Near-Term Focus Can Obscure Reliable Path Forward

Suppliers can go back to basics to remain on solid ground as the industry remains in flux.

Assembly robots await parts at GM's Factory Zero. (General Motors)

So often in our industry, we can be too focused on near-term opportunities and navigating immediate issues. With a new U.S. administration on the way in and more than a handful of other political party shifts in major vehicle markets, industry executives spend much of their time responding to factors that are simply out of their control. These include new tariffs and vanishing consumer electric vehicle incentives, shifting legislation, labor cost/availability and a host of other potential disruptions. Getting lost in near-term malaise can derail a well-thought-out, long-term strategy.

There are irrefutable market constructs that need to be woven into any long-term supplier strategy. We’ll start with market constructs, the key drivers of strategies that must be integrated and acknowledged.

1. Customer is king. We have witnessed that though there can be incentives to steer consumers, they make their own choices based on economics, lifestyle, image, product flexibility and convenience. Despite government incentives and legislation, we have learned that mass adoption of battery electric technology will not be overnight. The political reality is that many moons need to align for swift mass adoption.

2. Quantifiable differentiation is key. Any ability to drive strong long-term margin in any space is predicated on an advantage in cost, product delivery or some other measure that others cannot replicate quickly or easily. The speed of our industry to innovate and engineer new solutions is legendary. A me-too approach with no expected long-term advantage is ill-fated at best.

3. Capital efficiency is critical, and ‘less is more ’is the mantra. The combination of poorly utilized capital as the industry geared up for EVs in North America and an interest rate environment that will moderate (though not to levels found earlier this decade) leads to strategies that need to be capital-lean.

With the key constructs out of the way, it is critical to integrate a number of emerging or intensifying industry secular shifts impacting strategies. These include:

1. Re-regionalization and geo-political pressures. There has been a growing movement for nations to cradle automotive investments and ensure that the major components and vehicle builds occurred ‘in region for vehicles sold domestically. This cascades into the supply base through co-located sourcing and dealing with new trade agreements and tariff structures.

2. Speed to market and innovation. Chinese and start-up OEMs are showing the legacy western OEMs that speed to innovate is a core advantage. Traditional norms of taking 3-4 years to design a new platform and reach the market are being tossed aside. Several Chinese OEMs are making major technical and structural changes mid-cycle, with a timeline of 12-18 months, and sometimes faster. Under any scenario, the industry (OEMs and suppliers) has to innovate faster.

3. Traditional nameplate cycle timing of five years for a major platform change or 2-3 years for mid-cycle change are being tossed aside. Delays and rescoping of EV investments combined with extensions of traditional ICE platforms outlines a more complex operating environment for the supply base. Adapting to this cycle timing tsunami with diligence and respect to investment hurdles will be key to success.

There are a number of other secular shifts to consider. Labor availability/automation, impact of artificial intelligence and ensuring your upsteam and downstream supply chains are aligned and optimized should all be top of mind. In the end, building and employing a strategic plan is more complex and variable than ever before. The goal is to see beyond the horizon and the near-term issues.