Curbside Newsstand: Supplier Apocalypse? Electrification Will Impact Automakers And The Companies That Support Them, With 80,000 Jobs Already On The Chopping Block

Rivian R1t

As the auto industry begins its push towards mass electrification, suppliers will be forced to innovate or die. That’s the general consensus among analysts and the companies themselves. Internal combustion engines require a lot more parts. And it’s the suppliers that provide the parts for virtually every car, truck, or crossover currently on the road today. If electric vehicles are heavily embraced by consumers, many companies could face extinction.

Kia Soul EV

We’ll probably see major supplier upheavals by 2030. That’s because China and the European Union initiated CO2 reduction measures based on fairly strict guidelines. In 2020, the Euro 6 standard will require automakers in the European Union to maintain a fleet-wide fuel economy of approximately 57 miles per gallon. It’s possible that requirement will rise to 73 by 2030. The new regulations already doomed the Ford Ka and other small vehicles as the costs involved with upgrading their powertrains proved too expensive for automakers, given their entry level prices. Estimates vary, but early projections say about three quarters of the 100 largest automotive suppliers could face extinction in this new climate.

audi e-tron

There is considerable uncertainty over the speed at which consumers will embrace electric vehicles, which further complicates things. Regardless, the adoption of electric powertrains is likely to diminish demand for internal combustion engines, which require far more parts to function. An electric vehicle is essentially just a battery paired to one or several electric motors and a few other components. Contrast that with an internal combustion engine, which involves seals, gaskets, fuel injectors, complex transmissions, and hundreds of other parts.

And there’s another angle here too. Electrified vehicles are generally more reliable than their internal combustion counterparts. Despite the complexity involved with mating an electric motor to a gasoline engine, the hybrid variants almost always end up requiring less maintenance. The culprit? Less stress on the internal combustion engine. That’s going to impact demand for replacement parts.

Cost-cutting has also impacted the automakers themselves. Audi recently announced an effort to reduce costs. The FCA-PSA merger will no doubt produce redundancies. The companies that can’t innovate or prepare for an EV-dominated future will perish. All told, some 80,000 jobs are being cut as automakers prepare to budget for EV research and development. There are other factors involved in those cuts, but the expense associated with electrification is considerable. If electric vehicle gain traction, even more jobs could be at risk too.

FCA eTorque

How can companies adapt? FCA’s e-Torque Mild Hybrid System is but one example of how suppliers can adapt to the new normal. The 48 volt battery replaces the traditional 12 volt system and can power the vehicle at low speeds. Mild hybrids will probably spread throughout the industry, but even a company like Continental AG, which developed components of the system, faces risks as it balances new technologies with continued production of internal combustion powertrains. The company is obviously aware of this, which is why it recently announced its intention to fully spin-off its powertrain division, which is now called Vitesco Technologies. Spin-offs are never a sign of confidence and the move is undoubtedly designed to minimize risk.

Jagar I-Pace

There’s another element to this too, and that concerns the already established companies that haven’t traditionally supported automakers:

It is between 2025 and 2030 — as EVs and plug-in hybrids attain mass-market status — that Eichenberg’s meteor appears likely to hit suppliers.

That’s because automakers will tap the consumer electronics industry for cutting-edge technology, rather than waiting for traditional parts makers to catch up, Eichenberg said. Consumer electronics purveyors such as LG Electronics, Toshiba, Bosch and Panasonic will exploit their economies of scale to reduce the cost of EV electronics.

Likewise, automakers will turn to battery makers such as LG Chem, Panasonic, Samsung, Toshiba and Hitachi to secure a stable supply of batteries.

That trend has begun. In February, Honda Motor Co. announced a joint venture with a Hitachi subsidiary to produce EV motors. And General Motors is working closely with LG Electronics and LG Chem, which produce key components for the Chevrolet Bolt.

There’s no bombshell shake up among suppliers right now, but that’s bound to change. And for countries like the United States, Germany, and the U.K., which host a substantial number of factories, those job losses will be acutely felt.

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