Electrification & Beyond
Close to a century and half old invention of Internal Combustion engines (ICE), which has been incessantly evolved over the years, is finally being challenged. It is fearsome because of the huge investment and mass employability are at stake.
Maybe, the reason to single out to this shift is - ‘pollution’, if it is not ‘an alternate energy disruption’.
The iconic ICE vehicle manufacturers and it's component suppliers are anxiously looking for a fresh lease of life. ICE to EV change, though, is not an overnight shift. But, imagining the inflection point, is giving jitters to all depend on it. Came as no surprise as the decline was never witnessed ever since the Indian Automotive Revolution.
Against this backdrop, quick anticipation by auto component manufacturers, suggest jumping on the EVs’ bandwagon - considering it as a usual changeover. Such a move may or may not be universally appropriate and fruitful.
It is certainly a matter of the deeper investigation; the choice should vary at the individual component manufacturer level, based on their background, ground realities and future aspirations.
More than anything else, there should be a well thought out strategy before taking the plunge.
First, it is imperative to understand the EVs from technology and business viability perspectives. The huge reduction in the number of components because of ICE elimination is foreseen.
Aside from the value of the Battery, the additions are not enough in EVs to balance out the loss. It also cannot be ruled out completely that the activity reduction at the vehicle manufacturers’ end post EV introduction, might force them to shift to in-house inclusions rather than outsourcing.
Moreover, at least at the beginning, the huge divergence in technology and vehicle architecture across the EV segments makes the case uncertain from economies of scale and localisation viewpoints. This is in fact on the contrary, to the current practice of a high-volume play owing to a high level of standardisation.
Furthermore, the absence of easy access to EV technologies is making the case even more difficult. Going by the current guidelines, the supplier is inducted to vehicle manufacturers, either as a high-technology proprietary supplier or as build to print supplier, but, by all accounts, there are constraints by both these ways of introducing.
There is no denial of the fact, a shift is the need to remain afloat. However, the discovery of your sweet spot will depend on a thorough evaluation of all the options.
Before zeroing in on your next move, the remedial measures & options to ponder upon are:
FLEXIBLE COST STRUCTURE: All is said and done, the financial losses cannot be ruled out. First and foremost, there should be impetus on flexible and breathing cost structure to minimize financial affects during the ramp down of ICEs. Flexible and floating resources, multitasking, optimization and efficiencies need to be focussed upon. Outsourcing should get prominence over the in-house capability development to minimize investments.
EXPANSION INTO NEW AREAS: That is extending the product offerings to industries which are in the vicinity. Probably, this is the easiest option among all. Naturally, many have already taken the plunge or are contemplating to do so. For an Automotive supplier, the industry to choose are-2Wheels, Commercial Vehicles, Agriculture and Off Highway, Whitegoods etc. Excessive competition, though, cannot be ruled out in this path so a high value-added component selection could be thought-out.
ADOPTION OF UNAFFECTED COMPONENTS: Without a question, competition is going to be intensified for the unaffected components by EVs. Therefore, an acquisition of unaffected components through inorganic routes could be sensible provided cost of acquisition is reasonable & there are no hurdles foreseen in the integration. Most importantly, there should be a clear visibility of financial returns.
SELECTION OF EV COMPONENTS: There is a whole host of new components like Battery, Converter, Motor Controller, Battery Charger, etc. Selection decision can be made based on a long-term economic viability confirmation.
INTEGRATION OR DISINTEGRATION: Keeping a 360-degree approach about the integration or disintegration around your current product line may support to stay relevant. All forward, backward and horizontal integration or disintegration options, should be thoroughly scanned in the complete value chain, i.e. Supply chain, Product, Process, Technology, Customer experience etc. This may unlock value and minimize the loss in cases of integration and disintegration respectively. Possibly, migration to next level assemblies could be an option. A hive off may free up the capital to your next venture.
INVEST IN FUTURE: To remain in the fray, the fresh investment can be made in the upcoming technologies such as Connected Mobility, ADAS, Autonomous Vehicle, Shared Mobility etc. Besides the long gestation period, global scalability options to be seriously investigated for this option.
A holistic view, prior to selection, would be a safer bet to hedge against the shocks post inflection. The underlying fact is - business is always for a greater return than the investment.
Time to rest on your laurels is probably over. Let us embrace the new reality and move on. It is time to learn the ropes again. Slowly but surely- will be endowed with the new prowess.
