Preparing for a Lumpy EV Transition

As the industry plows ahead toward electrification, the short-to-mid-term future is uncharted territory at virtually every level.

May 1, 2022

Michael Robinet

Along with products such as the BYD HAN EV, China is shifting its propulsion strategies faster than North America. (BYD USA)

Recently, I was asked by an OEM to sum up the looming ICE-to-BEV industry transformation. My reply came in a single word: lumpy! And while that description may not be the most finely tailored way to explain the industry’s most critical transition since its inception, I think it fits. The changes certainly will not be smooth.

Significant impact is already affecting all facets of the mobility ecosystem – development, system sourcing, production, retail, and aftermarket. The short-to-mid-term future is uncharted territory at virtually every level. There are profound questions and ramifications: Transition speed. Commitment by all stakeholders (consumers, government, energy utilities, dealers etc.). Confidence in upstream inputs and logistic streams. Consumer acceptance/education, An all-new service dynamic. And geopolitical conflict swirling around it all. The current ICE infrastructure took over a century to build and refine, so it’s not unrealistic to expect drama and disruption in the next decade. Lumpy, indeed.

We are currently in a ‘honeymoon’ phase, with significant euphoria about the prospects for the new electrified propulsion format. Behind the hope and hyperbole, however, are blinding high levels of capital being diverted towards it. Risk abounds as virtually every OEM attaches their wagon to the BEV train.

OEMs and suppliers across the tiers increasingly realize the transition will be lumpy. It’s already well underway in other major global regions. Both China and Western Europe are shifting their propulsion strategies faster than North America. According to S&P Global Mobility’s latest Light Vehicle Propulsion Forecast, by 2030 China production is slated to be over 46% BEV, Europe will be at 61% BEV and North America will be more than 30% focused on BEV.

From my conversations across the industry, there is already considerable evidence that suppliers whose business is primarily dependent on ICE propulsion systems are under increasing pressure on volume and resources. The ongoing semiconductor crisis, which may not be alleviated for another year, and other supply chain constraints including those related to the Russia-Ukraine war, are frustrating the industry’s ability to deliver a smooth transition.

Company leaders also are worried about prospects for a steep decline in future vehicle demand spurred by growth of BEV-based product being substituted for ICE versions. Cascading from this is subsequent pressure on capacity utilization and longer sourcing cycles (extended from the classic 5-year all-new/refresh/all-new cycle). OEMs that are increasingly dedicated to BEVs will not require significant ICE system innovation. This has serious potential to hamper their ability to replenish margins with the sourcing of new technology. Several suppliers in the engine, transmission and traditional driveline space may be in the crosshairs.

What are the options for an ICE-focused, component or systems suppliers facing the BEV juggernaut over the next decade? It depends on a myriad of factors. The major variables include ownership structure, financial health, global breadth, affiliations, talent, the ability to shift current processes to BEV-positive technologies and aftermarket exposure. Smooth transition to BEV supply is not an easy task.

OEM procurement organizations will need to master a balancing act of building a supply network for increasing volumes of BEV-focused systems while maintaining their current ICE-focused suppliers as volumes decline or plateau of new lower levels. Ensuring the continuity of supply and the viability of their supply partners over this transition is uncharted territory. Not everyone will win. Yes, the best word to describe the transition is lumpy.