EV Suppliers NOT Bullish About Rise In Demand
Automologist MAC is skeptical about the optimism surrounding electric vehicle adoption and so are those further up the automotive supply chain.
Read the automotive news and you will spot almost daily stories about the big plans manufacturers have for the development of Electric Vehicles or EVs, as they are called. It would seem, though, that one group close to the epicentre of EV development—and that is the supply chain that will be making the componentry—do not share the same bullish view that the mainstream car manufacturers and press do.
In the past few months, Ford has announced that it will invest some US$11 billion dollars in a range of 16 new pure EVs and Hybrid versions by 2022. General Motors, which already has two plug-in offerings, has plans to increase this number to some 20 full-electric and fuel cell vehicles in a similar time frame. To top it all, Volkswagen will be producing 30 EV models by 2025 and expects EVs to account for at least 25% of its global sales by then.
But the world of the automotive suppliers is remaining cautious about its customers’ plans and this is due to one driving factor—and that is the buying public. Thus far, the great car-buying public has failed to get as excited about the plans of the car manufacturers and to date, EVs are simply not selling in great numbers. To date, EVs account for a mere 1.2% of sales in the US and industry experts are not forecasting this to rise past 5% until well after 2022.
Whilst some analysts will have you believe that there will be a slow uptake followed by a massive increase—much in the same way that smartphones took time to penetrate into the market—I for one believe that the increase will be more slow and steady, unless governments step in with far-reaching legislation, that is.
Of course, if the suppliers invest heavily in the new technology and the demand just doesn’t come, then they are left holding the proverbial baby and thus profitability problems. There is thus a debate within the supply chain on just how much capacity to invest in at such an early stage of the development of alternative energy vehicles.
Pure EVs should be far cheaper than their gas-guzzling cousins, as they have fewer parts by about a third. Gone are the complex engines and transmissions and exhaust systems and with this, many of the component manufacturers will find that this disruptive technology may also disrupt their ability to make money.
Of course, at this time, no established auto-manufacturer is abandoning the internal combustion engine completely. In a way, they are all hedging their bets by offering a range that includes partially or fully electric vehicles. This has lead a number of the larger Tier 1 component manufacturers turning some of their existing factories over to make actuators and inverters, alongside the more conventional items destined for the internal combustion engines.
Denso and Borg Warner, two of the giants of the component manufacturing industry, have invested more than a billion dollars each to re-equip their factories in the US of A, but even these giants believe that no more than 12% of their revenues will come from EV components by the middle of the next decade.
The road to full electrification of our daily ride will be a long one. Michael Robinet of HIS Markit believes that 85% of all vehicles in the year 2040 will still have an internal combustion engine of some sort. So, for the component manufacturers, it is not really ‘either or’—it is ‘and’.