Auto industry moves to an EV future while grappling with a problem-filled present
The auto industry is betting its future on electric vehicles. At the same time, it’s dealing with myriad problems and potential game-changing breakthroughs, such as connectivity, car-sharing, autonomous vehicles, and advanced manufacturing.
The list of challenges includes evolving supply chain dynamics, new competitors and partners, inflation and recessionary concerns, the fallout from Russia’s invasion of Ukraine, limited energy resources, workforce shortages, changing consumer preferences, and “new normals” stemming from COVID-19. There is also a persistent shortage of semiconductors that’s lasting longer than originally forecast.
To stay competitive, automakers and suppliers are having to make multi-billion-dollar investments in the midst of all the uncertainty and disruption.
For now, the biggest issue is navigating the shift from internal combustion engines (ICEs) to electrified powertrains while the computer chips necessary for the transition are in short supply.
John Murphy, analyst at Bank of America, summed up the situation as a once-in-a-hundred-year transformation. But the industry may face “a period of painful transition,” he warned during a recent presentation to the Automotive Press Association in Detroit.
The semiconductor shortage that started two years ago has had a huge impact. Once full dealer lots are now sparse, while manufacturers implemented temporary plant shutdowns.
Consulting firm AlixPartners predicted the shortage will hold down vehicle sales through 2024. “From a demand standpoint, it has been a moving target,” said Arun Kumar, managing director, automotive and industrial practice for the company.
The auto industry currently accounts for 10 to 12 percent of semiconductor demand, Kumar noted. That will rise as the industry steps up its output of EVs, which need more computing power. Calling EVs “a future problem,” Kumar said, “The amount of chips we’ll need is three to four times higher.”
General Motors Co. CEO Mary Barra, on a conference call on July 26, concurred. “As we put more technology on vehicles, we need more chips.”
GM felt the impact in the second quarter, when it produced about 90,000 vehicles (mostly high-profit trucks and SUVs), without some components because of the chip shortage. The automaker didn’t expect to finish those vehicles until later in the year.
AlixPartners said in a report that EVs will “require exponentially more chips than their ICE counterparts. Chip demand from BEVs (battery-electric vehicles) will grow 55 percent per year, compared to a decline in demand for ICE, making chip availability a continued bottleneck for EV production despite technical efforts and investments by the industry.”
The transition from ICE models to EVs will cost the global automotive industry $70 billion between now and 2030, AlixPartners estimated. Suppliers are “particularly vulnerable,” according to the consulting firm, while automakers will probably choose “to make more of the new components themselves.”
“The mix is changing,” added David Opsahl, CEO of Actify, a maker of software for automotive suppliers. And the move to EVs also has other effects, he pointed out. The industry, he said, faces a shortage of program managers. “You have this capacity constraint” of program managers. “If something goes wrong, it comes out of supplier margins.” The shortage of such managers, he added, “is acute.”
According to Opsahl, suppliers face a choice of either shifting to other industries or finding ways to adapt to EVs. “If you want to stay in auto, you have to learn to make something else,” he said.
EV sales are accelerating, thanks to continued regulatory pressure, improved driving ranges, lower costs, growing consumer acceptance, and a host of new models from which to choose.
Indeed. During the first half of 2022, global BEV deliveries soared 81 percent, according to PwC’s Strategy& unit. While much of the uptick is attributed to China, where EV sales more than doubled in the first half to more than 2 million vehicles, the European Union and other markets also have enjoyed healthy increases with Norway leading the way at EV sales rates approaching 80 percent.
Sales are also spiking in the U.S. After years of stagnating at less than 1 percent of total passenger vehicle sales, EVs topped 5 percent during the first half of this year. That’s a very significant threshold, according to an analysis by Bloomberg. It predicts surpassing the milestone is a gateway to achieving EV sales of 25 percent as early as the end of 2025 based on trajectories already established in 18 other countries, as well as “S-shaped” growth curves for previous successful technologies, such as televisions, mobile phones, LED light bulbs, and the Internet. While sales are initially driven by early adopters, surpassing 5 percent typically indicates that more mainstream buyers are joining the bandwagon, Bloomberg said.
Furthering the cause, an executive order by the Biden administration last year mandates that BEVs and hybrid-electric models account for half of new vehicle sales by 2030.
After years of trailing their European counterparts, U.S.-based automakers are aggressively rolling out a wide-range of electrified models. In fact, EVs promise to be the next frontier of the ongoing competition between GM and Ford Motor Co.
GM’s EV barrage includes the Cadillac Lyriq, Chevrolet Silverado pickup and Blazer SUV, and GMC Hummer pickup and SUV. And the company’s Buick marque aims to convert to an all-electric lineup by the end of the decade, starting with the upcoming Electra in 2024.
In addition, GM, in partnership with Honda Motor Co., plans to jointly develop a series of more affordable EVs. The companies plan to start production of the new EVs in 2027, using standardized processes.“GM and Honda will share our best technology, design and manufacturing strategies to deliver affordable and desirable EVs on a global scale,” GM’s Barra said in a statement.
