Automotive Engineering - February 2024 - 4

SUPPLIER EYE
Suppliers' ICE-to-EV capacity dilemma
F
or decades, there has been a tug-of-war
between many suppliers and their vehicle-manufacturer
customers with respect
to future planning volumes. The
stakes are significant. Using volumes that are
too high drives an extreme capital commitment
and risk suppliers to stranded capital and missed
opportunities to employ resources elsewhere.
Using volumes that are too low means the OEM
may miss potential sales and the supplier would
be stressed with extreme overtime to keep up. It
is a never-ending balance.
OEMs often use internally built 'Capacity
Planning Volumes' (CPVs) to ensure they capacitize
to both their annual and peak volume expectations.
These volumes are used as the divisor
to understand per-part costs and how tooling,
machines, infrastructure and other capitalized
items are amortized over the life of the program.
Suppliers often utilize third-party views
such as the S&P Global Mobility Light Vehicle
Production Forecasts to gain an impartial perspective
of market dynamics, as well as existing
and expected vehicle introductions.
Why the concern now? This financial dance
between supplier and OEM has been going on
for decades. In the past, there were various
commonalities with many systems and components
between ICE-based platforms and carryover
from generation-to-generation. Suppliers
would utilize similar machines, processes and
sometimes tooling between components - enabling
higher capital utilization and enhanced
production flexibility. While there are always
new technologies and innovations integrated
into a new or revised platform, suppliers would
try to utilize existing capital when possible to
reduce cost and risk. Consider the following: If a
supplier capacitized for a component for two
programs from the same OEM at 200,000 units
each per year, there could be a potential balance
between each program - allowing capacity utilization
to even out. The results could be less
overtime and lower costs and overall risk levels.
Now enter the EV. With virtually every platMichael
Robinet
Executive Director,
Consulting,
S&P Global Mobility
SAE Foundation
Trustee
michael.robinet
@spglobal.com
Double
capacity for the
same vehicle
segment is a
recipe for low
profitability
and poor
utilization.
form being unique with all-new systems, processes
and technologies, suppliers are facing
significant issues. Many times, these systems
have little in common with components that the
supplier is already producing for ICE models.
This limits the ability to deploy common capital
and resources to service these platforms. All is
comparatively new in the EV world. Therefore,
the level of risk to the supplier rises significantly,
as capital is unique.
There's one other issue that's potentially more
important when building for BEV platforms:
OEMs are trying to reduce the cost-per-component
for BEVs to improve affordability and profitability
as scale increases. Some assumptions
have been, well, somewhat suspect and inflated.
Suppliers are being asked to add considerable
capacity for BEV components while still holding
for peak volumes on the ICE side.
Given the current higher cost of capital (8%+)
for borrowed funds, suppliers need to be clever. If
there are two 200,000-unit programs with the
same OEM, one ICE-based and the other EVbased,
chances are there is little capacity in common.
Double capacity for the same vehicle segment
is a recipe for low profitability and poor utilization.
These days, smarter suppliers are seeking
the ability to add incremental capital once a program
demonstrates a need for more investment.
In the end, the transition from ICE to EV is
about more than new technologies and processes.
Suppliers need to be keenly aware of the
risks assumed as BEV capacity is added. Being
on the right program from a volume perspective
is critical to supplier viability.
4 February 2024
AUTOMOTIVE ENGINEERING
Automotive Engineering - February 2024

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