The rapid transformation towards emobility is changing the way procurement is done in the automotive industry. As we explored last week, supplier markets are dynamically evolving, requiring procurement teams to familiarize themselves with new suppliers for new technologies – just to name one of many changes.
In the second part of our look into emobility’s effects on procurement, we are focussing on changing requirements towards research and development and where consultancies and industry researches see the future for automotive procurement.
Mismatched technology creates “cycle hell” for designers
The old automotive product cycle was easy: launch a vehicle, improve its pieces over time, and offer a complete update every few years. It was straightforward because the parts did the same thing, aged at the same rate, were subject to the same competitive pressures to innovate. But the EV—more an applicance than a piece of machinery—creates new issues.
EVs carry more software than traditional vehicles. And the software product cycle is a lot shorter: measured in months or even days. Of course, over-the-air updates are a feature of many—but lawyers look askance at the liability issues here. While interfaces to consumer devices like phones change on a 2-3 year cycle; what if 2025’s hot device format doesn’t work with a buyer’s 2024-model car?
Misdirected investment in production facilities is a huge risk
A modern auto plant costs hundreds of millions; amortizing those costs is a major component of a car’s sticker price. At this stage of EV evolution, making a wrong choice—for example, betting on hybrids rather than BEVs—could write that investment down to zero. Which means normal investment risk, at present, is more of an existential threat.
(Take hydrogen fuel cell technology. A Big Thing just a decade back. Today, it’s a backwater technology limited to a few municipal buses downtown.)
Different approaches by major names in the industry
Follow the money around the auto sector, and you’ll see different names with different priorities. Tesla, of course, is all-in on EV and autonomous. Audi and Mercedes are building e-vehicles with the same solidity they’re famous for, but this affects range—a key buyer’s worry. GM is aggressively pro-electric, with leadership in low-cost battery packs; Ford has a massive drive towards e-nabling the larger trucks and pickups American buyers prefer. They’re all working hard—but will they all be right?
It’s likely the auto sector will fragment as the world goes EV, with brand attributes by manufacturer which go a lot deeper than “Volvos are safe” or “Ford represents value”. Perhaps hybrids will hold out for longer than expected; perhaps plug-in EVs will limit the need for dense networks of charging stations for some categories of vehicle. Which means the character of procurement teams may look very different from company to company, with a range of new specializations and expertise.
The Big Picture View: according to the consultants
There are three big themes facing automotive procurement. The convergence of multiple industries, like charging stations and battery makers; business uncertainty, with a variety of future scenarios possible; and care for our planet, with the need to comply with numerous directives on emissions. To finish up, here’s what some consulting groups and industry experts are saying.
Consultancy BCG sees battery costs as a key driver of emobility. The average cost of a nickel-rich battery pack fell below $150 per kilowatt hour (kWh) in 2020, $20 below its expectation—but with post-Covid supply shocks still affecting world trade, this trend may be interrupted. BCG sees a bright future nonetheless, with strong double-digit growth in emobility vehicles through 2035.
Fraunhofer looks at systems and innovations across the engineering sector, and tries to see patterns and draw conclusions. However, it sees a very wide range of possible futures, and poses more questions than answers. For example: will self-driving vehicles go mainstream, or be restricted to limited use cases? Will political pressure increase to the point where automakers become financially vulnerable, spending more to comply with regulations than their sales allow? And how will eMobility affect the broader economy, in terms of job creation, business investment, and overlapping sectors? Maybe it doesn’t provide all the answers—but Fraunhofer ISI’s research makes a fascinating read.
Meanwhile, a McKinsey report finishes with five linked recommendations for automakers, all of which have an impact on purchasing and procurement departments. Its theme is the customer experience, and that focusing on it will ensure a positive future for manufacturers: a pleasant driving experience, a seamless recharging experience, a state-of-the-art service experience, and so on.
That’s how the shift to emobility will affect procurement experts. The transformation will be decades long, vast in scope, and settle into forms we’re not yet sure of. But one thing is certain: it’ll be exciting. And Scoutbee will be there to make sense of the supplier maze.
Want to learn how Scoutbee helps make sense of the emobility supplier market? Schedule your meeting today!