“This is a key step to deliver on our commitment to achieve carbon neutrality in our global products and operations by 2040 and eliminate tailpipe emissions from light-duty vehicles in the U.S. by 2035,” she added. “By working together, we’ll put people all over the world into EVs faster than either company could achieve on its own.”
Cross-town rival Ford is splitting its automotive operations into two entities: One unit (Ford Model e) will focus on EVs—including high-profile models such as the Lightning variant of the popular F-150 pickup and the sporty Mustang Mach-E—while the other (Ford Blue) will deal with conventionally powered cars and trucks.
The company will selectively invest in ICE products moving forward, according to CEO Jim Farley. Ford Blue, he said at a July event, will be “a profit and cash engine for the enterprise.” Meanwhile, Ford Model e will be “a clean-sheet” startup that “focuses on EVs and battery technology.”
Farley is personally overseeing Ford Model e, a sign of how important that part of the business is to the company. “Each will have its own profit and loss responsibility,” he said, adding that the two units will complement each other. Ford Model e will develop new technology, while Ford Blue will help the EV side ramp up production.
The Dearborn, Mich.-based company said its traditional auto operations aims to cut $3 billion. “Our complexity needs to be cut back,” said Kumar Gahotra, president of Ford Blue. “Most of the $3 billion comes from Blue. …Nothing’s off the table.”
Meanwhile, Stellantis N.V., which was formed last year through the merger of Fiat Chrysler Automotive and PSA Group, formed a joint venture with South Korean battery giant Samsung Group in May. The partners are investing $2.5 billion for a plant in Kokomo, Ind., to make lithium-ion batteries for EV output. Production is due to launch in 2025, with an anticipated 1,400 jobs to be created.
GM plans to spend more than $7 billion at four Michigan manufacturing sites. The investment, which is said to be the largest single outlay in company history, is expected to create 4,000 jobs and retain 1,000 others.
Portions of the investment include construction of a new battery cell plant in Lansing, Mich., and converting the company’s assembly plant in Orion Township, Mich., to production of the electric variants of its Chevy Silverado and GMC Sierra full-size pickup trucks.
The Lansing project is just one of a series of battery operations GM is investing in as the automaker aims to control its own destiny and produce as many EV batteries in-house as possible.
“We have binding agreements securing all battery raw material to support our plan for 1 million units of annual EV capacity in North America in 2025,” Barra said in a letter to shareholders. “These are commitments with strategic partners for key materials like lithium, cobalt, and nickel,” she added, citing multi-year agreements for lithium and cathode material with Livent Corp. and LG Chem, respectively.
“Going forward, we will continue to mitigate risk and drive down costs to help us deliver $90 billion of annual EV revenue by 2030,” the CEO said.
At the same time, the GM chief acknowledged there will be short term pain. Regarding the computer chip shortage, she stated: “We see the impact into next year.”
The electrification race pits traditional automakers against Tesla Inc., Rivian Automotive Inc., and other EV upstarts. Led by mercurial CEO Elon Musk, Tesla has enjoyed an enviable position as the perceived leader in EVs, which has caused the company’s stock price to soar.
But those days may be ending. “Tesla may be one of the big losers over the next four years,” declared Bank of America’s Murphy at his presentation before the Automotive Press Association. “It’s going to shift wildly over the next four years.”
Musk may not have moved quickly enough to press his initial advantage, Murphy opined. He “could have shut the door but didn’t,” the analyst said. “It was a big miss on his part.”
As traditional automakers step up their EV efforts, “It gets tougher” for Tesla to dominate the market, Murphy said. “Elon has been operating in a vacuum. That vacuum is being filled.”
Indeed. By 2024, every OEM will have a pure electric vehicle across every product segment, noted AlixPartners’ Kumar. And their sights are clearly set on Tesla.
Murphy predicted Tesla’s share of the U.S. EV market will plunge from 70 percent to less than 20 percent as more-established automakers get their EV efforts going.
“It’s a land grab,” added Opsahl of Actify. Automakers and suppliers are “out to claim a market nobody is in except for Tesla. “I don’t think you can pick winners and losers,” he added. “But there will be both.”
Ford’s Farley is confident about his company’s chances. “Our legacy organization has been holding us back,” the CEO said this summer, noting the automaker is “free of hierarchy” and will have “scale and resources that no startup can match.”
GM’s Barra is more succinct: “I like our position and wouldn’t trade it with anyone in our industry.”
Automakers and, in some cases, their so-called mega-suppliers, are transitioning from simply providers of cars and components to become focused on overall mobility. In the future, their products and services could include everything from traditional passenger vehicles—including electrified models—to bicycles, ride- and car-sharing, first- and last-mile transportation, self-driving models, and even air taxis.
