Automotive Engineering - September 2022 - 6

SUPPLIER EYE
The battle over EV value-add has begun
As manufacturing shifts to EVs, OEMs are capturing more value for themselves.
A
critical industry transition is underway
that some already are viewing as an
impending battle. At stake is supplier
value-add share versus that of OEMs
as light-vehicle propulsion formats shift from
internal combustion engines to electric motor
and battery power. There's nothing like a comprehensive
industry transformation to shake the
status quo. And OEMs sense opportunity to tip
the scales in their favor.
Since the 1980s, OEMs have been working
through their bills of material (BoM) to evaluate
what components and systems make sense to
manufacture in-house versus what is more efficient
or profitable to outsource. The establishment
of super-suppliers Delphi and Visteon were
a direct result of their respective GM and Ford
parents deciding that they would be better off
on their own.
Establishing greater economies of scale
through selling outside the usual OEM family
helped reduce costs and advance technology for
supplier and automaker. Releasing the need to
fund capital requirements for 'non-strategic'
sectors enabled OEMs to focus resources elsewhere.
S&P Global Mobility's research shows
suppliers' share of manufacturing value-add for
ICE vehicles to be 60-70% of manufactured cost.
Value-add share from the supply base is a
moving target. The current state of business is
being driven by new process technology, labor
dynamics, more efficient use of capital - and the
need to protect intellectual property, mitigate
risk and focus product development on what will
truly differentiate tomorrow's vehicle experience.
As such, over time most OEMs naturally
gravitated to manufacturing only what was strategic:
vehicle final assembly, Class-A stampings,
engines, transmissions (sometimes) and occasionally
other driveline components.
The need to establish a technology/cost edge
Michael Robinet
Executive Director,
Consulting,
S&P Global Mobility
SAE Foundation
Trustee
michael.robinet
@spglobal.com
Suppliers'
share of
manufacturing
value-add is
falling well
below 50% for
future vehicle
programs.
during this BEV shift is forcing OEMs to rethink
their approach to entering and navigating the
BEV fray. That edge is critical: an OEM that pays
$20 more per kWh for the same battery technology
could have a $2,000 deficit to close for a
100-kWh battery. The stakes are serious; several
OEMs already have spun off their legacy ICErelated
businesses or at least significantly descoped
them.
At the core of this shift is the myriad of joint
ventures and alliances in the battery-technology
space. Depending upon capacity and format,
batteries represent 35-50% of BEV cost.
Together with the e-drive systems that many
OEMs are or will be building in-house, supplier
value-add clearly is shifting into reverse. Rather
than commanding up to 70% of the value-add in
a current ICE vehicle, suppliers' share is falling to
well less than 50% for future vehicle programs.
We have seen this story before - at least from
the Detroit Three and select Europe-based OEMs.
Over the years, these OEMs have had checkered
success with insourcing design and manufacturing
of various vehicle systems, including seating,
fuel systems, cockpits and suspension modules.
Often it lasted a cycle or two (5-10 years) before
they would revert to outsourcing non-core activities
to capable suppliers with higher scale and
better technology. This time, however, the landscape
is different. Global regulations are progressively
boxing in the ICE, while the scale of investment
in vehicle electrification is dwarfing prior
efforts. The electric propulsion system, battery,
charging hardware and related software are core
to EV DNA and to OEM competitiveness. The industry
is on a one-way path and it would take
many years to change course.
Asia-based OEMs, with strong alliances to
their supply bases (Japan keiretsu or Korean
chaebol) will utilize those close connections to
jointly delve into the BEV market. Similar to their
6 September 2022
AUTOMOTIVE ENGINEERING
Automotive Engineering - September 2022

Table of Contents for the Digital Edition of Automotive Engineering - September 2022
