Manufacturing, autos and logistics
Tier 1 supplier
A supplier that sells complete parts or systems directly to the carmaker.
Facts checked against sources onWhat does Tier 1 supplier mean?
A tier 1 supplier sells parts or whole systems, such as seats, brakes, electronics or axles, directly to the OEM. Tier 2 suppliers sell components to tier 1s, and tier 3 suppliers provide raw materials and basic parts. Bosch, Denso, ZF, Magna and Continental are large tier 1s, and India's Samvardhana Motherson is a major one. Carmakers often ask suppliers for yearly price cuts. Example: if an OEM asks for a 2 percent yearly price cut on a 500 million contract, the supplier loses 10 million of revenue a year unless it can cut its own costs as fast. Tier 1s with key technology, such as battery or software systems, have more pricing power.
Where does it come up in case interview prep?
- Procurement and sourcing: where the money goesLesson in Sourcing, trade and supply risk
- Supplier concentration and resilienceLesson in Sourcing, trade and supply risk
- How the automotive industry works: OEMs, suppliers and dealersLesson in Automotive and electric vehicles
- Car economics, electric vehicles and the automotive supply chainLesson in Automotive and electric vehicles
- Automotive players, EV adoption by region, trends 2024 to 2026, and how to crack the casesLesson in Automotive and electric vehicles
- How the defence and space industries workLesson in Defence and space
Related terms
- OEM (original equipment manufacturer)In autos and machinery, the company that designs, assembles and brands the final product.
- Value chainThe activities a firm performs to create and deliver value.
- Switching costsThe cost or effort for a customer to change supplier.
- Make-or-buy decisionChoosing whether to produce something in-house or buy it from a supplier.
- Vehicle platformA shared set of engineering underpinnings used for many car models.
- Battery pack costThe cost of an electric vehicle's battery pack, usually quoted per kWh of capacity.
- Installed baseThe number of a company's machines or systems currently in use at customers.
- AftermarketParts, service, repairs and upgrades sold after the original equipment.
Learn it in context
See Tier 1 supplier at work in a lesson from Sourcing, trade and supply risk, with checks as you go.
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