“OEMs are really trying to explore what’s beyond the traditional passenger car and truck,” said Alan Amici, who recently joined the Center for Automotive Research as president and CEO (see sidebar on p. 39). “They’re creating a range of partnerships to help figure this out.”
While many of these ventures are destined to fail—at least initially—it’s clear that automakers are re-imagining their businesses with a broader take on mobility.
“The idea of a flying car was crazy just a few years ago,” Amici said, pointing out that such a vehicle isn’t optimized for flying or driving. But, he noted, the case for a single-purpose air taxi is becoming much more interesting, thanks to ongoing development programs. Hyundai Motor Group’s new Supernal unit, for example, is working with strategic partners to develop electric-powered vertical takeoff-and-landing vehicles—as are several other automakers and aerospace companies—to make air taxis a reality in coming years.
“It is an extraordinary time to be in the mobility industry,” Amici enthused. “Technical innovation is driving enormous changes to the products and processes that drive our business. … There is a long-time horizon for these types of things.”
The renowned Center for Automotive Research (CAR) in Ann Arbor, Mich., has a new leader in the driver’s seat, Alan Amici, who took over as president and CEO Sept. 1. He succeeds Carla Bailo, who retired after helming CAR for five years, which capped off a 35-year career that also included senior leadership positions at General Motors, Nissan, SAE International, and Ohio State University.
Like his predecessor, Amici brings a wealth of experience to the job, having held executive positions in engineering, manufacturing and service. Most recently he was vice president and chief technical officer at Tier 2 supplier TE Connectivity. Amici previously spent 30 years at Fiat Chrysler Automobiles (which merged with PSA Group last year to become Stellantis N.V.) and its Chrysler and DaimlerChrysler predecessors. During his tenure at FCA, Amici served as head of global Uconnect, advancing the company’s infotainment and connected car platform, and head of electrical/electronics engineering.
He holds three degrees from the University of Michigan, owns two patents and received the Walter P. Chrysler Technology Award.
Senior Editor Steve Plumb spoke with Amici shortly after he joined CAR. An edited version of their conversation follows.
What was the impetus to join CAR after a successful career at an automaker and supplier?
I had admired CAR from a far for many years, they are quite influential and host the Management Briefing Seminars (MBS) each year (in Traverse City, Mich.). Its primary mission is to educate, advise, and inform the industry on critical issues. Joining CAR at this point in my career is a terrific opportunity to contribute to that goal of enabling safe, more sustainable mobility. It’s my opportunity to help the industry move along.
What are some of your initial priorities?
It’s difficult for nonprofits, including CAR, to survive and thrive. But if the recent 2022 MBS is an indicator, the future looks really bright. One of the priorities is to grow the capacity and capability of our research organization.
We had to right size that based on the pandemic. It can be accomplished by old-fashioned recruiting, and we’d like to grow the geographic reach to high automotive U.S. growth areas in the southeastern U.S. There are municipalities, state, and even federal government entities that can really benefit from the research that CAR conducts. We can inform municipalities new to the auto industry, about new battery plants or new assembly plants in the area. We can help inform them on issues like labor force, what skills are necessary, or even the charging infrastructure for EVs and battery recycling. And what kind of knowledge is needed for assembling battery packs and EV motors, which may be different than traditional castings or even vehicle assembly.
How will your experience benefit CAR?
One of the things I learned from my experience at Chrysler is adaptability and flexibility. The company changed quite rapidly and frequently. The DaimlerChrysler culture was quite different from Chrysler and the same is true for Fiat Chrysler. And I’m sure even Stellantis has a different culture. It was important to be adaptable and flexible, and try to understand where the industry is going and meet that point. Not to resist change. And, certainly, I also understood the decision-making process, what things are important to the OEMs, and how business is conducted.
In my time at TE Connectivity, which is the world’s largest connector supplier, I learned more about running the business: the importance of meeting customer requirements and anticipating their needs. Also you’re involved with some of the day-to-day operations. I was much closer to the marketing, sales, and manufacturing/operations teams. Those experiences together will help inform me on how to build relationships with OEMs and tier one suppliers. Using my experience we can talk about what’s important to them, and what type of research could we do to anticipate their needs.
What’s the significance of your two patents?
The first is for flash programming of electronic control units (ECUs), which enabled changing or updating software without replacing the ECU. It is used extensively during engineering development, in dealerships, and in assembly plants, whereby an ECU can be customized to a specific application during assembly. The other patent is a hardware and software solution to enable a standard diagnostic tool used in dealerships, to communicate with the car using a CARB-required protocol called OBD II.
Why are you pursuing a doctorate at this point in your life?
I believe life-long learning is a crucial component of a fulfilling career and is simply enriching. Experience can teach us skills and provide the knowledge to make good decisions. But in-depth, original research to advance the state of understanding is very rewarding. For that reason, I decided to pursue a Ph.D. in Industrial and Systems Engineering at Wayne State University, focusing on innovation sustainability—how to sustain an innovation engine during the downside of a business cycle when organizations tend to reduce or eliminate such teams.
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