Automotive industry facing ‘unprecedented change’
By Jon Hustler, partner at Clearwater International
The automotive industry is facing unprecedented change as e-mobility, increased connectivity and autonomous driving demand a complete rethink of the business models of both OEMs (Original Equipment Manufacturers) and suppliers.
One of the major beneficiaries of these trends are specialist Engineering Service Providers (ESPs) which supply a huge range of services to both OEMs and tier-one suppliers.
Here in the West Midlands many of these providers are suppliers with very specialist knowledge and skill-sets around particular vehicle parts, such as gearboxes or powertrains. As entrepreneurial companies, often with a long history of innovation, they are ideally placed to advise major automotive players.
Likewise the region’s innovative culture, backed by government support, makes it especially attractive for investment. For instance the forthcoming clean air policy for central Birmingham also invites further technical innovation.
Electrification is a particularly good example of where increased demand for engineering services is being triggered by changing consumer demand.
We saw this only recently when Dyson unveiled more detailed plans about its own electric vehicle, a move which also showed how this dynamic market is also attracting exciting new entrants. However just like traditional OEMs, these new entrants will still need to capture external expertise in order to help develop their models.
JLR is a good example of an OEM in this region which is also investing in electrifying its range, recently announcing plans for a new battery assembly plant at Hams Hall and for the reconfiguration of its engine plant in Wolverhampton to make electric drive systems.
Against this backdrop many ESPs in this region are in a strong position as OEMs are increasingly reliant on their skills. Speed to market has been key, and those businesses which ‘bet early’ on emerging technologies are now reaping the dividends, enjoying fast-growing turnover and profits. As they reach scale, these businesses are catching the eye of trade acquirers who are seeking specialist engineering expertise to complement their existing traditional automotive operations, with such transactions typically attracting premium valuations to the market.
Here at Clearwater International we are also seeing interest in this sector from private equity. Whilst automotive has not been on their agenda in recent years, investors are now recognising the value of gaining a foothold in these disruptive high growth markets and they will have a crucial role in scaling-up these businesses.
Given that the market for these specialist services is growing exponentially, and given just how important ESPs in this region and beyond are to OEMs, we expect this market to remain vibrant for the foreseeable future.