Which technologies need to be developed and produced, and which are suitable for suppliers.
As we all know, the competition between electric vehicles is essentially a competition for the degree of intelligence. From batteries to electronic controls, from hardware to software and algorithms, the era of smart electric needs to spend too much money on transformation. As a result, automakers are now facing the question of which technologies need to be developed and produced and which are suitable for suppliers.
A major shift for most global automakers comes when they start to do more manufacturing in-house as a way to achieve vertical integration of resources. For decades, they had relied on suppliers to produce critical components and software, and managed vast manufacturing networks in low-wage countries.
Why are some established automakers realizing that this "food to open the mouth, clothes to reach out" supply chain model is no longer applicable? One factor in that was Tesla's success — it relied on patented technology that the company developed and manufactured itself. Another factor is the disruption of supply chains during the pandemic.
"The most important thing is that we are vertically integrated. Henry Ford... That's right," Ford Motor Company CEO Jim Farley said at a conference earlier this month. Farley refers to Ford Motor Co.,D.'s Henry Ford's "ruby" manufacturing facility in Dearborn, Michigan. In the early 20th century, the plant received iron ore and other raw materials from one end and produced the Model T at the other end – that is, it had its own closed-loop processing capacity from raw materials to complete vehicle manufacturing.
Farley said the company had to abandon its early electric vehicle strategy of buying off-the-shelf parts. Now, he said, Ford's goal is to control the supply chain, "all the way to the mines that produce battery materials."
Competitors, including Volkswagen, General Motors and Mercedes-Benz, are pursuing similar strategies. Mercedes acquired British high-performance motor manufacturer YASA last year and restructured the production line at a factory near Berlin to produce motors based on YASA technology.
The German luxury automaker opened a new plant in Alabama in March to make battery packs for U.S.-made electric vehicles and said it would work with Japanese battery maker Envision AESC to make batteries in the United States.
"We are procuring deeply," Mercedes-Benz CEO Ola Kaellenius said at a briefing in Alabama.
Become a supply chain yourself
Unlike decades of delegating control of development and production to suppliers, automakers' investments in mines, motors and batteries can produce steering controls, semiconductors and electronic components for multiple automakers on a larger scale and at a lower cost.
In the new world of electric vehicles, however, investors have decided that Tesla's direct purchase of raw materials, the manufacture of its own batteries and the design of its own software are winning strategies. Tesla's market capitalization has soared to more than $1 trillion in recent weeks, more than Toyota Motor Corp., Volkswagen, General Motors and Ford combined.
Peter Rawlinson, CEO of electric car startup Lucid Group Inc and a former tesla vice president of vehicle engineering, recently said: "Mainstream companies have realized that electric vehicles are the future, but they have not yet widely recognized that they must improve their skills in motors, transmissions, battery technology, inverters and electric powertrains." ”
According to Guidehouse Insights analyst Sam Abuelsamid, between the 1970s and 2010s, the share of intellectual property owned by automakers in their vehicles fell from 90 percent to 50 percent.
This means that many automakers lack in-house engineering expertise to develop their own eviction vehicle platforms, powertrains, and battery packs, and Tesla's success shows that cars built with their own vertically integrated closed-loop capabilities are more likely to be welcomed by consumers.
Tesla CEO Elon Musk said on the 2020 earnings call: "We design and manufacture many more cars than other car manufacturers, and they mainly go to traditional suppliers to pick up goods and perform engineering against a car's parts catalog." ”
Tesla's approach is costly, and the company has repeatedly raised vehicle prices over the past few years. Despite promising to offer a model that starts at about $25,000, Musk said earlier this year, "We're not currently working on a $25,000 car." At some point, we will. But we have enough tasks now. ”
Technology competitions
Kevin Clark, chief executive of automotive supplier Aptiv, said in February: "There's a lot to say about insourcing and vertical integration, especially in areas like software. Almost all the automakers we do business with are working on software development. ”
Xavier Mosquet, a senior consultant at the Boston Consulting Group, said that for now, many manufacturers still prefer to buy electric vehicle technology to avoid the cost and complexity of in-house manufacturing. "There are some automakers that want to go some way to keep buying parts and doing the eventual integration," Mosquet said, "and Mosquet can't yet determine which way is more competitive.
In fact, many automakers are also hesitating whether it would be cost-effective to produce electric vehicles and related components entirely autonomously at a time when the share of electric vehicles is still a small part of the overall automotive market.
According to consultancy IHS Markit, only Tesla, electric car startup Lucid Group Inc and BYD manufacture electric motors entirely in-house today. Hyundai Motor Company and the Renault-Nissan-Mitsubishi Alliance also produce most of their own motors.
Other automakers, including Mercedes-Benz, Ford and Porsche, still supply motors for their electric vehicles from suppliers.
"The drive system of an electric vehicle cannot be made into a uniform standardized product for car companies to buy, it is not a commodity," peter Rawlinson said, "this is a technology race [between car companies], the market has not seen this." ”
Mercedes-Benz is already aware of this. Markus Schaefer, Mercedes-Benz's chief technology officer, said it plans to produce motors, battery packs and electronic devices autonomously from 2024. The company is also working to reduce costs by obtaining raw materials directly from the mine.
Conclusion
To some extent, in the field of smart electric, the new car-making forces are ahead of traditional car manufacturers in the research and development and application of "gimmick" technology, but they are still far behind in terms of supply chain and vertically integrated manufacturing capabilities. Behind almost every new force is Bosch, Continental, Ambiv, Valeo, BorgWarner and other mainstream suppliers.
At present, traditional car companies are favoring their own "growing raw materials, handling ingredients, cooking ingredients" to have greater control over the cost and quality of a dish. In contrast, the new car-making forces are still in the stage of "going to cafeterias to get ready-made dishes".