The Powertrain Supply Chain is Transforming. Are you ready?

We’re at a rare inflection point that will change the landscape of American manufacturing over the next 50 years: the transition from internal combustion engines to electrified motors in vehicles. As the automotive industry transforms, very few hardware manufacturers will be unaffected.

In 2016, just under 300,000 electrified (battery, plug-in, and hybrid) vehicles were produced in North America. In 2021, that number rose to 1.8 million. While there is uncertainty in the exact timing, experts project electrified vehicle production to double by 2024 and 40% of vehicle production to be electrified by 2028. Major automotive manufacturers are continuing to shift investment from internal combustion engines to electric and alternative fuel vehicles. Over the next 30 years, internal combustion engines will move from market dominance to a specialty niche.

This change impacts the entire automotive supply chain (see graphic). The manufacturing competencies for today’s systems do not translate to these new systems. Companies positioned to meet automotive expectations for the new components may have a significant opportunity to win new work.

In Iowa, the direct impact on manufacturers is relatively low. A Center for Automotive Research analysis identified 42 manufacturers in Iowa as “at risk” and 25 manufacturers in with an opportunity to grow through this transition. Overall, less than 2% of manufacturing jobs in Iowa are considered at risk due to the shifts in the automotive market.

The significant impact for Iowa will occur when heavy-duty on road vehicles and nonroad heavy equipment such as construction and agriculture machinery transition portions of their power generation to electric. Many heavy equipment applications are unlikely to transition to electrified motors. However, there are many applications where battery operated equipment can create performance advantages, especially when coupled with driverless technology. These changes will have moderate to significant impacts on Iowa manufacturers providing parts and products into these supply chains.

Equally disruptive are the secondary impacts of the automotive sector’s change to electric vehicles. As internal combustion engines and the legacy systems become lower volume, price pressures will drive consolidation and offshoring. These changes will not only impact the direct supply chain, but related supply chains that have leveraged high volume automotive component manufacturing. This includes impacts to the defense industry, machinery production, and many others.

Now is the time for leaders to prepare for this shift. In BCG Growth Share Matrix terms, customers in the automotive supply chain are moving from stars to cash cows, and will likely be pets due to consolidation. Today is the right time to position yourself for the emerging markets.

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