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Supply and (Uncertain) Demand for Electric Vehicles

Geoff Giordano
By Geoff Giordano Contributing Editor, SME Media

Speculation grows over how the automotive supply chain will evolve for future mobility

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Amidst all the hype of electric cars, what are the potential costs of the manufacturing upheaval likely to accompany mass replacement of internal combustion vehicles with electric?

The hype around electric vehicles and self-driving cars seems to grow louder by the day. The potential environmental and social benefits are trumpeted generally without reservation.

But not as often discussed, at least in the consumer world, are the potential costs of the manufacturing upheaval likely to accompany mass replacement of internal combustion vehicles with electric should those projections come to pass. The price of re-engineering—or even scrapping—some or all of the established automotive supply chain and its traditional machining equipment and machined parts is one of the great unknowns in the electric vehicle equation.

“While plug-in hybrids can usually be manufactured on the same assembly lines as conventional cars, as both share the same platform, battery electric vehicles (BEVs) are often based on new platforms and hence require dedicated assembly lines,” wrote Olaf Hermanni, Falco Jaekel and Benjamin Jehl of DHL Consulting (Bonn, Germany) in a December 2017 article.

As industry experts have noted, automakers have spent decades refining the process of making internal combustion engines (ICE). Electric vehicles have only been in production in earnest for about 20 years since the 1997 introduction in Japan of Toyota’s hybrid Prius.

Furthermore, if the average eight-cylinder internal combustion engine comprises about 1,200 parts while the electric vehicle requires only about 20, where does that leave the suppliers of machining equipment and the makers of precision-crafted parts for gasoline engines? Likewise, EV transmissions are usually far less complex and require less machining than for ICEs.

“When I talk with some of the large automotive suppliers, who are very, very dependent on either petrol or diesel (vehicles), they already know it becomes a challenge for them to keep these business units busy in the future,” said Ruud Vossebeld, director of business development for Germany’s Inform Software. “Some of them might have about 10,000 people working in these business units.”

In a post he wrote on Inform’s blog last year, he concluded that, “The e-mobility hype is in full progress, and the automotive industry recognizes the chances by now, too. For many affiliated industries, the trend means preparing today for future business models and production. The OEMs and logistics service providers need to adapt the car manufacturers´ business and production models. E-mobility leads to new challenges for all parties, and changes not only the picture of our streets, but logistics processes.” Inform “offers a complete suite of logistics solutions to the automotive industry that can create visibility of the entire supply chain from inbound logistics and plant logistics through to the distribution of new cars in the dealer network,” according to the company’s website.

It’s clearly an uncertain—and potentially uncomfortable—future to contemplate. At least one machining equipment supplier did not want to address the subject for this article. But is all hope lost for these suppliers? Will electric vehicle demand doom traditional manufacturing in a cataclysmic upheaval?

Short Answer: Not Necessarily

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Human-robot cooperation in the installation of a hybrid battery at the Mercedes-Benz plant in Bremen, Germany.

Despite lofty “green” vehicle goals pronounced by auto-makers like General Motors Co., Volvo Cars and Daimler AG, concurrent with moves in Europe, India and China to ban sales of new internal combustion vehicles in coming decades, the electric vehicle manufacturing wave might not be entirely ready for prime time.

Witness the sobered assessment by Elon Musk, CEO of Tesla Inc. (Palo Alto, CA), in July regarding production snafus in meeting a recent 5,000-cars-in-a-week goal for the Model 3. The base model, with a range of 220 miles (354 km), costs $35,000; customers will pay $44,000 for the 310-mile (499-km) model. In the latest production round this summer, some assembly at the Fremont, CA, plant had to be performed manually after numerous robot errors that required the machines to be turned off.

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Photos courtesy of Daimler

Tesla further raised motorized vehicles and saw shares tumble in July after the Wall Street Journal reported the automaker had asked some suppliers for refunds. The company responded that it had asked fewer than 10 suppliers for reductions on spending for projects begun in 2016 but not yet complete.

“On the one side you see the electric vehicle trend growing because of lots of subsidy support in China and Europe—and maybe because of Tesla,” Vossebeld said. “The other side is, if you look to the traditional car makers, for them (current EV production) is just 1 or 2% of cars. The big question is, will it really go to 10 or 20%? Will we say in five years’ time that EV was nice hype but we just found a new, better diesel and let’s work the next 10 years on the better diesel?”

Now is the time for inventors from all corners, not just the automotive industry, to step up to optimize mobility of all varieties, he said.

“The big question will be: Will there be something better than an electric vehicle?” Vossebeld said. “It looks like some parties” believe there is “something new” that can improve the efficiency of diesel and gas-powered cars. It could be something as novel as putting a box of water in a diesel car to make it burn cleaner—closer to 100% than the current 80%.

