Recently, several multinational auto parts manufacturers, including Magna, BorgWarner, Faurecia, Valeo, and Aptiv, released their financial reports for the third quarter.
As the Chinese automotive market accelerates in its competition, the major automotive markets in Europe and America are experiencing a slump in production and sales, particularly with a slowdown in electric vehicle demand. This trend has led to a general decline in revenue across multinational parts manufacturers, with many companies seeing significant drops in profit. Lowering yearly revenue expectations has become a common practice.
Workers at an auto parts manufacturing company are producing components for customers.
Faced with industry transformation and cost-cutting pressures, many multinational parts manufacturers are pursuing deep adjustments and business restructuring, which includes layoffs, plant closures, and the separation of certain business units, along with the acquisition of promising new ventures.
For these multinational suppliers, a new wave of pressure seems to be on the horizon, while reforms and adjustments move forward.
Slumping Vehicle Production Drags Down Suppliers
The performance of automakers is closely tied to that of parts suppliers. Recently, automotive industry consultants J.D. Power and GlobalData downgraded their global light vehicle sales forecast for 2024 by 500,000 units to 88 million.
In major markets, the effects of an intense price war are particularly evident in the diminishing performance of multinational car manufacturers in China, directly impacting the performance of suppliers that rely heavily on foreign automakers.
The downturn in the North American market adds further woes; high new car prices and borrowing costs have led American consumers to adopt a wait-and-see approach. According to Cox Automotive's predictions, new vehicle sales in the U.S. will be 15.7 million units in 2024, down more than 1 million units from 2019. As a result, several suppliers in North America have seen revenue declines, with Continental previously adjusting the growth rate for its tire replacement business in the region to -1% to +2% (down from 0% to +3%).
As for the European car market, new car sales turned downward in August and September, with ongoing low demand, particularly for electric vehicles. Continental predicts that vehicle production in Europe will decline by 4%-6% in 2024.
With declining vehicle production and sales in major markets, coupled with weak foreign exchange and geopolitical conflicts, many multinational suppliers have lowered their performance forecasts for 2024.
Magna, for example, now expects revenue between $42.2 billion and $43.2 billion for 2024, down from earlier expectations of $42.5 billion to $44.1 billion. For years, Magna's orders have remained relatively stable, whether in parts supply or OEM manufacturing; however, as automakers continuously adjust inventory levels to match demand, this growth momentum has slowed. In the third quarter of this year, Magna reported revenues of $10.28 billion, a year-on-year decrease of 3.8%; adjusted EBIT fell from $615 million in the same period last year to $594 million; net profit was $508 million, up from $417 million the previous year.
Looking at Aptiv, its net revenue for the third quarter was $4.854 billion, a year-on-year decline of 5%; its net profit plummeted from $1.637 billion in the same period last year to $368 million. Based on this, Aptiv adjusted its revenue expectations for 2024 to $19.6 billion to $19.9 billion, with net profit expectations set at $1.74 billion to $1.84 billion.
Faurecia Group also adjusted its financial targets for 2024, projecting revenues between €26.8 billion and €27.2 billion, with an operating profit margin of 5%-5.3%. In the third quarter of this year, the company reported revenues of €6.357 billion, a year-on-year decline of 2.6%.
As the largest automotive seating and electronic systems supplier in the U.S., Lear noted that declining vehicle production caused its third-quarter revenue to fall by 3.4% year-on-year to $5.6 billion, while operating profit slightly dipped to $257 million. However, net profit increased by 2% year-on-year to $135.8 million, driven by its operations in China, which are increasingly contributing to the company's revenue. Customers like BYD, Xiaomi, and Dongfeng are among Lear's clientele.
In contrast, the European and American markets are facing significant challenges. “We observed that procurement activities among automakers in the third quarter were somewhat delayed, particularly in the North American and European markets. Lear's sales in the GM project and seating also saw a reduction,” said Lear's CFO Jason Cardew.
Weak Electric Vehicle Orders
In recent years, automakers have strived to boost production of vehicles equipped with more efficient hybrid systems or turbochargers and have continually launched new electric vehicle models. Many parts suppliers have benefited from substantial orders during this period. However, as the global economy weakens and consumer demand declines, the pace of electric vehicle transformation among European and American automakers has slowed. Major manufacturers like GM, Ford, and Volkswagen have cut investments and postponed or canceled new vehicle releases, creating challenges for parts suppliers like BorgWarner, Valeo, and ZF who are aggressively pushing for electrification.
Currently, ZF is reassessing its electric drive systems division, which was once seen as a major opportunity. Due to the slow pace of electrification among its major clients in Europe and America, countless electric drive projects within this division have been canceled, and early investments have failed to convert into cash flow. With market demand sluggish and customer order volumes significantly down, ZF once again lowered its financial expectations for 2024. Revenue targets have been adjusted to €40 billion to €42 billion (down from €46.6 billion in 2023), and the EBIT margin has been revised to 3%-4% (down from 5.1% in 2023).
As for BorgWarner, its third-quarter performance remained solid, outperforming market expectations. During this quarter, BorgWarner reported net revenue of $3.45 billion, a year-on-year decline of 5%; net profit stood at $242 million, dramatically higher than the $87 million reported in the same quarter last year.
