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Traditional supplier tiers are under attack by new players as vehicle systems change (click to enlarge image).

The New Supplier Invasion

Significant changes are underway within the North American light vehicle supply infrastructure. Beyond the slow though steady shift of value and resources from ‘hard parts’ towards the softer side (electronics/mechatronics) of system supply, as well as the pressures impacting smaller, more regional suppliers there are other critical changes underway. Chief among these are the geographic and system expansion of the supply base into new directions.

An influx of China and India-based suppliers have been quietly setting up shop in North America – mainly in Mexico and the U.S. Their respective routes to these shores are not identical, though there are common traits. System technologies requiring high levels of capital, especially “patient” capital, are destinations for transplanted suppliers. These companies are thus far predominantly involved in glass, painted exterior components, castings and stampings.

Beyond ‘greenfield’ operations, capital from abroad has been utilized to purchase ailing suppliers requiring an infusion of funding and scale when combined with volumes back in Asia. We’ve seen examples in safety systems and chassis control where new funding allows for capacity expansion and an overall technology improvement across their enterprise.

OEMs which are establishing new operations away from the U.S. Midwest and thus trying to reduce logistics costs may find the new Asian suppliers who are incremental to the NA supply base more willing to set up shop in new locales. The various motivations include filling a void within a supply sector with too few players (per the opinion of the OEMs) or being offered business by an OEM seeking to ‘expand’ their supply base – allowing for more sourcing options.

The lure is understandable. Geographic diversification to North America for these new players gives them exposure to new technologies which can benefit capabilities back home.

Another subset of new suppliers to North America are from Europe, Korea and Japan. Many of them did not establish operations over the past couple of decades in parallel with their main OEM customers. Increasing volume and a shift towards incremental capacity in Mexico has brought a tranche of new players, some of whom are aligned with Mazda, Kia and even Volvo. While many of them are Tier 2s following their larger Tier 1 customers to North America, the increased volumes and the chance to diversify their customer base is important.

Possibly the most visible of new suppliers are those start-ups from Silicon Valley and Israel, the wellsprings of new players in advanced technology. The small, non-traditional, tech-intensive companies are bringing innovative ACES-related content to the vehicle. ACES–the IHS Markit acronym for Autonomous, Connected, Electrified and Shared–is truly preoccupying our industry as it races towards 2020. Tier 1s and OEMs alike are acquiring or building joint ventures with these players at a staggering rate and with commensurate capital outlay.

The net result is new technologies and collaborations for the mobility industry. Nonetheless, these suppliers would be wise to ensure they understand scale, as well as the timelines, tooling and testing protocols and the extreme level of integration with other light-vehicle systems, before they dive in.

Additionally, the traditional “tiers” are under attack as vehicle systems change, causing the method by which these are supplied to change as well.

Any supplier who envisions that their current competitors, upstream customers and suppliers will be the same a decade from now is in for a rude awakening. Only those with the outlook, analysis and foresight to view the road ahead will be able to react.

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