Supply chain volatility risk in shift from ICE to BEVs

Complexity in supply/demand dynamics raises questions for the automotive supply chain in the transition from ICE to BEVs 

• Tansition from ICE to BEV vehicles is causing significant strain on the supply chain, with unpredictable production schedules and financial challenges for suppliers
• UK Zero Emission Vehicle (ZEV) mandate is driving OEMs to accelerate BEV adoption, creating risks if demand doesn't meet expectations
• OEMs may need to intervene more actively to stabilise supply chains and manage the transition

The automotive industry faces critical challenges as it transitions from Internal Combustion Engine (ICE) to Battery Electric Vehicles (BEVs), according to Lee Swinerd, Director and Head of Automotive at financial advisory firm Interpath, writing in Cox Automotive's latest Insight Quarterly. 

The high cost of BEVs and ongoing concerns over charging infrastructure have softened demand in Western Europe and North America. According to Swinerd, this has led to a complex scenario in the UK, where OEMs need to accelerate BEV adoption, driven by political pressures and looming penalties under the Zero Emission Vehicle (ZEV) mandate, while assessing their new vehicle launch programmes. 

"The rush towards BEVs is creating a precarious situation for the ICE supply chain," said Swinerd. "While some softening was expected, production schedules are increasingly unpredictable, creating uncertainty for suppliers. This, combined with the post-COVID-19 production challenges, is affecting working capital and liquidity across the sector."

Cox Automotive's Insight Director, Philip Nothard, agrees: "As BEV demand struggles to meet expectations, we have to ask questions about the short to medium-term future of ICE vehicles and the supply chain which supports them. Interpath raises some key points about how suppliers – and OEMs – will need to adjust their strategies to meet the fluctuating and unpredictable demand/supply dynamics for both ICE and BEVs."

Swinerd adds: "Many suppliers, who have already adjusted strategies from diesel to petrol, are now seeing reduced levels of OEM investment and shrinking manufacturing capacity. The declining investment in ICE production is leading to ageing equipment and more frequent production downtimes, exacerbating the issue. These challenges may force OEMs to either absorb higher costs or pass them onto consumers, making ICE vehicles potentially more expensive."

The ongoing volatility and uncertainty in the market underscore the need for strategic intervention from OEMs to stabilise their supply chains and manage the transition effectively. This could lead to reduced consumer choice for ICE vehicles as the industry shifts its focus towards BEVs. 

Nothard comments: "The lack of certainty around future ICE volumes, based on weaker than anticipated consumer uptake of BEVs, will continue to create stresses and strains throughout the ICE component supply chains. Insight Quarterly has enabled Lee and the Interpath team to bring these key issues to the fore. The question is how the industry will respond – as putting an additional £15,000 cost uplift on every new consumer vehicle to cover penalties if ICE targets are not met is just not a viable outcome." 

Read Lee Swinerd's full article in Cox Automotive's Insight Quarterly.