Despite this, considering the global decline in vehicle production and a slight decrease in sales of its electrification-related products, BorgWarner revised its revenue forecast for 2024 from $14.1 billion to $14.4 billion, slightly down to $14 billion to $14.2 billion, but increased its full-year profit margin forecast to 9.8%-10%.
Valeo faced a similar situation. In the third quarter of this year, the company’s revenue declined by 5% year-on-year to €5 billion, below analysts' average expectation of €5.1 billion. Consequently, Valeo lowered its revenue forecast for 2024 from €22 billion to €21.3 billion, while its profit margin and free cash flow expectations remain unchanged.
This marks the second time Valeo has lowered its annual revenue expectations this year, reflecting the heavy impact of uncertainties surrounding the electric vehicle transformation in the European automotive industry.
In addition to transformation challenges, the European automotive industry also faces multiple issues including high production costs, declining demand, and increasing competition from China. The pressure is not limited to Europe. “We see that almost all regional markets have been weaker than expected, with varying reasons,” said Valeo CEO Christophe Périllat.
The slowdown in electric vehicle demand in Europe and America has also significantly impacted Korean battery manufacturers that rely heavily on these two markets. In the third quarter of this year, LG Energy Solution reported revenue of 6.8778 trillion won, a year-on-year decrease of 16.4%; operating profit dropped 38.7% to 448.3 billion won. Without considering the 466 billion won subsidy provided by the U.S. Inflation Reduction Act, the company would have posted an operating loss of 17.7 billion won for the quarter. Net profit reached 561 billion won, a year-on-year increase of 33%. LG Energy Solution expressed a “cautious” outlook for revenue growth in 2025 and plans to significantly cut capital expenditures.
In a similar situation with substantial subsidies, Samsung SDI saw its revenue and operating profits decline by 30% and 72% year-on-year in the third quarter, while net profit fell by 63% to 230.4 billion won.
As for SK On, the company achieved operating profit of 24 billion won in the third quarter, marking its first quarterly profit since it spun off from its parent company, SK Innovation, in October 2021, partly due to subsidies amounting to 60.8 billion won received in the quarter. Prior to this, SK On had initiated a voluntary resignation plan to mitigate losses. The quarter’s revenue was 1.43 trillion won, down 56% year-on-year.
Layoffs Expand Under Cost-Cutting Pressure
Notably, as various parts manufacturers release disappointing financial reports, cost-cutting measures appear to be advancing further. “In the current situation, we have no choice; structural layoffs and capacity optimization are crucial to maintaining Schaeffler's market competitiveness,” stated Klaus Rosenfeld, CEO of Schaeffler Group.
On November 7, Schaeffler Group announced plans to lay off about 4,700 employees in Europe, including roughly 2,800 positions in Germany. Specifically, the Bearings and Industrial Solutions division will cut 2,400 jobs; the Powertrain and Chassis division and the Electric Drive division will cut 1,700 jobs; and the central functions and R&D department will cut 600 jobs following the merger with Waelzholz on October 1. This layoff plan is expected to be completed between 2025 and 2027.
Layoffs are closely related to the company's poor performance. The concurrently released financial report shows that Schaeffler’s third-quarter revenue decreased by 1% year-on-year to €3.957 billion; adjusted EBIT fell nearly by half, plummeting 45% to €187 million. More critically, the company recorded a net loss of €13 million in the quarter, compared to a net profit of €150 million in the same period last year.
The world's largest automotive parts giant, Bosch Group, has also made similar decisions, with reports of plans to lay off over 7,000 employees primarily in its automotive division. Bosch Group CEO Stefan Hartung noted that due to the weak global economy and the slow rollout of electric vehicles in Europe, Bosch is facing issues with insufficient orders and unsatisfactory performance. Bosch expects its EBIT margin for 2024 to be only 4%, down from 5% in 2023, moving further from its 7% target for 2026.
Hartung acknowledged that 2024 and 2025 will be challenging years, and that the company cannot avoid layoffs. “Due to the economic downturn, the group may not achieve its economic objectives in 2024. At this time, I cannot rule out the possibility that further adjustments to human resources may be necessary,” he stated.
ZF, which has already lowered its financial expectations, also announced in July of this year that it anticipates reducing its German workforce from the current 54,000 by 11,000 to 14,000 by the end of 2028, consolidating factories in Germany to adjust capacity according to expected continued weak market demand. Additionally, companies such as Autoliv, Valeo, and Faurecia have also announced layoff plans.
Aside from layoffs, there are other initiatives underway. For example, Bosch is pursuing its largest-ever acquisition, planning to spend $8 billion to acquire Johnson Controls’ global residential and light commercial HVAC business. Continental Group is moving forward with plans to separate its automotive division, aiming to become an independent publicly traded company. ZF is considering finding buyers for its passive safety division or pushing for an independent listing. Facing global economic uncertainty and a sluggish automotive market, the transforming parts suppliers must carry out deep integration and adjustments to their businesses in order to prepare for the next phase of competition.
(The original title was “Schaeffler, Aptiv, Valeo… Multinational Parts Giants Share Similar Predicaments in the Third Quarter.”)