DETROIT — The transition to electric vehicles will cost the auto industry billions and likely create more partnerships and mergers, but leaders of top Michigan-based suppliers consider the technology-driven evolution more opportunity than concerning disruption.
Suppliers — including BorgWarner Inc., American Axle & Manufacturing Holdings Inc. and Nexteer Automotive Group Ltd. — have battled a pandemic that caused a months-long industry shutdown in the last year. They navigated supply constraints affecting production schedules, a labor shortage and economic uncertainty all while accelerating EV and future product development.
Like their automaker customers, they now are pursuing a dual strategy rooted in both the present and the future. They are focused on money-making internal combustion product lines while simultaneously developing products to woo the automakers trying to win over consumers with tech-heavy, eye-catching EVs.
But suppliers, including those making parts predominantly for internal-combustion-powered vehicles, aren’t apprehensive about the transition. A big reason: even though automakers are investing billions themselves on this transition, they also aren’t nixing their bread and butter gas-powered products just yet.
“Because of the current North American OEM strategy, even at-risk suppliers have time to adapt between now and 2030 because nobody’s dropping anything,” said Warren Browne, an auto supplier consultant and former General Motors Co. executive who worked at the carmaker for 40 years.
Still, the Detroit Three and others in the last year have released EV targets that suppliers cannot ignore. GM has an all zero-emissions lineup “aspiration” of 2035 and says it will sell 1 million EVs globally by 2025. Ford Motor Co. expects its sales to be 40% electric globally by 2030. Stellantis NV says 100% of its U.S. lineup will have an EV option by 2029.
Foreign automakers also have released EV targets. Honda Motor Co., for example, says battery-electric and fuel cell electric vehicles will represent 100% of its vehicle sales by 2040.
“Clearly, the OEMs are telegraphing to the marketplace and to the supply community, their extended partners … that they’re making a shift in their strategy from traditional ICE and hybrid engines to electrification,” American Axle CEO David Dauch said in an interview with The Detroit News.
“They’ve got lofty goals that are out there,” he said. “I think it’ll take them a little bit longer to implement just based on consumer acceptance, but they’re doing no different than what we need to do … we need to be agnostic to the market.”
Prepare or ‘you’re going to be history’
Even as automakers make steep investments in EVs, sales of the vehicles still only claim about 2% of U.S. market share. By 2028, AutoForecast Solutions predicts EVs will account for 16% of the rich U.S. market.
Sam Fiorani, vice president of global vehicle forecasting for AutoForecast Solutions, said the transition will take “a long time,” especially in the United States. Suppliers shouldn’t be concerned; they should be ready.
“Major manufacturers are already down this path making sure that the small manufacturers know that no matter what part you’re on, you have to be prepared to deal with an EV future,” he said. “And if you’re not prepared, you’re going to be history.”
Like the automakers, suppliers also have to consider how policy surrounding electrification, incentives and charging infrastructure will impact consumer adoption rates. In the United States, there’s not currently a federal EV sale mandate or goal in place, but some states like California have introduced their own.
Meanwhile, the EV regulation leader, the European Union, wants to phase out new internal combustion vehicles by 2035. In China, the world’s largest auto market, the government has set targets for sales of new energy vehicles — including 5 million by 2025, which represents about 20% of sales, said Michael Dunne, CEO of Hong Kong-based advisory firm ZoZo Go LLC.
Suppliers agree they do not want to see a mashup of rules that vary from state to state and that there needs to be infrastructure investment. President Joe Biden has proposed spending $174 billion to “win” the electric vehicle market, rolling out half a million charging stations nationwide by 2030, and increasing consumer incentives to buy — proposals that remain up for debate on Capitol Hill.
‘Accelerating’ EV efforts
American Axle, known for driveline systems that carry the power of an internal combustion engine to the wheels, has been prepping for the EV transition for at least the last decade.
A 2012 acquisition of the defunct Saab Automobile AB gave the company “bookshelf technology” that included electrified all-wheel-drive systems and electric drive units, Dauch said.
By 2015, American Axle secured its first major EV program with Jaguar Cars Ltd. for the I-Pace, the British automaker’s first all-electric production vehicle. The company also has worked with Chinese automakers on EV programs and supported GM’s Wuling joint venture EV programs in China.
It’s now working on a new program with an unnamed “high-performance luxury European OEM,” Dauch said. “There’ll be seven variants coming off of that program that will launch over the next several years.
