Magna International Inc. CEO Seetarama Kotagiri got right to the point in discussing the implications of an increasingly electrified vehicle fleet on the global automotive supply chain.
Speaking as a keynote at the Center for Automotive Research (CAR) Management Briefing Seminars last week, Kotagiri started detailing the issue almost immediately as he took the podium for the hybrid in-person and virtual conference.
“Global automakers and suppliers have invested $300 billion into electrification, which is not just a variable anymore to manage fleet emissions,” Kotagiri told the audience of this year’s event, held at the Grand Traverse Resort in Acme. “It has become a differentiator for automakers, addressing social responsibility and also creating excitement with customers.”
Vehicle electrification was one of the central themes at the auto supply chain conference, which featured a thinner in-person crowd than usual but was available for attendees to attend digitally.
The event’s breakout sessions sifted through issues that ranged from conquering hurdles to mass EV adoption to how electrified vehicles will affect social equity.
The discussion during the CAR event proved even timelier when the Biden administration last week also released its ambitious goals for EVs. With support from the Big Three automakers, the president announced he wanted half of all new car sales in America to be EVs by 2030.
However, the targets were non-binding, leaving some industry watchers to wonder exactly how much movement it might spark.
The road to achieving the new industry benchmark faces a variety of hurdles, including how quickly consumers will take to electric vehicles. The top names in the industry also pointed to the need for billions of dollars in electric vehicle investments to install sufficient infrastructure.
“It throws some more defined deadlines and timing on it,” Mike Wall, director of automotive analysis in Grand Rapids at IHS Markit, told MiBiz of the administration’s goals. “Even this was a little squishy, though. Their goals in some cases are aspirational, but it gets us closer. Hands down, what we need is to start talking about the investment to get us there, (such as) incentives on the purchase side.”
EV sales have surged over the last five years but have a long way to go to reach Biden’s 2030 target.
Information from the Pew Research Center showed that, as of 2020, around 1.8 million EVs were registered in the United States, which is three times as many as in 2016. However, in 2020, all-electric vehicles accounted for just 2 percent of the light-duty vehicles sold domestically.
Despite the runway left to go to meet the new industry targets, EVs are making great strides, said Glenn Stevens, executive director of statewide auto industry association MICHAuto.
“They’re here, they’re real,” Stevens said. “The question is what is the adoption curve going to be and how is this mix of government incentives and consumer demand and preferences playing together.”
Supply chain disruptions
When speaking to audiences, Stevens likes to show a split image under the hood of a standard Ford F-150 and the new electric Ford F-150 Lightning. The traditional pickup houses an internal combustion engine, while the electric model features a front trunk, or frunk, with storage space.
“That’s a very dramatic picture, but it’s also extremely symbolic of how the supply chain is going to change,” Stevens said. “The thousands of components that go into internal combustion propulsion systems now becomes less than 100 in an electric vehicle. The supply chain is going to be greatly impacted. The further you go down in tiers, the more the impact.”
Determining how to navigate this new landscape forms the existential issue auto suppliers face.
Stevens said that all suppliers should be considering which vehicle platforms they are serving and when those vehicles will be electrified to determine how to diversify their operations in a way that they can meet the needs of both internal combustion and electric vehicles.
“Any company that is not really closely looking at their book of business today, five years from now or 10 years from now, and watching these developments is flying very blindly,” he said.
Even automakers are looking at similar pressing questions, according to Wall.
In the past, many automakers traditionally built their own engines and transmissions, an operation that could change when transitioning to electric vehicles. Essentially, automakers will need to decide where they land in their own supply chain.
“Does an automaker want to be in the business of electric motors and batteries?” Wall said. “In some cases, that answer is yes because they have a lot of engine and transmission plants they need to replace and a lot of labor agreements they have to tend to. But in other cases, they might look at it and say, ‘Boy, I don’t want to be the electric motor guy.’”
As new brands enter into the electric vehicle market, auto suppliers are finding potential new opportunities but also assuming a certain level of risk that comes with these untested companies. Even EV automaker Tesla Inc. last week announced that production of its planned Cybertruck model would be delayed until 2022.
“There have been a lot of EV companies, particularly on the truck side, that have come into business or brought products that they say they’ll bring to market, and not all of those companies are going to be winners,” Stevens said.
Ohio electric vehicle startup Lordstown Motor Corporation stands as an example. The company went public last year via a special purpose acquisition company (SPAC) and promised to bring an all electric pickup truck to market this fall. However, over the last few months, the company has been floundering financially and is on the brink of going out of business.
The example serves as just one cautionary tale for suppliers when deciding which EV clients to pursue.
“What happens to companies like Lordstown? Do they make it or not?,” Stevens said. “If you have invested money into tooling and things like that for future vehicles that don’t occur, that’s going to be stressful.”
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