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Lack of electrification strategy could hurt three-fourths of top auto suppliers in next decade

Three-quarters of the world’s top 100 automotive suppliers may not survive the global industry disruption coming with the electrification of powertrains unless they make plans now. So says Paul Eichenberg, an automotive strategy consultant with 25 years of experience working with Fortune 500 auto suppliers.

“The years between 2020 and 2030 will be the decade of electrification, and if suppliers don’t develop an e-mobility strategy and make investments now to operate in that decade, they risk becoming road kill on the global automotive highway,” Eichenberg said.

“Vehicle electrification is coming much faster than most industry analysts expect – being accelerated by increasing regulations to reduce CO2 emissions, ongoing battery technology and cost breakthroughs, and the diminishing opportunity to economically improve internal combustion engines,” said Eichenberg.

In his white paper, titled: “Electrification Disruption: How not to get shocked, jolted and fried by the coming shift in automotive power sources,” Eichenberg says that unless they rethink their approach and secure electronics and software competencies, few traditional auto suppliers will be able to succeed in the electrified auto future.

“I’m afraid many auto supplier CEOs are so focused on operational optimization and this quarter’s earnings that they are not seeing the future, so they are missing the opportunity presented by this disruptive force that will sweep the auto industry,” Eichenberg said.

Electrification technologies, he predicts, will affect almost all vehicles produced by 2030. In looking at the current automotive supply chain, Eichenberg says many traditional auto suppliers are making strategic errors because they:

  • Lack an understanding of where the industry is going,
  • Are looking at the wrong time horizon and are waiting too long to focus on the coming of electrification,
  • Are betting on the past, investing in a dying portfolio of products, rather than the future,
  • Have the wrong organizational model with no electronics backbone, scale or platform,
  • Employ the wrong staff, with engineering skills sets focused on mechanical and materials rather than electrical and software, or
  • Are seeking safe returns on deployed assets short-term instead of the high reward potential of transitioning to a digital future.

As chief strategist for Magna Powertrain and Magna Electronics, Eichenberg helped the units double revenues to $7 billion from 2006 to 2014. He warned that European automakers are already focusing on those electric technologies that will help them meet the next regulatory hurdle for emissions – the proposed Euro VII rules – which are expected to come between 2025 and 2030.

This radical focus shift will spread to automakers in China, North America and the rest of the world soon, opening up huge opportunities for suppliers who can provide the electric backbone of all major automotive systems, including batteries, electric drive motors and power electronics.

On the flip side, this shift to e-mobility will also jeopardize the long-term future of companies that only supply components for internal combustion engine-driven vehicles.

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