BEV – a New Business Model
As an electrified-mobility future gains traction, suppliers are evaluating their R&D, engineering talent, upstream suppliers, and even future customer portfolios.
Stellantis’ commitment of €30 billion ($35.5B) to electrifying its product portfolio across 14 brands by 2025 joins the seemingly endless flow of capital and human resources towards the electric-mobility future. The list of significant outliers is gone. Virtually every OEM and most suppliers are outlining how they will benefit from the structural, logistical, and value-add shifts which will result. Of course, there will be winners and losers through this multi-decade process. No organization has an assured future.
The smartest OEMs and suppliers are using this once-in-a-lifetime transformation to redefine all aspects of their business model. Increasing profitability, revenue stability and lower overall risk are their goals – while they strategize how to build long-term, differentiated profitability in a battery-electric vehicle (BEV) world. Suppliers tell me they’re evaluating everything in their “toolboxes” – R&D, manufacturing, engineering talent, upstream suppliers and even future customer portfolios. Nothing is being left off the table.
Emerging and existing OEMs are approaching this opportunity differently – depending upon scale and risk. Lower-volume OEMs such as JaguarLandRover and Mazda, along with the various e-pickup start-ups, may purchase directly from a supplier of battery cells, inverters and drive systems. In the past, the smaller automakers would have designed and manufactured all or most of their powertrains. Others such as Tesla have taken a homegrown approach to building BEV-specific systems, driven mainly by innovation and a lack of capability from the supply base. The pace of BEV technology shifts demands a more flexible approach, with both “make” and “buy” strategies in play across the industry.
Major OEMs are taking different tacks. For some, investment in all facets of the new propulsion system is not possible. Honda, for example, is aligned with GM for its North American BEV needs for key segments. Ford is trusting the bulk of its future European portfolio to VW Group’s MEB architecture, while launching (in the 2022 Maverick) the first of a new family of traction motors – designed, engineered and manufactured in-house, in Michigan. These will be high-volume electric machines, aimed at the expansive global C2 vehicle architecture. This was Ford’s clear decision to own the product technology, the tooling and the know-how, rather than hand it to a supplier.
OEMs are aligning with a major battery cell supplier such as LG, Panasonic, SK or Samsung. They’re establishing joint ventures to enable access to the latest technology and increase speed to market, while sharing capital risk and profitability. In the process, they’re redefining business models to improve their production-facility footprints. A BEV-investment “sweepstakes” has already emerged as OEMs race to secure not only multiple battery-cell and assembly locations, but also strategic sources for lithium and rare-earth metal supply. While there are scores of vehicle-assembly facilities efficiently building ICE-based products, a drive towards higher economies of scale and proximity to battery cell/module sourcing may have select facilities on the outside looking in for the future.
This balancing act will continue to play out with most established North American OEMs restructuring their vehicle and powertrain facilities over the next two decades. Facilities with costly logistics, lack of available skilled talent or abrasive labor relations may be without a seat in this high-stakes game of musical chairs.
Suppliers will take their lead from OEMs. Just-in-time sourcing is still alive and well for key vehicle systems, despite new considerations related to the semiconductor crisis. Suppliers will need to adjust further, as OEMs consolidate their footprint in the ICE-to-BEV transition. The players can either use the shift to electrified propulsion as the chance to build a more robust business model, or they can exit the field.