Don’t put all Eggs in one Basket!

That is the advice every bank teller gives you when it comes to investing. Build up a diversified portfolio, so you can weather the storms that affect certain industries. And we exactly have that case where the automotive industry is struggling.

For a long time, focusing on automotive was the largest driver of growth for foundries. While the revenue and article number were growing, margins were shrinking. But with good old automation and efficiency programs, foundries reduced their cost bases, leading to fully automated, interconnected production lines perfectly suited to the high volumes of automotive production.

Pitfall 1: Ten different Tier 1s are enough diversification

This focus on the sweet, high volumes in automotive is now a liability. You see it in every company presentation when the logos of their customer base are shown. 20 different logos suggest a well-diversified portfolio of companies.

All this seems like a secure base for a business. But all these companies are interconnected and delivering to the same few OEMs. And now they are struggling to sell their vehicles. That lack of volume flushes through the system, leaving empty capacities at the foundry level. It does not matter how many Tier 1s you deliver; they sell all of them to the same customers.

Pitfall 2: From comfort to interchangeability

Your customers made it super easy for you to get new castings. There was no need to constantly call the purchasers to ask for new business. They build up supplier portals where you can download parts, suggest improvements, and upload your quotes. That was a constant stream of potential business just a mouse click away.

The uploaded parts are already in a design status that you can work with. There is no need to invent and design something yourself. The final customer has already delivered a casting for you; you just need to tweak it to perfection. After the 20th iteration of a shock tower, there is no surprise element to the design. Just upload the quote, and you’re in the race for new business. What is easy for you is easy for everyone else, giving all the power to the purchasing organisation, pressuring for the cheapest quote. That makes you just a tiny number in the system.

Pitfall 3: Projecting the past into the future

Every projection you see about the automotive market is just growing. Every year, more and more cars should be produced. The reality is different. It used to be standard for every adult to own a car. That is no longer the case.

Additionally, the car models that everybody had cost now more than an average yearly salary after taxes and social security deductions. Who is still willing to spend that much for a base model that isn’t powerful, isn’t luxurious, and hasn’t reached the twenty-first-century software-wise? You can easily get a Korean or Chinese car with full amenities for half the price.

When we dig deeper into the distribution of car production, this trend is evident. The production volume in Europe is shrinking, and the volume in China is still growing. Additionally, the EV transformation requires a whole new set of properties from castings, while the article numbers for foundries in an EV-first platform are just half of what they used to be in an ICE car. Did you account for that loss of article numbers that will materialize in the coming years?

How can you avoid these pitfalls for a profitable future?

The hyper-focus on the automotive industry that once used to be your growth driver has now become your liability! Volumes and prices dropping simultaneously is a terrible situation. The only way out of this crisis is expansion into new industries. These industries might be new for you, but they have existed for a long time. But you never cared or developed the skill set to service them, as most industries don’t have supplier portals, and you need to educate the customer on how to solve their issues.

Additionally, everyone else is looking for new markets to sell to with the same equipment. So, you don’t just need to market your solutions, you also need to deliver something that others can’t do. That is a challenge!

If you want to learn how to do it, join the Rheocasting Masterclass and jumpstart your business development process without the race to the lowest price! The start is on the 6th or 9th of February, and the Rheocasting Masterclass is available in English and German.