Erratic Transition to the BEV Future

February 28, 2023

Michael Robinet

The bloom is slowly wilting off the rose. The last two years witnessed an unprecedented level of battery electric vehicle (BEV) investment from both the auto industry and federal government. Head-snapping numbers in the billions of dollars have been focused on vehicle development, battery-cell plants, upstream mineral supply capabilities, vehicle-charging infrastructure build-out and outfitting all of the above surrounding this shift. One day we’ll look back at these times — and shake our heads.

Telling component suppliers that it is a matter of when, not if, BEVs will achieve dominant volumes, based on S&P Global Mobility forecasts, typically does not calm their fears of the unknown. Vulnerabilities are emerging as both suppliers and OEMs direct substantive capital, resources and time towards growing their businesses in electrification. It’s already clear that the transition will not be smooth and orderly. More accurately, it’s going to be lumpy and erratic.

Both BEV and IC engine + hybrid offerings will face timing “adjustments” over the next decade. One propulsion format rises and the other declines in prominence. As a result, suppliers will be challenged more than ever.

The auto industry has become the realm of delays, extensions, and slow launches. The BEV revolution is in its early trajectory and many of the technologies and supporting infrastructure are new and not yet stress tested. Industry history shows that ‘new, new, new’ in any aspect of the business brings unforeseen issues. Everything — suppliers, OEMs, systems, build processes, facilities, input prices and, importantly, customer acceptance — must align for a seamless transition. That won’t happen.

Delays are not welcome news to suppliers. After building a component or system for a product life cycle of 5-6 years, for example, the assumption is that all related process efficiencies have been realized. Tooling and machines are becoming tired. Annual productivity, in the context of long-term agreements (LTA), has eaten away at margins for those products based on older technology. Suppliers bank on taking their capital, including human and plant resources, to refresh their portfolios, build efficiency and renew margins for another five-year run. But when they are asked to extend production of components for an ICE vehicle for another couple of years, it usually is an unwelcome request.

Slow launches have and will continue to be troublesome. In the past, even with new ICE vehicles that feature a high level of carryover, slipped launch timing and slow program accelerations were not uncommon. The weakest link is usually the culprit. With BEVs, however, come new build processes, propulsion systems (at higher volumes), logistics and labor forces. Add to this the lack of industry standardization as the transition is made and the result will be that many expensive lessons are learned.

Asking for patience from all involved while these issues are resolved — particularly from consumers who in many cases have waited months for their new vehicles to arrive — is not a solution. Taking a step back and stress testing the system to ‘run at rate’ has never been more critical, in my view. OEMs, suppliers, dealers and even governments have too much at stake. While I’m typically a ‘glass-half-full’ observer, it’s clear to me that the road to an electrified future is going to be bumpy indeed.