“I think there are inventions in the market from a physical or chemical point of view that haven’t been tried yet,” he said. “It’s time that inventors stand up and come up with new ideas besides diesel and benzene and electric vehicles. I think electric is not the last step in the development of the automotive industry.”

The Automakers’ View

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Chevrolet Bolt all-electric cars on the production line. The 2018 model starts at $37,495; the EPA-estimated range is 238 miles (383 km) on a single charge. Photo courtesy GM

While acknowledging the deep impact EV production is likely to eventually have on traditional manufacturing, some automakers and equipment and tooling suppliers offer a positive outlook in the near term.

For instance, GM (Detroit) and Daimler (Stuttgart, Germany) are taking a balanced approach to producing ICEs and EVs.

“General Motors believes in an all-electric future—a major element of our vision of a world with zero crashes, zero emissions and zero congestion,” said Elizabeth Winter, a GM spokesperson. “GM is committed to driving increased usage and acceptance of electric vehicles and believes that EVs are the foundation for self-driving vehicles.”

But simultaneously, GM will “continue to provide investment and development of propulsion efficiency improvements, including ICE, as an important part of the pathway to zero emissions,” she continued. “A recent example is the industry-first Dynamic Fuel Management system for our 2019 Silverado.”

Production-wise, “what is interesting is not what we do differently, but rather what we do the same,” she said. “We have been able to integrate the all-electric Chevrolet Bolt EV into our traditional assembly processes along-side ICE vehicles at our Orion Assembly Plant. Another example is the Chevrolet Volt [an electric vehicle with ICE backup], which is built alongside traditional vehicles at our Detroit-Hamtramck plant. We believe this approach allows us to take advantage of our 100-plus years of manufacturing experience, existing facilities and our experienced workforce to support important safety, quality and productivity standards.”

At Daimler, sales of electric models are expected to constitute 15% to 25% of total Mercedes-Benz sales by 2025, a company spokesperson said. “That, of course, also depends on the continued development of infrastructure and customer preferences,” the representative said.

In terms of manufacturing, the spokesperson continued, “we are consistently working on the implementation of our electric initiative. Electric vehicles of the EQ product and technology brand will be integrated into the series production of Mercedes-Benz cars’ existing plants. This is possible because we invested in flexibility and technical equipment with forward-looking Industry 4.0 solutions at an early stage worldwide.”

Production of the first EQ vehicle is slated to begin in Bremen next year.

With its “highly flexible structures, we are able to produce vehicles with different types of drives in our plants, in order to respond flexibly and rapidly to changes in market demand. We are therefore exploiting the opportunities presented by electric mobility while significantly limiting the need for investment.”

All told, Daimler foresees “a coexistence of old and new technologies. We will continue to rely equally on electric and internal combustion engines. For the optimization of combustion engines and their production, we continue to work together with our suppliers.”

Tool and Machine Makers’ View

Concurrent with automakers’ plans to balance ICE and EV production in the near term, machine tool and equipment suppliers have expressed confidence of maintaining demand and profitability.

As far as cylindrical grinding is concerned, “we’ve been grinding electric motor shafts for quite some time,” said Shane Farrant, national product manager-grinders for JTEKT Toyoda Americas Corp. (Arlington Heights, IL)

“Going from something that would be a specialized piece of equipment like a camshaft or crankshaft grinder to something that would be more suitable for an armature shaft or electric motor shaft, we’re pretty well situated as far as having both of those lines of equipment available,” he said. “I think we would be able to plug in to any electric vehicle supply line however that particular manufacturer chose to do that.”

Toyoda’s GL4-i and GL5-i series grinders would be suitable for switching from ICE shafts to EV armatures, he noted. “We’re well suited to take up any increase for demand for electric motor shafts.”
For Germany’s Heller Group, about 75% of the machine tool manufacturer’s recent business has come from the automotive industry, said COO Manfred Maier in his keynote address on future mobility at the Heller Tech Days event in Troy, MI, last July.

“The combustion engine is far from dead,” Maier said. “Rather, we believe that in the near future, the mobility concept will comprise a combination of downsized combustion engines and electric drives.

“Our core competency will enable us to remain a sought-after partner for potential customers in the years to come,” he continued. “At the same time, we will increasingly search for new applications and complementary technologies.”

Heller, which with Daimler and BMW AG (Munich, Germany) has pioneered the use of cylinder bore coating for aluminum engine blocks, is exploring new applications hrough its Development New Business & Technologies group. These technologies “will not immediately turn into key revenue contributors, yet are likely to gain significance in the future,” according to a Heller press release.

As machining companies worldwide adjust their transportation mix, more capacity is likely to go toward the aircraft and rail industries and heavy-duty vehicles like semi trucks and construction equipment, Maier said. Agricultural and energy equipment will offer further opportunities. But Western machining companies will face further challenges as Asia generally and China specifically take more market share while the global machine tool industry contracts.

