Auto suppliers are facing a sort of existential crisis.
Who are they? What can they offer? What does their future look like?
The answers to those questions continually change because the auto industry is in upheaval, and not just because of COVID-19.
Michael Robinet, executive director of automotive advisory services for IHS Markit, also cited factors including inconsistent global emissions regulations, trade wars and deals, and the 2019 General Motors Co. strike, all adding to the challenges faced by automotive suppliers. And now, because of all of that, OEMs are switching gears and rethinking the future mobility time table.
Many automakers delayed the launches of new vehicles that were set for this year, after COVID-19 forced plant closures and canceled events that offered opportunities for big reveals. A number of those launches have been pushed back at least one year, maybe two.
Others have scrapped plans for some new vehicle launches all together.
"We saw a number of programs that would have launched, say in 2022 or 2023, maybe pushed out a little bit further or the extent has changed, maybe going from all-new to a major, where there are not as many changes required in the vehicles, so the capital is reduced," Robinet said during the Center for Automotive Research's annual Management Briefing Seminars. The event was held in a virtual format this year because of the COVID-19 pandemic.
Suppliers, he added, need to adjust with the OEMs. That means exhibiting patience and flexibility as OEMs invest or reallocate their limited research, design and development dollars in technologies that fit the narrative for the auto industry's future.
For suppliers, that flexibility is exhibited in meeting the needs of all their customers, whether it be for internal combustion engines, hybrids or full electric models. The ability to adjust quickly and differentiate is an art, and it's one they need to master.
"If we look out a year from now, I think the real story is going to be how well did some suppliers transition?" Robinet said. "Did they handle the COVID issue and the fact that they need to transform [from] ICE to BEV as well as a level 0 to level 3 [autonomy]? Did they handle all those balls in the air properly and come out the other side as a truly differentiated supplier and player within the automotive ecosystem? Some will do really well at that and others not quite so well, so there may be some consolidation in the next 12-18 months."
Globally, Europe and China have led the way with emissions regulations, establishing rules that are both focused and aggressive, according to Robinet. These rules are helping to propel the market toward BEVs.
North America, meanwhile, is slower to embrace the technology.
In late March, President Donald Trump's administration completed its rollback of Obama-era vehicle emission standards, requiring 1.5 percent annual increases in efficiency through 2026-well below the 5 percent increase in efficiency established by President Barack Obama's administration.
These expectations, coupled with low fuel prices and fewer miles traveled as a result of the pandemic, likely have slowed the adoption of full-electric vehicles in North America, a market that already gravitates toward SUVs and crossover vehicles. That said, these trends have opened the door to the implementation of hybrid models.
Robinet said this contrasts with Europe and China where BEVs are likely to rise more quickly.
"We truly are a global automotive ecosystem. For a lot of different reasons, China and Europe are going to lead in terms of introduction of both BEV and hybrid technologies, but North America has to be part of that equation," Robinet said. "You have got global OEMs that are building here; they are not going to build a completely different vehicle for North America if it is also built in China and/or Europe."
Robinet cautioned suppliers against slowing down on the development of electric vehicle technologies for the North American market, saying that regulations are likely to catch up with Europe and China within the next decade.
"Anyone who takes their foot off the accelerator, in our opinion, would be foolish. You have to set yourself up for success," Robinet said.
Sandra Stojkovski, Vitesco Technology LLC's CEO for North America, said setting yourself up for success means understanding the whole market and impact of each nuance. She joined Robinet for the MBS webinar and offered insights into how her company — the powertrain subsidiary of Continental that is set to eventually spin off from the global auto supplier — is working to remain agile and diversified.
The North American market is tricky because it's consumer-driven, rather than regulation-driven. American consumers, Stojkovski said, prioritize price, performance and convenience with their vehicle choices. These needs, coupled with the regulations that are in place, likely will lead to "a healthy mix" of hybrid, electric and internal combustion engine vehicles.
If Vitesco is going to remain a global leader in an automotive landscape, it needs to be able to meet the needs of the consumer-driven North American market as well as regulation-driven markets like Europe and China.
"I think that is what is kind of hard about this current situation. You feel like you have to do everything," Stojkovski said. "You feel like you have to keep investing in all of the internal combustion activities, you feel like you have to make the right strategic bets in electrification."
Vitesco knew it really couldn't be everything to everyone, so it made some tough calls. In 2018, the company began an evaluation of its product offerings and cut those that didn't fit a long-term vision for the automotive industry. This included high-pressure fuel pumps and injectors.
"It was based on the idea that we can't do everything, and therefore, the only things that we are going to do are those things that have a mid- to long-term growth perspective," Stojkovski said.
In the end, that's the most significant challenge suppliers face: How much do they invest in and focus on near- to mid-term technologies vs. long-term technologies and strategies? There is risk, Robinet said, to both.
"The smarter companies know where they need to spend their R&D and their innovation dollars," he said, noting the answer is becoming clearer. "And, let's face it, the industry is transforming the value equation of the vehicle more toward the electrified propulsion system, more toward autonomous driving and the value that brings to customers."
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