a small number of players qualify as “Winning Champions” with sustainable EBIT
• 10–20% of product portfolios are value-destructive: These “bleeder” programs drain more margin than the rest can recover
• 3–5% EBIT is no longer enough: Modelling shows that a long-term viable EBIT margin must be ~7%
• Refinancing risk is rising: Low equity ratios and increased capital costs mean strong margins are now essential
• Asian suppliers are gaining ground: Fast go-to-market cycles, BEV focus, and cost advantages drive their lead
• The BEV trap is real: Electrification impact can inflate the top line while compressing profit margins

Four Supplier Archetypes: Where Do You Stand?

H&Z categorises companies into four archetypes — each with its own risk profile and transformation urgency. Understanding where your company stands is the first step towards a realignment strategy.

Six Levers to Achieve Sustainable EBIT Improvement

There is a way forward. H&Z outlines six effective levers for regaining profitability. Each lever is designed to deliver fast impact and strengthen long-term competitiveness.