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Aluminum milling cutters from Sandvik Coromant for electric vehicle manufacturing.

Toolmaker Sandvik Coromant is monitoring the development of EVs closely, studying what components will be present in electrical vehicles and what cutting tools are needed, said Nicklas Bylund, director of customized solutions, automotive. He noted that China is adapting e-mobility at a fast pace, and that Sandvik Coromant works with producers in that market.

Bylund also observed that while electrical engines have fewer parts, they still need machining. “Other tools are needed,” he said. “Also, there will be hybrid vehicles where the number of parts in the combined engine will outnumber the current number of parts.”

Like other suppliers to the automotive industry, Sandvik Coromant has worked with vehicle producers for many years, “and there is a symbiosis regarding vehicle development, tool development, and how to apply those tools,” said Bylund. “It is possible that hybrid vehicles will increase, and as mentioned before they have a lot of components.”

Even if EV production begins to take a large share of the automotive market, it is likely that heavy vehicles will continue to use combustion engines, “as well as a high content of cast iron and steel, materials more difficult to machine than the aluminum [content that] is increasing in cars,” said Bylund. “Depending on price development in composite materials, such materials might increase in the cars, and that offers new challenges for tooling.”

Projections and Proscriptions

Automakers seem to be rushing to outdo each other with pronouncements of aggressive, accelerated timetables for phasing out gas-powered cars:

  • Volvo (Gothenberg, Sweden) announced in July 2017 that every new car it produces from 2019 onward will have an electric motor. The company plans to launch five fully electric cars between 2019 and 2021; three will be Volvo models, two will be high-performance vehicles from its performance-car arm, Polestar.
  • Volkswagen AG (Wolfsburg, Germany) announced in March that 16 locations worldwide are to produce battery-powered vehicles by the end of 2022.
  • Daimler plans to introduce 10 electric vehicles by 2022, earlier than the previously projected 2025 date. The company also plans to invest more than $1 billion in battery production and led an $82 million investment in EV charging network ChargePoint.
  • Tesla will be the leader in EV production in 2019, according to an analysis by London-based PA Consulting. However …
  • … Mercedes-Benz (Daimler) could take the No. 1 spot by 2021, PA found, with BMW ranked No. 2, Renault Nissan Mitsubishi No. 3, Volkswagen No. 4, Volvo No. 5, Toyota No. 6 and Tesla falling to No. 7.

Those projections come on the heels of numerous legislative efforts to force electric vehicle adoption:

  • France and Britain issued pledges in July 2017 to ban sales of gas and diesel cars by 2040.
  • Germany’s upper house of parliament supported a Europe-wide ban on gas-powered cars by 2030. Months earlier, in May 2016, Germany began offering incentives up to 4,000 Euros for electric car buyers in a program scheduled to end in 2020.
  • India is aiming to sell only electric vehicles beginning in 2030.
  • Norway and the Netherlands are reportedly working on banning sales of new gas-powered cars by 2025.
  • China announced last September that is working to set a deadline to ban sales of fossil fuel cars. “The implementation of the ban for such a big market like China can be later than 2040,” Liu Zhijia, an assistant general manager at Chery Automobile Co., told Bloomberg. Chery is the country’s largest passenger car exporter.

The result is a fiscal balancing act with tremendous implications for the entire automotive supply chain.

“A number of car makers are stepping back a little bit from going for 100 different models,” Vossebeld said. “They think the Tesla way of focusing on three, four or five models. It takes a lot of new investment to get the right models in place–on the one hand to be competitive with what Tesla is offering and on the other hand to just get electric vehicles on the map.”

Batteries Remain a Hurdle

Some of the most frequently cited cons of electric vehicles are the big, expensive batteries required, their short range and lengthy recharging time and the potential toxicity of some of their chemistries. That’s not to mention the potential environmental impact of excavating the rare metals needed to make them.

“If you are in the battery business, you probably have the best chances (for future success),” Vossebeld said. But “not everyone is jumping into the battery business; some people say it doesn’t have enough profit, and it’s a big investment.”

But battery production has its issues.

“With the adaptation of electricity as a power source, increased safety and handling requirements of applied batteries must be cost-efficiently integrated in logistics processes,” Vossebeld wrote last September. “Battery production includes complex chemical processes and high quality requirements, and even Tesla who operates their own “gigafactory” has already struggled with a battery shortage due to problems with the 100kWh battery production.”

Daimler is investing more than 1 billion Euros in a “global battery production network” of six factories at five locations on three continents, the company’s spokesperson advised. “The first factory in Kamenz is in series operation; the other factories are in planning or under construction” in Beijing, Bangkok, Tuscaloosa, AL, and Untertürkheim, Germany. “The local production of batteries is an important success factor in the electric initiative” and this manufacturing network “is very well positioned for the mobility of the future.”

 

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