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Future of Companies That Make Parts for Internal Combustion Engines
Shift in Revenues
According to the 2023 Deloitte Automotive Supplier Study, companies that manufacture parts for internal combustion engines are facing a difficult future. Revenues for these parts, as well as fuel and exhaust systems, are projected to decline by 44% through 2027. On the other hand, revenues for electric drivetrains and batteries or fuel cells are expected to increase by 245% during the same period.
Shrinking Supply Chain and Powertrain Part Supply
Not only is the supply chain shifting away from internal combustion engine parts, but the total powertrain part supply pie is also shrinking. An internal combustion powertrain typically consists of about 2,000 parts, while a battery electric vehicle powertrain has only about 20, sometimes even less.
New Manufacturing Methods
Automakers are finding more efficient ways to manufacture parts, such as giga casting. This technique, attributed to Tesla, involves using large machines to cast very large chunks of a vehicle all at once, instead of assembling it from smaller parts. These new methods contribute to the overall decrease in the demand for internal combustion engine parts.
Impact on Supplier Network
The shift towards electric vehicles and the decline in demand for internal combustion engine parts has a significant impact on the supplier network. There are thousands of parts in cars that come from companies all over the world, forming a complex and interconnected supply chain. Many of these companies, including both small, family-owned firms and larger, publicly traded suppliers like Bosch, Denso, Magna, and ZF, are affected by this transformation.
Challenges for Small Suppliers
Smaller suppliers often face challenges in adapting to the changing market. They may lack the necessary capital to pivot towards electric vehicle parts production or to spin out their internal combustion divisions. As a result, these companies must leverage their expertise and get creative in order to thrive in the evolving automotive industry.
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Conclusion: The Impact on New Businesses
The future of companies that manufacture parts for internal combustion engines is undeniably challenging. The shift towards electric vehicles and the declining demand for internal combustion engine parts pose significant obstacles for new businesses entering this industry.
One key aspect to consider is the shift in revenues. With projected declines of 44% through 2027 for internal combustion engine parts, fuel systems, and exhaust systems, new businesses relying solely on these products may struggle to sustain profitability. On the flip side, the increasing demand for electric drivetrains, batteries, and fuel cells presents opportunities for innovation and growth.
Additionally, the shrinking supply chain and powertrain part supply create further hurdles. As the number of parts in an internal combustion powertrain vastly exceeds those in an electric vehicle powertrain, new businesses need to carefully analyze the specific niche they want to target and ensure they can adapt to the changing market dynamics accordingly.
Furthermore, the impact on the supplier network affects not only established companies but also new entrants. The complex and interconnected supply chain will require new businesses to forge strategic partnerships and collaborations to secure their place in this evolving industry.
For small suppliers, the challenges may be even more daunting. Limited capital can hinder their ability to pivot towards electric vehicle parts production or to spin out their internal combustion divisions. However, harnessing their unique expertise and finding creative solutions can enable these businesses to thrive amidst the transformation in the automotive industry.
Therefore, new businesses must carefully assess the market landscape, identify opportunities in electric vehicle technologies, and develop innovative strategies to establish themselves in the future of the automotive parts manufacturing sector.Article First Published at: https://www.cnbc.com/2023/07/31/how-evs-are-upending-the-100-year-old-auto-supply-chain.html