What Drivers Will Ensure Growth For Adient In The Future?

As announced on July 24, 2015, Johnson Controls (NYSE:JCI) will spin off its automotive seating and interiors business into a stand-alone public company named Adient. Adient, today, is the largest global automotive seating supplier in the world, providing its products to all major automakers. It supplies over 25 million seat systems a year and its FY 2016 (year ended September 2016) consolidated revenue is expected to be $17 billion, with $7 billion unconsolidated seating revenue, and $8 billion unconsolidated interiors revenue. The company has a global market leadership in North America, Europe, and China, with a unique and longstanding position in the latter through joint venture structures with leading Chinese manufacturers, such as SAIC and Faway. A number of factors will ensure long-term growth for Adient, some of which have been highlighted below.

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1. Growth In The Vehicle Production Industry

In light of the growing population and increasing affluence in the emerging markets, the global automobile production growth is expected to remain robust. The vehicle penetration in a number of developing economies also remains very low. For example, only 18 people per 1,000 own a vehicle in India, as compared to 809 people per 1,000 in the US, 519 in the UK, and 101 in China.

According to HIS forecasts, the production levels will cross 100 million units by 2020. A shift in the production to developing countries was seen as a direct consequence to increasing domestic demand, as well as high taxation imposed on vehicles imported. As a result, the Asia Pacific’s contribution to world sales increased from 2.7% in 1993 to 47.6% in 2013. Developing economies of China, India, and Indonesia were the main drivers for this.

The majority of the vehicle production growth in the future is expected to come from China, albeit at a lower, but more sustainable rate than in the past few years. A growing, and richer middle class is the primary reason for this trend. According to McKinsey research, the income of more than half of China’s urban households, calculated on a purchasing-power-parity basis, will catapult them into the upper middle class. Such a category barely existed in China in 2000.

2. Shift Towards SUVs and MPVs

Globally, a trend towards SUVs (Sports Utility Vehicles) and MPVs (Multi Purpose Vehicles) is being noticed. In Europe last year, new car registrations went up by 9.3%, driven by an SUV boom, which played a big factor in the total growth of the industry. It was for the first time in the history of European car sales that SUVs led the way, with 24% growth, outselling the traditional stronghold of subcompact and compact cars. Their market share also increased from 19.8% in 2014, to 22.5% in 2015.

This growth globally can be attributed to the emergence of small SUVs, reflecting the desire for SUV-benefits, without the purchase of a bigger car. In emerging economies, this shift is being paved by urban buyers, with repeat customers forming a huge chunk of the sales. MPVs, with their mix of price and utility, have caught the fancy of consumers in such countries. Furthermore, the presence of larger families in developing economies, is also causing a shift towards SUVs and MPVs.

The SUV and sub-compact SUV market is projected to reach 30.16 million units in 2020, growing at a CAGR of 5.36%. Advantages, such as low cost, compactness, stylistic design, and high maneuverability, is pushing the market towards such cars. Furthermore, a move towards luxury or comfort features, is another trend that will be a growth driver for a company like Adient.

3. Increase In Passenger-Focused Technologies And Connected Cars

The rising demand for technologies, such as occupant sensing, seating heating/cooling, massage features, and seat adjustability, will drive demand for products offered by Adient. Moreover, connected car/autonomous driving will further enhance the need for content growth. Adient offers a complete interior solution to potential new entrants, and this trend will also have a significant impact on the interior content supplied by Adient. According to a study by PWC, worldwide sales of connected car products will increase almost fourfold between 2015 and 2020, adding over $149 billion (more than €110 billion) in revenue in the passenger car segment alone.

Have more questions on Johnson Controls? See the links below:

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• How Does The Adient Spin-Off And Tyco Merger Create Value For Johnson Controls’ and Tyco’s Shareholders?

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