Picking the right strategy for auto parts makers in the EV era
The transition from vehicles powered by internal combustion engines (ICE) to electric vehicles (EVs) is accelerating, creating challenges and opportunities for companies across the industry. By 2030, EV production is expected to hit 30 million units per year. In 2040, 37 percent of all vehicles on the road in the U.S. and Western Europe will be electric, KPMG estimates.
As EVs catch on, global production of ICE vehicles is expected to peak in the mid-2020s and then start to decline in Europe, the U.S., and China. Meanwhile, new approaches to design and manufacture EVs will limit the number of crossover components that work for all types of vehicles. Cars of all kinds may be built with fewer, more valuable parts—narrowing the opportunities for suppliers.
In this paper, we outline several strategic options for parts suppliers, ranging from divesting low-margin, low-growth businesses to playing the consolidator—becoming the efficient “last man standing” in a declining ICE parts business. We offer a framework for evaluating the impact of EVs on specific kinds of parts businesses. Finally, we outline strategies to help companies profitably navigate operations as the world shifts away from ICE and that business ultimately becomes secondary to serving the needs of EV makers and buyers.