Internal combustion engine suppliers will need to relearn how to swim — or risk sinking — as an industry transition to electric vehicles begins, according to a report from S&P Global Mobility.
With EV powertrains, parts that are industry staples will be lost, while new parts are gained. “As a result, there will be a brutal shakeout and consolidation among engine, transmission, and driveline suppliers in addition to those in the fuel and exhaust systems sectors,” the data firm said.
The markets for transmissions and engine systems are expected to shrink more than 50 percent by 2035, according to consulting firm McKinsey & Co. And S&P said that just two internal combustion engine combinations will be launched for North American production in 2025, down from 13 in 2015.
Declining investment in combustion engine technology will lead to extended production schedules and decreased margins for suppliers, Michael Robinet, executive director of consulting services at S&P, told Automotive News.
Robinet acknowledged that the transition is in its early stages and that suppliers have likely not begun to experience volume reductions. On the road today remain 1.3 billion internal combustion engine cars, S&P estimates.
But supply chain disruptions, increasing cost pressures and rising interest rates are mounting to create “a recipe for significant industry turnover.”
Four potential strategies for moving forward were identified in the report: divest from combustion parts and shift to EV production; commit to combustion engine supplies and simultaneously prepare for closure; move to assert dominance as a particular parts supplier; or position to be acquired.
Suppliers whose components do not have a strong aftermarket focus will be particularly vulnerable, Robinet said. Small firms are also at a higher risk for disruption, and many are facing the decision over whether to take on the costs associated with rebuilding their businesses to meet an electrified future.
Responses will need to vary widely from situation to situation, Robinet emphasized. How much renewal interest there is for components is a factor that will impact suppliers’ flexibility, mobility and opportunities, he said.
Overall, though, urgency is key, as “the options become more and more limited over time.”
While Robinet believes it is time to understand an EV transition as a “when” instead of an “if,” he urged suppliers to be calculated in their adaptation.
“With EVs, everything is new — new processes, sometimes a new plant, new suppliers, new components,” Robinet said. “And anytime anything is new, there’s also going to be a certain level of risk.”
source: Section Page News – Automotive News