"It's a difficult thing to manage," said Andrew Clemence, green business group leader at Denso International America, speaking Thursday at the Federal Reserve Bank of Chicago's Automotive Insights Symposium in Detroit. "Supply chain resiliency is built on stable orders. And if you see a sudden drop like that, it takes a village to react to it and to be able to protect our customers and also avoid the very negative impact of those order cuts."
The more cautious EV outlook is also casting a shadow over decisions about where to invest and which product programs to focus on. Suppliers may be newly focused on maintaining sales in their internal combustion components business while waiting for their EV business to grow.
"You have a challenge there, to transfer people and still support the old business, or to reskill people," said Jeff Hemphill, chief technical officer at Schaeffler Group North America. "How do you deploy your investments? That's where the timing is probably the trickiest element."
While some components can be easily flexed between internal combustion, hybrid and battery-electric vehicles, other products might not be needed on both EV and internal combustion platforms, or they require vastly different designs, necessitating large investments by suppliers.
"In the case of inverters, although you have them in both a BEV and a [hybrid electric vehicle], the specs are very unique, and the investment is dedicated," Clemence said. "In one sense, you can flex based on product mix, but we can't suddenly double the production of a dedicated [hybrid electric vehicle] inverter while absorbing a 50 or 80 percent drop in a BEV inverter."
Decisions on where suppliers will invest are also being driven by geopolitics, and the push by the federal government to reshore auto production in the U.S. for EVs. That might be easier said than done, which is the case with electrical steel—a niche but critically important material for electric motor production, Hemphill said.
"It's basically impossible to buy automotive-grade electrical steel in the U.S., and there's a whole network of tariffs around that," he said. "That's forcing us to maybe change our footprint a little bit with regard to where and how we would produce electric motors. As that volume rises, that will cause some changes in the footprint."
Schaeffler ranks No. 28 on the Automotive News list of the world's largest suppliers, with annual parts sales to auto makers of $10.2 billion in 2022. Denso ranks No. 2, with sales of $47.9 billion in 2022.