Like it or not, the automotive industry's shift to electrification is in full swing.
Tesla has deservedly gotten the lion's share of attention with its electric drivetrain designs, new classes of components and innovative battery technology. But in truth, there is no significant car manufacturer in the world right now without its own plans to go electric, whether in part or in full.
As in any period of disruptive change, a lot of this work has been done effectively from scratch. It's generally too expensive for any company, even one with a $40 billion to $50 billion market cap such as Tesla, to develop all of this tech in-house. Research and development are expensive, especially in automotive, where so much work and refinement has gone into every vehicle component for decades. That's why automotive manufacturers typically buy most of the parts from existing suppliers (or direct the buy), then put them together to build the vehicle.
Suppliers need to employ a product technology strategy that's more specific than simply a business strategy. It's about addressing targeted technology needs in both near-term programs and future vehicles, in order to make the end products better, while simultaneously increasing the odds of a profitable future for your company.
Managing this transition in technologies will be crucial for companies to make large, industry-changing innovations without having to invest in massive high-risk research and manufacturing development to catch up. It also provides a targeted way for a new company to buy some time, judge the market's reaction to what it is doing and then move forward with real customer- and consumer-tested feedback.
Tesla is just one example of this approach in action, but the fact remains that every company, particularly automotive suppliers, needs to have a product technology strategy in place. It's the only way for suppliers to survive in the face of the sweeping changes that are coming to the industry, and the only way to effectively prepare for new challenges such as electrification and autonomy.
Because that change is coming fast.
According to our research projections, electric vehicles will make up 20 percent of the global vehicle market by 2030, jumping to 53 percent in 2040. And by 2050, just over 30 years from now, 88 percent of all vehicles on the road will be electric, with adoption being driven by lower battery costs, lower charging costs, improved infrastructure, social attitudes toward emissions and increasing government incentives to electrify.
There will be overlap. Consider the similarities between the traditional automotive drivetrain and the new world of electrics. They utilize different technologies, but when you get right down to the distribution of power to the wheels, they are functionally similar. It's just that a battery has taken the place of the engine. Instead of a transmission, mechanical power is transferred through a traction motor and gearbox. Some things might need to be configured differently, and designed differently, but at the end of the day, suppliers will still be needed to create those parts for electric vehicles. There is still a lot of machining and assembling that needs to be done to put these cars together, and that work isn't going away.
Some saw this challenge long ago and responded. Look no further than BorgWarner's nearly billion-dollar purchase of traction motor supplier Remy International in 2016. BorgWarner has since followed up with more acquisitions and now has its own subsidiary devoted to nothing but the electric drivetrain.
But the drivetrain is just the beginning.
Suppliers also need to find ways to offer value-added technology in the worlds of software, connectivity and autonomous capabilities, as well as everything that happens in a vehicle's interior. Once cars get to the level of fully autonomous driving — an ambition far beyond electrification, which will also take much longer to be realized — the requirements for what the rest of the car will look like change dramatically.
After all, you're not going to need a steering wheel if the car is completely autonomous. You would not even need brake and accelerator pedals. Frankly, the whole dashboard as we know it could disappear. It's going to be an entirely different user experience, and suppliers will need an entirely different mindset — a product technology mindset — in order to meet those needs.
