Auto suppliers are feeling whipsawed by what’s happening with the electric-vehicle “revolution,” and rightly so. Every report of EV retrenchment by OEMs, or by their customers, seems to be paired these days with a report of a supplier making new investments in the future of a new propulsion form that doesn’t seem to be such a sure bet, at least in the short term.
“Manufacturers that are supplying parts for EVs are expecting certain amounts of volume, have built business cases, have brought a bunch of new capital to bear, and many have agreed to loss-making or lower margins on some of these in order to be in first-mover position,” said Dan Hearsch, Americas leader of the automotive and industrial practice for AlixPartners consultants.
The clear lack of consumer enthusiasm for all-electric vehicles has translated into carmaker decisions to slwo down and stretch out their transitions to EVs. And that is a jarring development for many suppliers, from the multi-billion-dollar Tier Ones that are essentially peers of the original-equipment manufacturers of autos, down through the Tier Four suppliers that run mom-and-pop machine shops in suburban Detroit.
Most analysts agree that the growing hesitation by vehicle purchasers is more related to their concerns about charging infrastructure and practices than it is to the merits of EV models per se. Dozens of new EVs and hybrids have come out that are very driveable, even fun; are comfortable, with innovations in interior spaces that have been freed up by the battery-propulsion architecture of the vehicles; and are providing increasing ranges, as high as 300 miles on a charge, that assuage much of the “range anxiety” consumers may feel.
But where, when, how, and how fast consumers can recharge their EVs has become a hindering consideration, even as everyone from a coalition of OEMs to the federal government to state transportation departments to major retailers and hotel chains have been building out EV chargers by the thousands these days.
In fact, Hearsch said, the distant future of EVs may be undimmed — which also makes decisions difficult for supplier chiefs. “I don’t see this [period as indicating], ‘Oh my gosh, people aren’t going to buy EVs.’ I think the push was more aggressive than what consumers were ready for because the charging infrastructure isn’t there yet. But the long-term EV outlook hasn’t changed.”
Joseph McCabe, president and CEO of AutoForecast Solutions, an industry advisory firm, said “the hard part about forecasting EV demand is: When does the new-adopter apex hit? It has come. And now sales have slowed. And what is happening is that suppliers are still being told to come up with obnoxiously large volumes when the reality is that the market is definitely [sliding] back.”
Auto suppliers, of course, are used to being caught in such pincers. For decades, OEMs have pounded them regularly for price concessions, wielding an existential sledgehammer. More recently, automakers pressured suppliers to devote more resources to product and feature innovations to improve future vehicles. And the pandemic introduced a three-year period of fresh frustrations of supply-chain snarls related to microchip supplies that clashed with decades of industry efforts to create just-in-time inventory systems.
But the EV era and its increasing uncertainties represent a new and increasingly unsettling crossroads for suppliers.
“Suppliers will have to cut costs or go to OEMs and say, ‘I tooled up for 100,000 orders, but if you only want 50,000, you’re going to have to write me a check,” Hearsch said. “OEMs have learned it’s a lot less expensive to support suppliers like this rather than let them go bankrupt. However, there’s a limit to what they’re going to do, and they’re not going to help everyone.”
Added McCabe: “Suppliers aren’t going to be standing at the line saying, ‘Hell, no,’ but they’ve got to have a conversation If [OEMs] want to have a long-term relationship, suppliers have to find a way not to lose money. In some cases, they’re publicly traded.”
In this environment, Toyota as a customer looks better and better to many suppliers. The company’s emphasis on hybrid vehicles rather than all-electric models makes increasing sense as the consumer marketplace expresses more and more misgivings about all-electric vehicles. “The industry is coming back and saying, ‘Maybe we need a more balanced portfolio,’” McCabe said. “Toyota is saying, ‘Let’s hybridize.’”
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February 01, 2024 at 04:47AM
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