Recharging and assessing your future as an auto supplier

Video stores never recovered from Netflix hitting the market. Sadly, we are about to witness the internal combustion engine (ICE) suffer the same fate to electrification. While the descent might be a little slower for the fossil fuel-powered car, it’s happening faster than initially expected.

The majority of legacy automotive suppliers lack preparation for this massive shift in their industry. To compete in the world of electric vehicles (EVs), they will have to reassess their understanding of the automotive industry business model. Suppliers will need to decide if they will make significant business changes and the capital investments required to serve this new economy.

The pandemic drove and continues to drive vehicle demand as people avoid using public transportation and ride-sharing services. Suppliers have been busy keeping up with orders from their customers, which does not give them time to think about 10 or 15 years down the line, and that could be a mistake as the future is coming fast.

Yes, consumers are buying both ICE and EV cars right now, and investors are primarily pouring their money into the companies that make EVs.

The current state of EVs

Traditional original equipment manufacturers (OEMs) see what is happening. They are making investments in EV startups (e.g., Ford’s investment in Rivian and GM’s cash infusion to Lordstown) and have started to produce their own models (e.g., Ford Mach-E, Hyundai Kona, Nissan Leaf), but EV OEMs, like Tesla in the U.S. and Arrival in Europe, still dominate that space.

In fact, Tesla, which saw its share price shoot up 500% in the last year, sold 370,000 units worldwide in 2019, giving it a 16% global market share, according to McKinsey. Its nearest competitor, China’s BYD, had a 10% market share.

Europe and China are instigating the push for more EVs by implementing regulations that will reduce the carbon impact made by cars and trucks. Several European countries, including Denmark, Iceland, Ireland and the Netherlands, have stated they will ban the sale of gas- and diesel-powered cars by 2030, according to a May 2020 report from the International Council on Clean Transportation. Norway’s plan is even more ambitious with a 2025 deadline for the sale of ICE cars, while the United Kingdom’s is 2035 and France and Spain are looking at 2040.