Automakers insourcing crucial EV parts, leaving suppliers with fewer potential customers

Automakers are increasingly insourcing — producing their own — e-motors and other crucial electric vehicle components, posing a challenge for suppliers vying for business in the EV space, analysts said.

"There are several suppliers that were hoping OEMs were not going to make their own e-motors and would purchase them from the outside," said Michael Robinet, executive director of automotive consulting at S&P Global Mobility. "But for larger and midsize OEMs, that has not been the case."

That could reduce profit opportunities for suppliers, already dealing with stranded capital from lower-than-expected EV sales growth and rapidly changing automaker EV plans.

Parts sourced from suppliers can account for 60 to 70 percent of a typical vehicle's value, Robinet said. But that figures to decline as automakers insource production of motors, power electronics, software and batteries, he said.

Automakers are increasingly opting to produce their own EV components, often to differentiate themselves from competitors. Companies with unionized workforces also see insourcing as a way to keep workers on the payroll as EV production ramps up.

The gap between the number of parts in a combustion engine vehicle and an EV is likely to grow as legacy automakers look to catch up on manufacturing efficiency compared with relative newcomers such as Tesla.

Tesla, the EV market leader, has gained a competitive edge in part by building vehicles faster, but also because it uses fewer parts than legacy automakers. The Tesla Model Y's front fascia, for example, consists of seven parts and uses 32 fasteners and one wire connection, according to engineering solutions company Caresoft Global. A similar vehicle's fascia built by a legacy automaker has 28 parts, uses 61 fasteners and has two wire connections.

A similar dynamic is playing out in China, where several automakers are moving aggressively to insource components and systems. One reason Magna International Inc. in July reduced its 2026 financial forecast is because of Chinese automakers insourcing programs, including in advanced driver assistance systems.

"Based on that and also the type of products that are going into the vehicles there, we ... took an approximation of what we think the win-rate possibility is and adjusted that," Magna CEO Swamy Kotagiri said on an Aug. 2 call with analysts.

As Chinese automakers eye production of vehicles in North America, local suppliers might be wary of banking long-term business with them, at least in certain cases. BYD has signaled that it wants to insource as many components as possible, essentially buying rubber and glass and building everything else, Robinet said.

"That's not good news for the supply base, the traditional ecosystem that we know today," he said. "That is a different world than what we're used to."

Similarly, Chinese automakers might also opt to avoid sourcing parts from suppliers in the region in the long term, AutoForecast Solutions CEO Joe McCabe said.

"The real problem is not utilizing existing suppliers here," McCabe said on a panel at the CAR Management Briefing Seminars, "but having that mentality of, 'Thank you, North American supplier. But now we're going to bring our Chinese suppliers here.' "

To be sure, insourcing trends are not universal. Lear Corp., for example, has seen success with premium seating in China, despite Chiense automakers initially moving to insource products or do design engineering work in-house, CEO Ray Scott said. It expects a similar dynamic to play out in its e-systems business.

"We're already picking up additional quotes within China on some of that technology innovation," Scott said on an April 30 earnings call.

But it's clear the dynamics between suppliers and automakers are changing — sometimes rapidly, Robinet said.

"The industry has pivoted," he said.