June 20, 2023
By: David Boulay
The growth of electric vehicles (EVs) poses various degrees of risk to auto suppliers that make parts for internal combustion engines (ICE). While no one can say for sure what these domestic supply chains will eventually look like, big changes are coming. The slow transition to EVs will eventually expand more rapidly, creating challenges for manufacturers that aren’t prepared.
EVs are not the only sector that needs to invest in new products and production methods before existing ones become obsolete. Intense change and opportunities are hitting the domestic semiconductor manufacturing sector as a result of funding from the CHIPS and Science Act. Additive manufacturing has wide impacts and is still not on the radar for many smaller manufacturers. In addition, disruptive innovation and reshoring will create new manufacturing and distribution clusters – and significant opportunities.
Winners will emerge from these opportunities and legacy manufacturers that don’t innovate will fight to maintain market share or replace lost business. The winners present less risk in the domestic supply chain and long-term advantage for technological innovations in the future.
Preparing for evolving domestic supply chains not only fosters innovation at your company, but also provides more secure access to critical materials and components and helps you work with or compete against larger manufacturers.
New report on electrification impacts shines light on risks and opportunities
The Illinois Manufacturing Excellence Center (IMEC), part of the MEP National Network located in Illinois, has partnered with the Center for Automotive Research and the Illinois Manufacturers’ Association on a report, Electrification Transition Impacts on the Illinois Automotive Industry [opens PDF], to capture the current situation. The report includes a risk assessment for the state’s automotive supply base, and opportunities, concerns, and recommendations for Illinois stakeholders.
The lithium-ion batteries that account for up to 50% of the value of today’s EVs are primarily made by companies outside the traditional auto supply chain. The fact that some EV battery suppliers are developing expertise in manufacturing electric powertrains further illustrates the risk. EVs also have far fewer parts than ICE vehicles, which means fewer opportunities for value-add components and after-market suppliers. But EVs also require charging stations, which presents an opportunity for some manufacturers.
The highest risks are for makers of exhaust systems, fuel systems, and transmissions that are essential to vehicles with internal combustion engines but absent from EVs. However, the report shows how stakeholders of almost all types are grappling with the changes resulting from the transition to EVs, from manufacturers to economic development agencies.
This blog post shows how IMEC’s deep dive into the EV market has positioned MEP Center staff as thought leaders on the emerging trends and provided us with a seat at the table for important discussions. It also serves as a reminder of a wider role MEP Centers can play in their own states and how important it is for manufacturers to connect with their local MEP Center and the national supplier scouting service.
A deep dive into the EV supply chain ecosystem
The IMEC report focuses on high- and low-to-moderate risk areas, and growth opportunities. It includes concerns, challenges, and recommendations that will resonate with tier 1 and 2 manufacturers, and with the smaller metalworking, machining, stamping, and molding shops that make up much of the ICE supply chain.
Noteworthy findings of the research include:
- Highest risk profile: Manufacturers supplying drivetrain, axle, fuel systems, exhaust systems, engines, and engine parts are the most vulnerable in the vehicle electrification transition. The report suggests Illinois stakeholders assist these at-risk companies with product transition. For example, transmission parts suppliers may be able to retain business by serving electric vehicle one-speed transmissions and e-transaxle units. Fuel systems manufacturers may find opportunity in fuel cells and hydrogen storage. But for some of these higher risk segments, it may not be clear where the market opportunity exists.
- Low-to-moderate risk: This includes thermal management (heating and cooling), body and chassis, and passenger restraint, steering, suspension, and braking systems. The report recommends Illinois stakeholders help nurture these companies as they develop transition plans.
- Growth opportunities: New supply chains are forming for advanced driver assistance systems, audio and telematics, electric motors, electric powertrains, and battery pack assembly. The report recommends that the state of Illinois assist existing firms in expansion and pursue new investment from similar firms.
The EV transition is not just passenger vehicles. Lion Electric has selected Joliet, Illinois, to be the home of its future U.S. manufacturing facility, which will make school buses and delivery trucks. The 900,000-square-foot plant has been touted as the largest dedicated production site of zero-emission medium and heavy-duty EVs in the U.S.
Some manufacturers may be able to shift into growth areas for industrial, stationary, and off-road equipment. All manufacturers will need to address workforce development as technology evolves.
Building your roadmap and risk analysis profile
Enlisting help from your local MEP Center means you are not facing this alone, but with an experienced team that can help you with assessments, vision, growth, and also dig into the operational details for process improvements. For example, three different drivetrain companies producing the same components may have different mindsets, leadership styles, and production processes. Their specific situations may call for three different approaches and solutions.
Manufacturers can start by embracing the realities of change, which means doing research about trends in your area, building stronger relationships with your suppliers and customers, and getting help from your local MEP Center. You can prepare for changes in the EV supply chain (or for opportunities in a different sector) through efforts such as:
- Risk analysis: Work with an outside expert with domain experience to get a clearer picture of where the market is headed. The electrification transition impacts report breaks down the supply of various auto parts into high, medium, and low risk.
- Market assessment: Being educated about the changing auto supply chain puts you in a better position to develop a roadmap for your company.
- Strategic review of your business: The EV supply chain is quickly evolving. What should you do about it? A thorough review provides you with the information to create a plan. Here at IMEC, the strategic review includes six pillars:
- Short- and long-term goal planning
- Identifying and communicating mission, vision, and values
- Succession planning
- Change management planning
- Business continuity planning
- Strengthening organizational culture
Perils of doing nothing: Ford gets it, but will successful fab shops?
A smaller manufacturer with a growth mindset will have an easier time envisioning possibilities for the EV supply chain. But a fixed mindset could present issues in the future.
Maybe business is good, and a manufacturer doesn’t want to deal with the many hurdles relating to charging stations and ease of use for consumers. The suppliers with this fixed mindset may not see a threat to their business, let alone incentives to evolve. We also understand how many manufacturers are resource-challenged and focused on getting the most out of their operation to meet rising demands. But doing little or nothing does not prepare you for the future.
Preparing for the EV supply chain will help you identify how to improve your operational performance, and it will reveal growth opportunities. Both of those will provide paths to increasing your business valuation. The efforts to adapt will improve your workforce pipeline, enable you to keep pace with competitors for higher-paying positions, and maintain your standing as a pillar in the community.
Being proactive may mean a seat at the table in a changing conversation
Drilling down into the EV product segments, finding out what is happening in your area, and doing a strategic analysis will change the conversation you have with stakeholders.
- For MEP Centers, thought leadership positions you as a knowledgeable resource and will help get you into conversations with the economic development community and other convening powers. It also could lead to participation on panels and speaking engagements.
- For small and medium-sized manufacturers, being knowledgeable about the changing dynamic will lead to more effective supplier scouting, networking, and growth possibilities.
WMEP Manufacturing Solutions can help you make connections in the EV supply chain, expand your supplier scouting, find growth opportunities, prioritize your opportunities by profit margin, and so much more. Contact WMEP Manufacturing Solutions to get started.
ABOUT THE AUTHOR
Dr. David Boulay is President of IMEC, a public-private partnership, committed to driving growth through enterprise excellence. In this role, Boulay centers his passions on the intersection between…