Automotive Engineering - April 2022 - 5

SUPPLIER EYE
The soft underbelly of the EV transition
T
he list of OEMs and suppliers that are
splitting their organizations into traditional
ICE powertrain and electric vehicle
operations continues to grow. Just follow
the money, as billions are being devoted to
new battery plants, upstream input supply,
charge point investment and revolutionary approaches
to next-gen vehicle architectures.
Regular readers of this page already understand
our view of the key functional systems/
components being classified as either EVNegative,
EV-Agnostic or EV-Positive. And as
such, how the industry addresses these capabilities
going forward from a capital, talent, timeline
(speed) and financial-return perspective is woven
into every decision going forward.
Case in point is Ford's recent announcement
that it is severing its traditional engine/transmission
operations, now called Ford Blue, from
its emerging BEV operations, known as Ford
Model e. The strategic and tactical split is expected
to have a huge impact on every touchpoint
- vehicle and systems development,
technology, production, retail sales and the aftermarket.
Other OEMs have formed JVs with
existing auto Tier 1s or new industry entrants to
enable their transition to BEV from a technology
and timing perspective. Additionally, countless
Tier 1s have structurally severed or sold off
ICE-focused operations/development as OEMs
quickly reduce or restructure these operations.
The speed with which OEMs and larger Tier 1s
are pivoting towards EVs and the subsequent
refocusing of their business structures has been
more rapid than expected. While several industry
observers, me included, warned of the inevitable
shift towards electrification, the sheer
commitment behind it has been surprising. The
recent S&P Global (previously IHS Markit) Light
Vehicle Propulsion Forecast outlines growth to
Michael Robinet
Executive Director,
S&P Global
SAE Foundation
Trustee
michael.robinet
@ihsmarkit.com
Tier 2+
suppliers...
may lack
the ability
to transition
in cadence
with their
customers to
the EV-driven
opportunities.
32% EV output by 2030 in North America with
the rate reaching 36% on a global basis. Years of
focused development and careful capital planning
towards the EV future has pre-determined
the fate of ICE operations.
While the industry has not written off traditional
ICE operations - which continue to fund
development of EV and other advanced technologies,
after all - clearly these are on a different
trajectory. While several Tier 1s are working
through the transition (and most should
succeed), there is less flexibility to pivot at the
Tier 2+ level. Tier 2+ suppliers, which innovate
and build critical sub-systems and deliver key
materials and processes or tooling to support
ICE programs, may lack the ability to transition
in cadence with their customers to the EVdriven
opportunities.
Therein lies the 'soft underbelly' of the industry's
mammoth transition. Can key suppliers that
are integral to the continuation of ICE production
survive the reduced volumes (lower economies
of scale) and lack of new programs to replenish
margins going into the next decade?
And there's another complication: The need to
support the ICE aftermarket for 10-15 years after
the end of a program. This extended tail already
is causing concern for all involved.
Announcements surrounding the structure of
EV versus ICE operations will continue as decisions
flow upstream into the supply chain.
Growing exposure to lower volumes, increased
pressure to effectively pay back capital and attract
the necessary talent to support ICE supply
will dog the industry.
Note to readers: In March 2022, IHS Markit
merged with S&P Global. S&P Global is focused
on supporting our clients with critical capital decisions
and powering the markets of the future.
AUTOMOTIVE ENGINEERING
April 2022 5
Automotive Engineering - April 2022

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