Electrification is shaking up the automotive industry, especially at established automotive OEMs who have initially been tentative to investigate and develop electrified powertrains. Driven by strict emissions legislation, strong public awareness, and growing interest from customers, OEMs have started to embrace the idea of electric vehicles and develop increasingly affordable and useful cars.
With the first generation of electric cars coming to the market, competitive dynamics are increasing. We forecast rapidly growing electrification until 2030 in both Europe (24.1 mn units / 100% electrification) and China (36.4 mn units / ~80% electrification). In parallel to volumes ramping up, automotive supply chains will dramatically change. Long-established value chains are disrupted, creating business opportunities for suppliers who set the stage and plug in for electrified growth.
In this study, we look at an electric drive axle as reference case for analysis. An electric axle (also called electric drive unit) comprises several complex electrical and mechanical systems. It typically consists of an electric motor, power electronics, a thermal system, a transmission and a housing. Our analysis suggests that highest margin potential is in power electronics, while system integration is only poorly rewarded. From a material cost perspective, power electronics and the electric motor dominate – accounting for about 27% of total material cost each.
How can suppliers enter the market for electric axles and earn money? We describe four electrification plays for suppliers, ranging from component to system level. Among these, only a positioning as either component or system supplier will provide sustained profits. Component suppliers with high own value-add can defend their margins against competition and OEM purchasing tactics. System suppliers need to generate non-replicable value through electric, mechanical and thermal integration and need to become good at defending this value towards OEM customers and Tier 2 suppliers.
In positioning their offerings, suppliers need to be aware of actual demand and business opportunities. In the short term, only Global Niche OEMs (e.g. Jaguar Land Rover or Ferrari), Local OEMs (Follower), and Service newcomers (e.g. uber or DiDi Chuxing) are likely to be interested in system supplies for e-axles. The reason is, that most other OEMs are investing to build internal competences. With increasing maturity and the next vehicle generations, this insourcing trend is expected to reverse. Like other commodities, e-axles will be sourced on higher integration levels as soon as a state-of-the-art in technology has been created and OEMs have obtained market transparency. This opens a window of opportunity for system suppliers to develop their technology and supply chain for next product generations.
Suppliers should use this time to prepare beyond developing competitive technology. To enable a profitable and sustainable electric-axle business on system level, they need to transform and rethink existing organisational boundaries. Going forward, they need to master development & validation as well as manufacturing technology. Even more so, they need to be knowledgeable on system and complete vehicle level.
In summary, suppliers can benefit from electrification if they carefully select their target customers, focus on either component or system level and align their capabilities accordingly.
