Automotive Engineering - May 2021 - 4

SUPPLIER EYE
Forks in the road

uppliers face critical decisions on a daily
basis. Crises come and go. Dealing with
erratic production schedules driven by
semiconductor supply shortages and
coping with rising prices for strategic materials
such as steel and resin underscore the cyclical
challenges of the auto business. By comparison,
other hurdles such as hiring and retaining the
right talent are just frosting on the cake.
Then comes battery-electric vehicle (BEV)
propulsion and the significant investments and,
in some cases, upheaval it demands. For
suppliers, the changes that will impact most
functional vehicle systems due to the EV trend
outline four strategic paths - forks in the road -
to follow:
Maintain course: Depending upon the system
supplied and aftermarket exposure, select
suppliers will witness little change in future
sourcing patterns, value add and development
timelines for future business. Many though not
all interior and exterior systems fit this
classification as an example. Even if your
business has thus far remained outside the
scope of BEV sourcing plans, vehicle
lightweighting and other ongoing technology
trends are still top of mind.
These suppliers are well advised to watch for
storm clouds as their ecosystem can shift
quickly. But for those whose business is ICengine dependent, fear not in the short term:
IHS Markit's recent Vehicles-In-Operation (VIO)
Forecast is confident there will still be ICEpowered offerings, predominantly hybrids, in the
fleet 30 years from now.
Sell/liquidate: While this path is seemingly
drastic, changes to future system requirements
given electrified propulsion make this a reality
for many. Factors such as global/regional
sourcing, upstream and downstream value-add
shifts, and BEV-fueled cadence changes may
signal to several suppliers that it is time to
divest. Alternatively, those suppliers with
capabilities in multiple system areas may choose

4 May 2021

Michael Robinet
Executive Director
IHS Markit
michael.robinet
@ihsmarkit.com

Regional
suppliers
in system
areas heavily
impacted by
electrified
propulsion
will need
to establish
whether to
stay...or go.

to focus on a reduced portfolio where their
competitive position, returns, risk or capital
outlay are more favorable.
Given shifts in the relative economies-of-scale
for future global BEV architectures, several
regional suppliers in system areas heavily
impacted by electrified propulsion will need to
establish whether to stay...or go. Additionally, as
OEMs themselves adapt to an EV-centric industry,
suppliers can venture into the systems with high
growth potential, such as electrified drives and
e-motors. Customers may become competitors.
Watch for the traditional tier relationships to blur
in the future.
Pivot: We see many suppliers choosing to reinvent themselves using several avenues. Some
integrate vertically, usually upstream, to ensure
supply continuity, capture enhanced value and,
in some cases, drive more differentiation. Others
are opting for joint ventures or affiliations, to
couple existing capacity with new system
requirements, reach new geographies, and to
share development costs.
Adding electronic content or software
capability to a mechanical system is a key play
that has occurred in steering and braking. Some
suppliers are developing new products while
leveraging their existing processes. Companies
that machine " traditional " powertrain and
driveline components are finding opportunities in
e-motors and drive systems within the BEV world.
Double-down and consolidate: Contrarians will
try to make lemonade from lemons. Faced with
consolidation in their space, they may seek to
take out weaker competitors and consolidate
capacity to drive pricing. Some are betting that
the uptake for BEV offerings will be slower than
forecast. If their bets are accurate, they can
benefit from consolidation for several years.
Supplier strategy has never witnessed the
level of risk vs. reward we see today. Every
situation is different; solutions are not simple.
But we can expect more forks in the road as the
BEV ecosystem develops.

AUTOMOTIVE ENGINEERING

Automotive Engineering - May 2021

Table of Contents for the Digital Edition of Automotive Engineering - May 2021