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Automotive Outlook: A Winning Electrification Strategy, Tempered Industry Expectations

Automotive Outlook: A Winning Electrification Strategy, Tempered Industry Expectations

UHY’s 2023 Electrified Automotive Update was held at the M1 Concourse in Pontiac, Michigan, and addressed the progression of electrification, tips for automotive suppliers, a global production forecast, and consumer sentiment toward battery electric vehicles (BEVs). Here is a summary of the key themes explored during the event.

Opportunities found through the coexistence of ICE and BEVs

Electrification is and will continue to be one of the most impactful trends we’ve seen in decades. At first glance, automotive suppliers may begin to worry about their position as the production of ICE vehicles decreases, and EVs move to the forefront of the industry. Industry data confirms that EVs will undoubtedly move to the forefront of the industry, but it won’t happen overnight.

During this transition period, a mix of internal combustion engine (ICE) vehicles and BEVs will enter the market, making up dealership inventories of various automakers. Automotive suppliers will have ample opportunities for growth and success during this time, provided they embrace the disruption and plan accordingly.

Dual strategy capitalizes on transition from ICE to BEV

Suppliers must develop a dual strategy that maximizes profits on their current products to help support growth areas, in this case, maximizing profitability on ICE vehicle components and using that to support the development of BEV products. Fundamental principles of a dual growth strategy are lean operations, which can be realized in various sectors of the business (equipment, labor, materials, technology, etc.), high mix, low volume capabilities, and exit strategies or expansion.

Emphasis on high-mix, low-volume

High-mix, low-volume strategies will be critical even as the progression toward electrification increases. According to GlobalData PLC, there is an expected average of 69 new vehicle launches from 2024-2026; of those new launches, more than 60% will be BEVs or hybrids.

Multi-platform vehicle launches, two vehicles with identical exteriors but different powertrains, drive the need or the opportunity for high-mix, low-volume specialists. In the near to mid-term future, we see multiple platform launches and increased production of BEVs, but until 2030, ICE production is expected to outnumber BEV production. The 2024 GMC Acadia is a good case study to understand the importance of a high-mix, low-volume approach.

Finding a competitive advantage

Suppliers who have improved their business and increased their value should now look to various areas for diversification and growth to create a competitive advantage. There will be opportunities to pivot to producing BEV components even as BEVs are made of fewer pieces than ICE vehicles. The emergence of BEVs will bring new entrants and the possibility of creating new relationships and new customers to serve. Finally, technology providers that are new to the automotive space may need assistance integrating their technology into the new BEV market.

Geographical and market expansion

Original equipment manufacturers (OEM) are investing more in the Southeast, and there may be opportunities for suppliers to expand operations to be closer to these new plants, which improves the supply chain and maximizes efficiency. Historically, most of the investment from automakers was captured in the Midwest region, but we are seeing investment pour into the Southeast, where there is a high availability of skilled labor at a lower cost. With the opening of new plants in areas outside of the Midwest, suppliers will have opportunities in emerging regional markets.

Sectors outside of automotive are utilizing electrical components, and suppliers that become familiar with these components and begin to produce them will be able to branch out to new markets. We’ve seen increased electrical components in equipment, power sports, and marine.

The path toward electrification and lofty OEM and regulatory goals may be difficult and sometimes uncomfortable. Automotive suppliers need to evaluate their businesses, assess their needs, and set goals to build an effective strategy for this transition period and beyond. There is a world of opportunity for automotive suppliers of all shapes and sizes. An effective strategy is the key to maximizing your potential.  

‘Glocal’ automotive outlook

The theme of uncertainty is evident on a global scale. We have seen accelerated global growth in light vehicle sales, posting monthly increases until September, when we saw a slight reduction. Evidence of recession is still visible across major global economies.

As supply chain disruptions begin to resolve, global light vehicle production has improved since the second half of 2022. Production has already started to align with demand, and we have seen an 11% year-over-year growth as of August 2023. Supply chain disruptions have not completely receded, but the impact of those disruptions has lessened.

The global BEV market is also relatively strong. The growth is driven predominantly by China, Eurozone countries, and the U.S. China currently outperforms the Eurozone and U.S. significantly, but that trend is expected to change.

Inventory levels in the U.S. have reached 40 days’ supply as of September 2023, the highest since April 2021. We do not expect a “normal” days’ supply level of 60-65 days to return at an industry level. Inventory levels from September 2023 showed efforts to increase inventories in preparation for a possible strike, which, as we now know, turned into a nationwide strike across multiple manufacturers. We expect the strike to impact inventory levels.

Analyzing the strike's impact in greater detail, automakers have lost approximately 6,300 units per day over the course of the strike. All three have been impacted to varying degrees, and we attempted to make observations for each of the Detroit 3:

  • Ford may be impacted on a deeper level than GM or Stellantis. Our data shows a -14% downside risk. UAW employees represented over 80% of production in 2022 and account for a significant portion of their output.
  • GM does not rely as heavily on UAW employees for output, with 66% coming from those employees. GM will not be as profoundly impacted as Ford, with a downside risk of -12%.
  • Stellantis has the lowest reliance on the UAW of all the Detroit 3, with 64% output. Stellantis is in the best position amid the strike, with the lowest downside risk of -11%.

The strike has impacted certain new vehicle launches and buildouts with several plants going offline for different lengths of time.   UAW workers have since returned to their jobs at Ford, GM, and Stellantis with at least tentative agreements in place.

Consumers still apprehensive, barriers to EV adoption remain

Electrification is both exciting and terrifying. Consumers have not fully leaned into electrification or opted for a BEV. Significant questions remain on infrastructure, accessibility, and the price of BEV on the market.

Hurdles to overcome for consumers include range anxiety, charging infrastructure, and, as simple as it sounds, dealing with the inconvenience of the current vehicle charge time.

Your guide to electrification

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