Shift to EVs likely to take longer than automakers' goals

The automotive industry's shift to battery electric vehicles is expected to take longer than automakers' current goals for adapting the market to the technology, according to a study by Harbour Results Inc. and AutoForecast Solutions, that looked at the industry's "transformation" and its impact on Tier 1 through Tier 3 suppliers.

"This conversion to BEVs is not necessarily going to happen at the pace OEMs are saying it's going to happen," Laurie Harbour, president and CEO of HRI, told Plastics News in an interview. "This is going to be a bit longer of a stretch."

Many OEMs have lofty goals of 80-100 percent BEV products by 2030 or 2035. But "it's going to take much longer," Harbour said, for suppliers to adapt to issues the gradual shift will present.

The "goals that OEMs are marketing for" may hit their "tipping point, more like 2040," she said.

"That doesn't mean there won't be things that will improve that timing as we go through technology changes," Harbour said.

OEMs are "all in," she said, "investing significant money in plants, infrastructure and products to be launched over the next seven years and beyond."

"We have to be positioning businesses for that," Harbour said, adding that some suppliers may not be preparing for issues they will face as the industry changes.

"We're already seeing some strife [in start-up companies] … that maybe are running out of funding and don't have the capability to meet the objectives they've put out there," she said.

The study showed that many suppliers are under financial strain and forecasts the consolidation of suppliers and new owners, such as financially motivated private equity firms.

The biggest risk factor for a delay to new BEV product launches is a "highly likely" strike by the United Auto Workers against Ford Motor Co., General Motors Co. and Stellantis NV, Harbour said.

A strike would significantly lower volumes for Tier 1 suppliers already faced with low-volume, high-mix product orders.

"It's hard for suppliers to take on volume at that low level because it … creates a lot of turn in the plant," Harbour said.

"It's great business to win" for strong suppliers, she added. But the supply base is still recovering from low volumes and supply chain issues from the COVID-19 pandemic.

"The automotive industry has gone through so much turmoil," Harbour said. "The cost of resin has gone up, the cost of energy, labor … margins have shrunk."

The Aug. 7 bankruptcy filing by trucking firm Yellow Corp. is a reminder that the manufacturing supply chain is still vulnerable.

"There's still a lot of uncertainty," Harbour said, around a potential recession amid high inflation that's "hitting Gen Z and millennials, who are starting to control the buying power in our country … interest rates are high, the only person buying an electric vehicle and financing it … has got enough income to support it," she said.

Although inflation will "definitely slow things down," Harbour expects reduced interest rates "by the middle of the decade," in 2025 or 2026.

"The increased cost of business," is also currently affecting ICE products, she said, and "are maybe going to come down at the rate inflation will come down."

"I think the impact of the recession is going to be pretty minor … economists are saying there isn't going to be a recession at all," she added.

"The challenge is that the cost of these things currently is only something that the wealthy people can afford," Harbour said. "There's a lot of money in the marketplace, in all regions of the world, investing in ways to launch these products efficiently and effectively and get to the market and make them affordable."

"If anybody's going to [lower prices] it's probably going to be Tesla," she said. "Tesla's doing a lot to try to create the $25,000 vehicle to meet the market for the younger consumer."

Meanwhile, GM is creating an EV for every SUV model in its portfolio, Harbour said, which will help prices "start to match every consumer," closer to 2040.

Public range anxiety and a lack of charging infrastructure also have a long way to go to meet the needs of consumers.

"It's very interesting what happened with Tesla licensing or selling the use of their charging stations," Harbour said. "This is actually a really big deal that not a lot of people talk about … it now opens up the ability for [other OEM brands to charge on] … the largest population of charging [infrastructure] around [the U.S.]"

"It's also going to [add] dollars to Tesla's pocket," she added "So they can also implement more charging stations."

Although there's been technological progress in extending battery life and adding charging stations, "we have to do that faster," Harbour said. "It's like starting at zero and needing to get to a billion. The gap was so big. Have we closed it? Yeah. But not to the level that we need to."

AutoForecast Solutions predicts that more than 37 million BEVs will on the road by 2030 in North America.

Those consumers will also need to be able to afford to update their home electrical boxes if there aren't enough public charging stations by then, Harbour said.

"There're a lot of factors and a lot of people working on it," she said. "Being able to charge and get rid of range anxiety is what's going to tip people into buying electric products."

The best suppliers have already positioned themselves to convert to BEV while continuing to support ICE product, the study showed. Those suppliers are researching with OEMs to develop new products to stay relevant.

Suppliers should work to "gain flexibility, be more efficient and be able to react," Harbour said.

The study also showed that "being located near the automotive assembly plant will still be critical for some components. … This strategy made sense when the OEM plant made one or two models at high volume but now plants may make five or six products at much lower volume."

"The effects of this BEV transformation will ripple through the industry from automakers to suppliers, service provider and tool and die shops," Harbour said.

"Although we believe BEV adoption will take longer than what the automakers have articulated, more will happen in the next five years than that has happened in the past 20 years," said Joe McCabe, CEO and president of AFS. "Companies need to act now to be prepared for the future."