The never-ending supplier squeeze (Part II of II)
- October 7, 2019
- Auto Extended Warranty, Extended Auto Warranty, Extended Car Warranty
- Posted by Michael Robinson
- Comments Off on The never-ending supplier squeeze (Part II of II)
Of the 1,100 firms, 60% have fewer than 20 employees. A bigger player ($10 billion in annual sales) struck out on an internal fact-finding mission to figure out how their competitors would perform with regard to three separate technologies – traditional combustion engines, battery cars and hybrids (a combination of the two). Thousands of dollars spent on consultants and 6 months later, the CEO of said bigger player still had no clue. While the world seems to accept that EVs will continue to grow in popularity, by how much and how fast is unclear.
Another major player in the auto parts world posited that by 2030 EVs would occupy 20% of the market. A steady decline in battery costs is an absolute necessity, and coupled with more charging stations that’s when the shift will occur. For suppliers, 2030 is no longer some futuristic point as popularly portrayed in the movies. It’s right around the corner and a shift in business practices is vital today for all those reasons.
Parts supply has long been a predictable business. This is mainly due to the fact that an initial 1-year contract from a manufacturer would arrive with a 52-week forecast of what would be purchased. A car’s multiyear run would then equate to multiyear business. What is needed however is clear, but not overly welcome. Parts suppliers need to invest in alternative areas. However, this is much, much easier said than done, and we do know via human behavior and thousands of years of data that humans hate change. But change in this case can be profitable.
A company out of the east coast teamed up with VW, where in 2017 they supplied 24 moving parts to the German automaker’s Bolt (EV) powertrain compared to 149 in the Golf. Yet, it was noted that there was $4,000 more in the value of what was under the hood of the Bolt compared to the Golf. Developing traction motors, onboard chargers, energy storage, high and low-voltage inverters, this is the “parts” future. Wireless charging is another investment area ripe for the plucking. While charging stations are indeed a necessity, wireless technology that will enable charging through magnetic fields is coming down the pipeline.
Granted, these are not competitive advantage areas for parts suppliers and they know this. There has also been talk of expanding into making forgings for submarines, aircraft, tanks, ships, etc. While this will put a giant band aid on things, those areas will eventually evolve as well. A bitter pill for now, but one that can certainly be swallowed and digested if taken with a good attitude.