EV Transition Threatens Global Auto Parts Makers

HAMBURG, Germany – Auto parts manufacturers worldwide are assessing the impact on their businesses of the shift to electric vehicles from internal-combustion-engine vehicles, given EVs need fewer components.

Most assessments say an electric powertrain has about 20 moving parts, compared to 2,000 in an ICE system.

Stefan Bratzel, director of the Germany-based Center of Automotive Management, says the EV transformation is depressing employment, and predicts suppliers will cut their workforce by about 20% because of the transformation to EV propulsion systems..

“We had long seen the transformation coming, first in China, now in Europe and eventually also in the U.S., and the suppliers won’t be able to evolve into big EV battery players overnight,” Bratzel says.

Tier-1 supplier Continental, for example, announced in November it would reduce auto sector costs by €400 million ($430.4 million) annually, with job losses in “the mid-four-digit range” expected.

Another major German parts maker, ZF Friedrichshafen, has been working through long-term plans announced in 2020 to cut up to 15,000 jobs. A ZF spokesperson says it needs to help employees understand how the EV transformation will mean change, as new business is generated as the old slips away.“In the area of e-mobility alone, ZF now has an order volume of more than €30 billion ($33 billion) by 2030,” the spokesperson tells Wards. “In this way, ZF will manage the transformation from classic transmissions to electric drive solutions in the next decade and beyond and compensate for the loss of technologies for vehicles with combustion engines.”

A German Association of the Automotive Industry (VDA - Verband der Automobilindustrie) spokesman says parts suppliers are developing new business models and products while continuing to build components for the internal-combustion engine (see Corvette Z06 engine, below).  

“And they have to master this change in the midst of a polycrisis: China pursues a state-driven industrial policy that massively supports domestic industry, while the U.S. is luring companies with the measures of the Inflation Reduction Act (IRA),” he says.

“Meanwhile, Germany is becoming increasingly less competitive; whether energy prices, bureaucracy, taxes, digitalization – we are increasingly being left behind.”

Chevrolet corvette-Z06 stingray-20_0

The IRA was designed to counter the potential loss of American auto manufacturing jobs during the EV transition. The Washington, D.C.-based Economic Policy Institute warned in 2022 that 75,000 jobs could be lost “if – thanks to policy inaction – the batteries and drivetrains powering the BEVs continue to be produced abroad and U.S. producers make no gains in the share of overall car sales.”

So, the IRA has turbocharged a U.S. Advanced Technology Vehicles Manufacturing Loan Program available for U.S.-based parts makers, removing a previous $25 billion cap on loans, and adding $3 billion in credit subsidies to support lending.

The IRA also allocated $2 billion to U.S. Department of Energy Domestic Manufacturing Conversion Grants to offer subsidies and loan guarantees to clean-vehicle manufacturers and suppliers, including component manufacturers.

This desire for domestic production of auto parts intensified in the U.S. following supply chain disruptions during COVID-19, says Alan Amici, president of the Center for Automotive Research. “There were assembled cars in the yard not getting sold because they were missing a chip or some other component,” he recalls. “The countermeasures are designed to make the supply chain shorter.”

But for sustainable parts-making, financing will need to focus on EVs: “You’re certainly not going to see increased demand for piston rings, for example, by 2030,” says Amici. If EV parts making expands in the USA, it might shift offshoring tendencies: “Tempting as it may be to go for a cheaper price elsewhere, supply chain fragility may mitigate against this. If you’re a supplier, it helps to do a risk assessment,” Amici says.

In Italy, another major auto manufacturing hub, about 400 companies currently manufacture ICE powertrains and employ 60,000 to 70,000 workers. Gianmarco Giorda, general director of ANFIA (Associazione Nazionale Filiera Industria Automobilistica) tells Wards companies may struggle to convert production lines and plants to EV parts and systems within the next 10 years, especially small-to-medium sized businesses with lower profit margins. Smaller companies may also find it difficult to claim funds from the €6 billion ($6.5 billion) in government funding available to help convert production to EVs.  

One problem is that assemblers are increasingly in-sourcing to keep their workers employed: “This means the ‘cake’ is getting smaller and smaller for some manufacturers; we expect to have some very difficult years ahead of us,” notes Giorda.

“It is clear that not all ICE-related jobs are at risk in Italy,” he says. “And we can say that the internal-combustion engine, regardless of what happens in Europe, will continue to exist and so we expect that Italian car and motor parts makers will continue to produce for non-EU countries.”  

– with Brenda Dionisi in Milan and Ed Zwirn in New York