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The 2021 grand opening of GM’s Factory Zero assembly plant dedicated to EVs. (GM)

'Scaling' EVs won’t come easy

As obstacles to EV adoption mount, maintaining a robust ICE supply base is crucial.

Michael Robinet portraitRegular readers of Supplier Eye will note that this author tries to outline the positives and the negatives of supplier strategies. It’s a moving target. A recent deluge of negative headlines with respect to EVs has OEMs, suppliers and other participants re-evaluating their strategies. Slower consumer acceptance and stalled sales of some EVs — in combination with the recent eye-popping labor agreements with the UAW and Unifor unions — underscore that return on capital and labor-cost challenges will be core considerations going forward. At no point was this transition going to be smooth — “lumpy” is a better description.

While there are several positives with the ICE-to-EV transition (emissions, efficiency, reduction of carbon-fuel dependence and running costs), there are hurdles that cannot be dismissed. Of late, several of these concerns have become more prominent. One surrounds the ability for government and industry to effectively bridge the higher costs (due to scale economies) of EVs in an environment of higher average-vehicle cost.

Case in point: according to S&P Global Mobility, the U.S. light-vehicle average transaction price was nearly $45,000 in 2022 and continuing to rise in 2023. At this point, ATP represents 55% of the U.S. average annual income — up from 40% of income in 2016. Vehicle prices/affordability have started to reduce total market size as rising financing costs, mostly because of higher interest rates, also are part of this equation. Recent labor agreements within and outside automotive underscore that vehicle production costs will continue an upward trajectory.

Another factor: given that EVs marketed in the U.S. to this point have been “on the edges” in the performance, luxury and fullsize pickup segments, we have not yet hit the heart of the market. By 2025, more than 50% of the market is expected to be B-, C- and D-segment-sized offerings, according to S&P Global Mobility. Vehicles that are the size of a Jeep Compass or Ford Edge are core to EV penetration for the future. Major hurdles remain to reach 40%-plus BEV penetration in North America by 2030. One needs also to remember that although fullsize pickups/SUVs have been an early destination for BEV propulsion, more than half of this 3-million-sales-plus category still will be ICE-based in 2035. Specific vocation needs, range and towing/cargo requirements will extend ICE requirements in this sector.

There has been mounting concern surrounding the state of the ICE supply base and future ICE-related component demand over the next decade. Beyond the EV hype, other factors are critical. As noted earlier, several OEMs are integrating a hybrid technical bridge to full EV

production. Understanding that scale economies, the charging infrastructure, affordability and other factors need to be solved, several OEMs are defraying risk through a variety of mitigation strategies.

Output of ICE-based models has a strong trajectory for many years, which will require a capable supply base. It can be easy for many to view EV as a treasured growth destination, though one needs to remember that in North America today, 93% of output is ICE-based. Internal-combustion structures and their associated systems will for many years continue to be the viable option for OEMs and consumers. Little question that EVs will continue to bask in the hype, but ICE components and systems, though challenged, will continue to be a critical cog in the North American automotive ecosystem.

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