Automakers Shift to In-House Production of EV Components, Leaving Suppliers Facing Challenges
BEIJING, August 27, 2024 – The rapid growth of the electric vehicle (EV) industry is driving a significant shift in the automotive landscape, as more and more automakers are opting tomanufacture EV components in-house. This trend, highlighted in a recent report by AutoNews, is posing a challenge to suppliers hoping to establish a foothold in theburgeoning EV market.
According to Michael Robinet, executive director of automotive consulting at S&P Global Mobility, supplier parts can account for 60-70% of a typical car’s value. However, as automakersincreasingly bring the production of key EV components like electric motors, batteries, and onboard software in-house, this percentage is expected to decline considerably.
The move towards internal production offers several advantages, as evidenced by the success of Tesla. Thecompany’s vertical integration strategy, which involves controlling the majority of its supply chain, has been instrumental in its transformation from a startup to a mature and profitable automaker.
The dynamic between suppliers and automakers is changing, Robinet noted. The industry has shifted.
This shift is driven by a desire forgreater control over the production process, ensuring quality and consistency, as well as the potential for cost savings. Automakers are also seeking to differentiate themselves in a rapidly evolving market by developing proprietary technologies and integrating them into their vehicles.
The trend, however, presents significant challenges for suppliers. As automakers become more self-sufficient, the demand for traditional automotive components is likely to decline, potentially leading to job losses and a reshaping of the industry.
Suppliers are responding to this challenge in various ways. Some are focusing on developing specialized components that are difficult or costly for automakers to produce themselves, such as high-performance batteries or advancedsoftware systems. Others are seeking to forge strategic partnerships with automakers, offering expertise in specific areas or co-developing new technologies.
The shift towards in-house production is not without its drawbacks. Automakers may face higher upfront costs for setting up production facilities and acquiring the necessary expertise. There is also the risk ofbecoming too reliant on their own capabilities, potentially hindering innovation and flexibility.
Despite these challenges, the trend towards vertical integration in the EV industry is expected to continue. As automakers strive for greater control and differentiation, suppliers will need to adapt and innovate to remain competitive. This shift will likely lead to a more complex anddynamic automotive landscape, with new players emerging and established players redefining their roles.
The future of the automotive supply chain remains uncertain, but one thing is clear: the industry is undergoing a fundamental transformation driven by the rise of electric vehicles.
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