The Incredible Impact of Electrification

There is no denying that vehicle electrification will change the automotive industry. In fact, it can be argued that electrification will be the biggest disruption in the history of the automotive industry.

There is no denying that vehicle electrification will change the automotive industry. In fact, it can be argued, based on projections, that electrification will be the biggest disruption in the history of the automotive industry.

And it will have a more significant impact upon suppliers than will both the trends toward autonomous vehicles and connected cars.

Electrification requires new vehicle architectures that eliminate many components and dramatically increase the use of others. As the automotive fleet electrifies, traditional suppliers of powertrain, fuel, air, and exhaust systems will be hit the hardest.

Electrification signals the end of the mechanical age and the beginning of the digital transformation of the automotive industry. And the curious case of the Chevy Bolt EV, a battery electric vehicle (BEV), demonstrates just how dramatic that transformation could be.

Hailed as the “first affordable all-electric car to offer an EPA-estimated 238 miles of range on a single charge,” the Chevy Bolt offers a glimpse of how the electrified industry of the future might look -- providing a stark contrast between tomorrow’s BEV to the equivalent combustion engine car.

GM collaborated with LG to achieve industry-leading cost levels for lithium-ion battery packs for the Bolt.  LG was able to leverage its expertise and manufacturing scale from its consumer electronics business to gain the position to produce not only the battery pack, but also electric drive motors, power electronics and the infotainment module. 

All told, these systems comprise 56 percent of the total vehicle content. And the switch to an all-electric powertrain also reduces mechanical complexity significantly – as the electric powertrain requires a total of only 24 moving parts, versus 149 parts on a standard internal combustion engine (ICE).  All of this reduction comes, unfortunately, at the expense of traditional Tier 1 suppliers.

Many industry insiders have been shocked by the amount of the critical electric vehicle system that has been outsourced to LG.  However, when you consider how critical scale is for a competitive advantage in BEVs, you can understand the decision.

The market potential for the new entrants to this electric vehicle supply chain -- consumer and industrial electronics companies like LG, Panasonic, Samsung and Hitachi--will be enormous as electrification takes root and grows.

Consider this: the market potential for the year 2030 will be $120-billion for batteries alone, and a total of $200-billion for all key hybrid and electric vehicle components. The sheer size of this market creates a very attractive opportunity for these consumer and industrial electronics companies, which can use their industrial electronics scale and financial strength to carve out the leading positions in the future BEV propulsion systems.

For more traditional powertrain suppliers like BorgWarner and Delphi Technologies, duplicating the kind of scale necessary to be competitive in this new architecture will be very difficult and costly.

Today, suppliers provide about $4,000 per vehicle of content for traditional engine, transmission, exhaust and fuel systems.  This content comes from a chain of countless mid-market suppliers who supply items like forgings, castings, hoses, and machined components.

So, with today’s global market producing 100-million vehicles, the shift from ICE to electric technologies will disrupt – and potentially eliminate -- a $400-billion market segment. 

This shrinking market for ICE components will create excess production capacity and will have a significant impact on this supplier universe. These component suppliers will have to consider a number of strategic issues, including:

  • How will this shrinking market affect the bottom line?
  • Are there any strategic opportunities in alternative markets, such as aerospace?
  • What will be the best strategy for the organization going forward?

The tipping point for electrification may yet be a few years off. However, these headwinds and competitive challenges will have a significant impact on the value of all powertrain suppliers as the market shifts increasingly to electrified vehicles.

The Chevy Bolt EV is proof that when the shift happens, it will be dramatic — and something suppliers cannot afford to ignore today. Unless these suppliers can somehow duplicate the scale of the new entrants, devastation from this disruption will be certain.  This is why suppliers need to consider the long-term implications of electrification to remain viable and thrive in this evolving environment. Therefore, the critical question becomes: what are you doing to plan for this change in vehicle architecture?