“Really what it comes down to is every OEM around the world right now is trying to understand their long-range product plans, making adjustments to their long-range product plans on a regular basis because this whole electrification pivot happened quicker,” he said.
American Axle hasn’t released a figure on how much it’s investing in electrification, but it has increased its research and development spending on it.
“We always want to try to stay one or two generations ahead of our competition so we’re already working on those next-generation products,” Dauch said. “We’re working on trying to bring more optimized solutions to our customers with a value proposition.”
As far as what the future holds for American Axle’s internal combustion products: “Market forces, ultimately will dictate that,” Dauch said. The market isn’t expected to shift overnight. Still, suppliers like American Axle know they cannot sit around and wait for it to happen.
“What they need to do is figure out how to make this stuff cheaper and better than the OEMs can do themselves,” said Sam Abuelsamid, principal research analyst leading Guidehouse Insights.
Propulsion company BorgWarner in March 2021 revealed its “Charging Forward” plan to grow its EV revenue to about 45% of total revenue by 2030 from less than 3% today. Part of the plan includes disinvesting in part of the internal combustion business.
BorgWarner aims to divest in $3 billion to $4 billion of annual revenue from ICE products through 2025. It also plans to spend between $220 million and $225 million on its EV products and has a combined R&D and capital spending plan for those products of $3 billion in the next five years.
To prep for the EV transition, Auburn Hills-based BorgWarner has made several acquisitions. In 2015, the company acquired Remy International Inc., a manufacturer of electric motors. And last year it acquired Delphi Technologies, a move that strengthened BorgWarner’s “electronics and power electronics products, capabilities and scale, creating a leader in electrified propulsion systems,” the company said in a press release detailing the acquisition.
“It’s a journey we’ve been on for a long period of time,” BorgWarner Chief Strategy Officer Paul Farrell said in an interview. “We are now at a point where it’s really starting to accelerate and we’re accelerating our efforts.”
BorgWarner, Farrell added, remains “committed to our customers and our combustion portfolio, but we also recognize that really the area for significant growth opportunities going forward is in that electrification space.”
Seeing a ‘bright future’ with opportunity
Years ago, an industry driven by the need to meet fuel economy standards began the switch from hydraulic power steering to electronic power steering. The switch readied suppliers like Nexteer for the EV transition.
“Today, the majority of light vehicles in the world made that conversion over to EPS, electric power steering, so because of that conversion, we’re very well positioned now with the onset of more and more battery electric vehicles because the electric power steering system is pretty much a drop-in into those EVs,” said Robin Milavec, Nexteer chief technology officer and chief strategy officer.
On the driveline product side of its business, Nexteer has developed products tailored for EVs including new Halfshaft technologies that “enhance durability and efficiency while optimizing noise, vibration and harshness,” the supplier says.
Illinois-based supplier Flex-N-Gate Corp., a manufacturer of exterior body parts, lighting and interior components among other products, plans to get into the battery side of the business, too.
“We see some opportunities for Flex-N-Gate where we want to enter the powertrain side of it in the way of the potential energy storage side,” said Guido Benvenuto, vice president of engineering at Flex-N-Gate.
Flex-N-Gate plans to open a research center in Windsor that will focus on developing technology for battery cells and modules. The center will be operational next year.
“Our belief is, we want American energy independence, that’s our goal, and American companies servicing American customers with energy storage,” Benvenuto said.
Flex-N-Gate is moving to invest in battery development just as the automakers themselves are. GM and partner LG Energy Solution are planning multiple battery cell manufacturing plants in the U.S. to support GM’s EV plans. Ford has partnered with SK Innovation to manufacture their own batteries, too.
The step to vertical integration is something suppliers also have to watch, Abuelsamid said: “What we’ve seen, particularly with motors and batteries, is the automakers are taking a more hands-on approach to production. They see electric motors and batteries as the necessary core competency of being an automaker going forward.”
Japanese supplier Denso Corp. also is offering electric motors, power electronics, and the company does advanced work in batteries, said Jim Harkins, Denso’s director of electrified systems engineering.
In 2017, Denso invested $1 billion in its Maryville, Tennessee, operation to adapt the plant for the electric future. Here, the company makes starters, alternators, instrument clusters, various automotive electronic products and inverters for hybrid vehicles.
“As you look to what the Detroit Three customers are doing there is this strong move toward electrification,” said Jon Callies, Denso’s North American electrification lead. “We see it as a very bright future and our role is a very critical role to play as we transition from some of the legacy products to the electrified products.”
