Shifting Gears: How the Rise of Electric Vehicles is Reshaping the Auto Supply Chain

Imagine a world where the rumble of a car engine is replaced by the quiet hum of an electric motor, where gas stations are fewer, and charging stations are as common as street corners. This is not a distant future; it's the inevitable path we're steering towards. The transition from internal combustion engine (ICE) vehicles to electric vehicles (EVs) is not just a shift in what powers our cars but is fundamentally transforming the entire auto supply chain.

The Changing Landscape of Auto Manufacturing

The 2023 Deloitte Automotive Supplier Study paints a stark picture: revenues for ICE components, including fuel and exhaust systems, are projected to decline by 44% through 2027. In stark contrast, revenues for electric drivetrains, batteries, or fuel cells are expected to surge by an astonishing 245%. This seismic shift is emblematic of a broader revolution within the industry. ICE powertrains, which boast about 2,000 parts, are making way for EV powertrains that require less than 20 in some cases. This not only changes the types of parts needed but significantly reduces the total number of components required in a vehicle's powertrain.

Automakers are not merely passive observers in this transition; they are active participants, adapting their manufacturing methods to this new reality. Tesla, for instance, employs giga casting – a process that allows for the creation of large, integral parts, reducing the number of individual components needed. Furthermore, companies are bringing more of their supply chain in-house, a move aimed at ensuring efficiency and reducing dependency on external suppliers.

The Challenge for Suppliers

However, this transformation presents a double-edged sword, particularly for the myriad of small, often family-owned firms that have long been the backbone of the auto parts supply chain, as well as larger suppliers like Bosch, Denso, Magna, and ZF. For these entities, the rapid pivot to EVs is a daunting challenge. Larger companies may have the capital and resources to spin out their ICE divisions and focus squarely on electric drivetrains, but smaller suppliers may find themselves at a crossroads, hampered by a lack of capital to make a similar pivot.

Nevertheless, these smaller suppliers are not without recourse. The industry's evolution demands creativity and adaptability, encouraging these firms to leverage their strengths in new, innovative ways. Whether through forming strategic partnerships, focusing on niche markets, or diversifying their product offerings, the path forward, though fraught with uncertainty, also brims with opportunity.

Looking Towards the Future

As the industry stands on the cusp of this monumental shift, it's clear that the road ahead will be paved with both challenges and opportunities. The concept of an 'European Electric Car Voltron,' akin to an alliance similar to Airbus in the aviation industry, underscores the collaborative efforts needed to navigate this transition successfully. By pooling assets and sharing the colossal costs associated with building affordable EVs, automakers can better position themselves in a market increasingly dominated by the likes of Chinese manufacturers selling cheap EVs in Europe.

The transition to electric vehicles is more than just a shift in automotive technology; it's a redefinition of the entire automotive ecosystem. From the way cars are built to how they're powered, the journey towards electrification is reshaping the landscape in profound ways. For suppliers, the message is clear: adapt and innovate, or risk being left behind in the dust of a rapidly changing industry.