Automotive Engineering - May 2023 - 4

SUPPLIER EYE
The four strategic choices facing suppliers
H
as there ever been a period of automotive
history where the shift in trajectory,
technology envelope and level
of risk assumed has been so high -
and happening as rapidly as the transition to
electric vehicles? I'll submit that the post-WWII
boom and competitive shakeout, the 1970s oil
embargos and subsequent focus on lightweighting,
and the bankruptcies of a couple of
major U.S. OEMs come close. But those events
will pale in comparison to the impact of the
ICE-to-BEV transformation.
The current S&P Global Mobility BEV production-share
forecast for NA is almost 9% - up
three percent from last year. By 2030, the forecast
is for 39% of production to be battery-electrics.
Of course, that leaves roughly 60% of production
powered by IC engines, with most of
them likely to be hybrids. Still, given this backdrop
suppliers in the engine, transmission, driveline,
fuel and exhaust spaces have been strategizing
their future. Some are proactively making
critical decisions while others are waiting for
the dust to settle (and the next rounds of vehicle
emissions and fuel-economy regulations to arrive).
News flash! The dust has settled.
Virtually every supplier will be impacted by
the changing value equation as electrified platforms
are the focal point of most of the new
capital and technology investments. Those suppliers
in the BEV-negative (adversely affected
by battery electric propulsion) sectors essentially
have four strategic choices going forward.
Forward-focused suppliers have already made
a choice.
Choice 1: Lift and Shift
Given their position within the competitive market
in the 'ICE' sector and/or their ability to
transfer technology to BEV-agnostic or BEVpositive
areas - these suppliers transfer their
operations to new light vehicle sectors. Several
major Tier 1 moves to date are evidence of this
as they focus on technologies that promise a
more profitable future. This includes e-motors,
inverters, battery thermal management technologies
and electrified chassis (braking, steering
and suspension). The 'lift and shift' suppliers
are using the success from the declining ICE
business to transform into a new entity driving
higher margins for the future.
Michael Robinet
Executive Director,
Consulting,
S&P Global Mobility
SAE Foundation
Trustee
michael.robinet
@spglobal.com
Virtually every
supplier will be
impacted by
the changing
value equation.
Choice 2: Evacuate
Several suppliers looked toward their long-term
future prospects - and opted to seek an exit.
These suppliers reviewed several factors to make
this decision:the age or the ambitions of company
ownership; other, more lucrative options
for their capital and technology; the level of risk
they were willing to assume and their position
versus competitors and customers as volumes
decline. Given these realities, many decide that a
strategic sale (selling to a competitor) or financial-markets
entity is the best solution for all
involved. Such sales may include the eventual
wind-down of operations or product lines or
re-investment in the enterprise to improve efficiency
and raise margins.
Choice 3: Cash Cow
The 'cash cow' choice is fairly simple.
Management may not believe that future volumes
will decline as swiftly as forecasters predict.
The ownership and executive team may
determine that their best route is to 'milk' current
assets, optimize their position through pricing
and nominal investment and ride out the
future. This decision is easier if there is a strong
aftermarket demand for the product. As ICE
production volumes wane, the aftermarket component
of their business becomes more important.
In the end, this decision will end in acquisition
or wind-down of the operations.
Choice 4: Double Down
Choosing to invest new capital into the acquisition
of competitor capacity, business relationships
and technology is a bold choice. With a
strong market position, several suppliers are
strategically acquiring competitor capacity,
technology and business relationships. Using
this newfound leverage, suppliers are strengthening
future financial performance through raising
prices or consolidating less efficient capacity.
While there are several variations of these
strategies for BEV-negative suppliers, in the end
suppliers are making these critical decisions either
actively or passively.
4 May 2023
AUTOMOTIVE ENGINEERING
https://www.spglobal.com/marketintelligence/en/campaigns/electric-vehicles
Automotive Engineering - May 2023

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