Automotive Engineering - August 2024 - 3

SUPPLIER EYE
Planning with a scenario mindset
A
cross the industry, strategic planners
from OEMs and suppliers alike are
scratching their heads. The number of
strategic directions they currently face
is unprecedented. Combine global trade friction
(China tariffs), high interest rates, a pausing EV
transition, new OEM players and the U.S. political
environment - one could build scenarios all
day to cover the possibilities.
Given this rocky environment, a new approach
is required. Trusting one forecast as a basis for
all strategic decisions may be inadequate in capturing
the major vehicle market possibilities. A
quick examination of the key variables underscores
the challenge.
Variable 1: Outcome of the U.S. federal
election in November
One can feel that there are several significant
capital and strategic decisions that may alter the
direction of several strategies. Additionally, it is
not a case of whether the Democrats or the
Republicans control the U.S. presidency, but how.
Does the ruling party have a majority on both
sides of Congress? What will U.S. foreign policy
be from a tariff perspective? How will emissions
and fuel economy legislation change, and when?
What is the future of the California Air Resources
Board (CARB) exemption? Lastly, what happens
to commercial and consumer incentives under
the Inflation Reduction Act (IRA)? Billions in capital
hang in the balance and, as such, scores of
decisions will wait until November.
Variable 2: EV growth rates
Partially dependent on variable 1, how will consumers
and the industry adjust to EV acceptance
that's seemingly on the flat end of the 'S'
curve? While any new technology experiences
volume gyrations, the recent issues impacting
EVs have been more extreme than expected.
With many OEMs delaying EV introductions and
capital outlays, suppliers are left in limbo. There
are a couple of examples of viable internal combustion
engine (ICE) and hybrid vehicle plants
that have been idled for two-plus years as they
Michael Robinet
Executive Director,
Consulting,
S&P Global Mobility
SAE Foundation
Trustee
michael.robinet
@spglobal.com
Given the rocky
environment,
a new approach
is required.
wait to transition to producing EVs. Unheard of
in our industry. Other decisions, such as continuing
ICE vehicle output alongside new hybrids -
plug-in or standard gas-electric models must be
weighed. Can OEMs and suppliers cover the
capital costs and outperform alternative strategies?
How and at what rate will the industry
drive scale in EVs to bring MSRPs down?
Variable 3: China's growing BEV
position
This one has several layers and is integrated into
variables 1 and 2. Many Chinese OEMs have
ramped up their EV design and production capabilities.
Even a cursory view of the progress
made with respect to cost, packaging, design
and scale is head-snapping. While this author is
apprised of most industry shifts and their relative
impact, a recent review of the progress of
Chinese-made EVs underscores the challenges
the balance of the market faces. No matter what
happens with tariffs or protectionist measures
instituted by various governments, the competitive
structure is set. As several Western OEMs
have outlined, they need to learn to compete.
Variable 4: Relatively high interest
rates and vehicle affordability
challenges
While we have faced high interest rates before
(these will eventually fall), experiencing these in
the midst of several new EV offerings (with
higher prices) has challenged retailers. Add in
the lack of used vehicles coming off three-year
leases thanks to the COVID impact and you can
understand why OEMs will need to sharpen their
pencil with respect to costs and incentives to
drive volumes for the next couple of years.
There are more variables to consider. Some
may be internal to a vehicle subsystem or a specific
company. Whatever these are, suppliers
need to start planning with a scenario mindset.
Understanding the impacts of several " what ifs "
may be more important than ever. Planning will
require greater flexibility and speed. Welcome to
the new automotive reality.
AUTOMOTIVE ENGINEERING
August 2024 3
Automotive Engineering - August 2024

Table of Contents for the Digital Edition of Automotive Engineering - August 2024
