planet.com – B2B Portal: EU – trade surplus of EU suppliers under increasing pressure

Limited investment opportunities and production costs may undermine the sector’s status as a global automotive production center

The European automotive supply industry ended 2023 with low profitability. Many companies struggle with profit margins below 5%, which is a critical threshold to ensure sustainable investments and maintain European competitiveness in a changing market.

Despite these challenges, EU suppliers managed to increase their global trade surplus in conventional vehicle components as imports from China to the EU fell for the first time in four years. Additionally, EU suppliers increased exports to the USA and Great Britain. However, the decline in EU exports to China resulted in the trade surplus with China more than halving over the same period.

European automotive suppliers face increasing competitive pressure in China, the world’s largest market. Many EU suppliers have a price advantage and limited access to local OEMs. Nevertheless, several EU suppliers have secured large order books with Chinese OEMs, showing that European companies can continue to be successful in China. If the EU manages to increase competitiveness and solve financing problems, EU suppliers will have a chance to defend the sector’s trade surplus in the coming years.

What you’ll find in this issue

1 – Low profitability continues to undermine investment opportunities

2 – The EU imports (slightly) fewer components from China

3 – However, the bilateral trade surplus continues to deteriorate

4 – Competition in the world’s largest market is fierce

The EU’s trade surplus with China has more than halved in the last three years. Competition is fierce in the world’s largest market, but several EU suppliers have won significant orders. The EU should focus on strengthening competitiveness as companies work to accelerate their product development cycles to protect the sector’s global leadership. Nils Poel Market Director at CLEPA

1 – Low profitability continues to undermine investment opportunities

Three years after the pandemic, profitability remains a significant challenge for automotive suppliers. A biannual survey by CLEPA and McKinsey shows that only 37% of suppliers expect solid profits this year, a significant drop from 59% in 2019. Additionally, 65% of companies are operating below a key threshold the 5% yield required to ensure the sustainability of industry transformation investments. Worryingly, 25% of respondents report profits of less than 1% or even negative profitability. Despite these pressures, the number of loss-making companies is gradually decreasing, highlighting the sector’s resilience and adaptability.

2 – The EU imports (slightly) fewer components from China

For the first time in four years, imports from China fell, decreasing slightly by 0.57%. This means breaking the trend of increasing dependency that started in 2020.

After two years of high imports to the EU, there is a clear change in 2023. Overall, there is a decline in imports into the EU, with an increase of only 3% compared to the notable 17% recorded in 2022.

Since 2020, the EU has imported more from Turkey, which is currently the second largest source of imports. Moreover, EU imports from the UK appear to have increased slightly following Brexit, although they remain well below the levels recorded in 2019.

3 – However, the bilateral trade surplus continues to deteriorate

The EU’s trade surplus with China has fallen significantly since 2020, from just under €7 billion to €3 billion in just three years. The trade surplus could already turn into a deficit if we include trade in battery cells.

In contrast, the trade surplus with the UK and the US increased, partially offsetting the declining surplus with China. Automotive suppliers continue to make a positive contribution to the overall European trade surplus, which amounted to €26.6 billion in 2023.

Despite this positive contribution, the declining trade surplus with China is worrying, raising questions about how long the EU will be able to maintain a positive trade balance with such a key trading partner. It is imperative that policymakers address these challenges to protect the long-term health of the EU’s trading relationship.

EU suppliers contributed almost €27 billion to the EU’s trade surplus in 2023, but it is unclear how long the sector will be able to compensate for the EU’s competitiveness deficit. The EU must address the financing gap and reduce administrative burdens, strengthen the single market and provide reliable and affordable energy to help suppliers thrive around the world. Benjamin Krieger Secretary General of CLEPA

4 – Competition in the world’s largest market is fierce

As the world’s largest market, China continues to be a key arena for competing for EU suppliers. A small group of suppliers are managing to do just that, securing orders from Chinese OEMs, and one supplier is on the verge of posting its first-ever profit from producing electric vehicle components in the country.

However, most European suppliers face significant challenges in entering the Chinese market, both strategically and in terms of research and development. Nearly 50% of companies are unable to compete with China on price, 44% have no access to new Chinese OEMs, and 40% have uncompetitive production cycles.

However, China’s leading role in mobility and the size of the market make it important for European suppliers to achieve growth there. As highlighted by CLEPA and McKinsey Pulse Check, 30% of European suppliers expect to increase sales in China, highlighting the critical importance of overcoming these challenges.

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