Legacy automotive tier-1 suppliers are in hot water because major automakers face fierce competition and scale back their EV investments. Carmakers continue to pressure tier-1s, saying suppliers might be kicked out of the supply chain if they cannot reduce prices as needed.
Supply chain sources said legacy tier-1s are impacted as carmakers meet difficulties in transformation. Many tier-1 companies invested significantly in new projects per automaker's requests but did not receive the number of orders that they had expected. In the second half of 2023, some tier-1 suppliers had to sell or restructure business units that did not achieve desirable profits.
Due to fluctuating vehicle sales and price competition from Chinese carmakers, major automakers are shifting their pressure to tier-1s. Stellantis, the world's fourth-largest car company, said if the supply chain does not accelerate new technology development and cut costs simultaneously, the company might increase the portion of self-produced components and stop working with some existing suppliers.
According to media reports, legacy tier-1s like Valeo, Continental, Magna, Forvia, and Aptiv will suffer as they are Stellantis' primary tier-1 suppliers.
Stellantis owns several vehicle brands that focus on the mass market and are directly impacted by China's low-cost vehicles. To counter the threat, Stellantis has obtained a stake in China-based Leapmotor, adding a new brand and new tier-1 suppliers to the group.
As automotive electrification continues, many European car brands, including Germany's Volkswagen, Mercedes-Benz, and BMW, have partnered with China-based automakers. In the future, they will likely adopt an approach similar to Stellantis'.
Sources said legacy tier-1s have started to lose their advantages as carmakers hit roadblocks in electrification and new tier-1 suppliers rise. Moreover, legacy suppliers have yet to see their efforts in partnering with China-based emerging automakers paid off. These car companies tend to work with domestic suppliers to deal with the price war. The collaboration can also receive government subsidies.
