The electric vehicle revolution is upon us. Suppliers who don’t want to go the way of the stegosaurus will have to re-think their business models — before it’s too late.
- Experts predict electric vehicles will become the norm, replacing gas-powered chariots.
- While the transition seems inevitable, the timing is still uncertain.
- Continental is revamping its whole business model in preparation to serve its existing (and future) automotive customers that are investing in electric vehicles.
- If automotive suppliers are to survive, they must conduct a balancing act in terms of allocating funds.
Continental isn’t just dipping its toe in the electrification pool, it’s taking a flying cannonball leap. The company announced it will no longer invest in parts used in internal combustion engines. Based in Germany, Continental specializes in a wide variety of automotive parts, including brake systems, chassis components, tachographs and tires.
Electric vehicles are here to stay
Electric motors are on course to turning octane-fueled engines into a nostalgic relic. But when? If a supplier guesses wrong, its prediction could sink the business. As a specialist in powertrains, Continental has steep development costs to consider. But for the German company, the sea change is now.
An employee checks a Surround View Camera at the Continental plant in Ingolstadt, Germany, 2 March 2018. (Photo: Continental AG)
“Our customers are increasingly and consistently turning to the electrification of combustion engines through hybrid drives as well as to pure battery-powered vehicles,” said Andreas Wolf, head of Continental’s Powertrain division, which in the future will operate under the name Vitesco Technologies with Wolf as CEO.
New emissions requirements forcing change
With the worsening environmental crisis, cities and states are putting in place stricter regulations. Recently, Colorado adopted California’s standards soon after four big automakers struck a deal with California to reduce emissions.
And, countries such as China, which is the global leader in production and sales of electric vehicles (EVs), offers huge subsidies to get more on the road. France made its stance unequivocal in December 2017, when the French National Assembly banned any new licenses for oil and gas exploration. Moreover, there won’t be any oil and gas extraction in France or any of its territories by 2040.
To meet new emissions requirements, automakers have shifted their focus to electric. Mercedes announced as part of its Vision 2039 plan, to have half the company’s models be either plug-in hybrids or all-electric vehicles by that date. And, Volkswagen set the goal of producing 22 million electric vehicles in 10 years, with a target of complete CO2-neutral balance by 2050.
Deciding where to place capital
In making a strategy shift, companies have to bet on which technologies will fit best into their portfolios and turn a profit. Continental did an about face on investing in battery cell production after considering its economic potential for the company.
Volkswagen Modular Electric Drive (MEB) Matrix (photo: Volkswagen)
While Continental will continue to service its current petrol-powered customers, it won’t be funneling money into innovations in parts such as injectors and pumps for gasoline and diesel engines. Although Continental has revamped its business strategy, the transition will happen over a number of years, “as combustion engines essentially serve as the basic drivers for hybrid solutions,” Wolf said. Also up for review is the company’s business in components for exhaust-gas after-treatment and fuel delivery.
Repurposing existing technology
Most automotive suppliers are already prepping for the inevitable electric vehicle future. Although Continental doesn’t think batteries are a good investment for the company’s balance sheet, 3M does. Last year it created an automotive electrification program, which is testing Novec, 3M’s non-flammable, non-conductive liquid used to cool supercomputers, for use to cool automotive batteries. Cooler batteries increase range and life cycle.
In anticipation of a growing market for electric vehicles, German synthetic tire supplier Trinseo is putting more capital into its plant to increase production. Synthetic rubber resists abrasion better than natural rubber and is also more resistant to heat and aging. Hayati Yarkadas, a senior vice president at Trinseo, told Reuters that tires made with synthetic rubber can already boost efficiency by 12 percent compared to conventional tires.
WHY THIS MATTERS
Auto suppliers are in the process of putting the wheels in motion to service electric vehicles. The field is wide open as to which new technologies and innovations will win the race to standardization. Will it be lithium-ion or solid state batteries? Plug-in or inductive charging? If one thing’s for sure, electric vehicles are here to stay. Only time will tell which companies and technologies will survive the transition. Sometimes, the very act of planning for change can bring about change on its own. If suppliers have prepared for an electric future, they’ll influence the course of events to assure their very survival.