This year will be as good as it gets for the gasoline engine. After a century of dominance, gasoline-powered vehicles are set to see peak sales in 2022 and then go into permanent decline as automakers switch their focus and investment to electric models.
Call it the BlackBerry moment — the turning point when a dominant technology gives way to a new era. In this case, the shift from the internal combustion engine is being guided by regulations to reduce fossil fuel consumption, as well as by falling costs of the replacement technology and the build-out of its new infrastructure.
It puts the $1 trillion global auto supplier industry in a predicament.
On the one hand, automakers will still be demanding traditional vehicle components for the next decade, and the aftermarket for service parts will continue even longer as gasoline vehicles remain on the roads. On the other hand, internal combustion is clearly not a growth market as electric models take up a growing share of automakers' lineups.
We estimate that 74 percent of the 247 vehicle programs likely to be launched in the next six years will be partially or fully electric. Some 77 of those projects will be battery-electric vehicles. All of the big automakers are planning to increase the share of BEVs and hybrid electric vehicles for North America, with most expanding to the higher-margin market for SUVs and other large utility vehicles.
General Motors has the most ambitious target of switching all of its production to electric by 2035, but the others aren't far behind, aiming for levels around 40 to 50 percent by 2030 and a complete phasing out of new programs with internal combustion engines by 2035 to 2040.
To avoid going down with a sinking industry, auto suppliers need to be asking some hard questions about their business and how it can adapt to meet automakers' needs in the coming years. A slew of gasoline vehicle-related components that suppliers make now are going to fade into irrelevance or will need to change radically over the next 10 to 15 years to meet the very different needs of EVs.
The North American market for making internal combustion engines is expected to shrink from $72 billion this year to just $38 billion by 2035. Over the same period, the vehicle battery-pack market is set to climb from $15.5 billion to $86.5 billion. Adding to the challenge for suppliers, EVs need far fewer parts than conventional ones.
Companies that fail to come up with a convincing electric strategy — and quickly — risk falling into a tailspin as their valuation is slashed and they face a tougher time raising money from banks and investors.
Auto part suppliers must focus on current plans for new-vehicle models, what customers will need for them and how those plans may change in coming years. Then they have to be nimble enough to adjust everything about their processes, from the way they design components, to investment in capital equipment and tools, to ensuring they have the right talent.
Suppliers that can't handle the coming change in-house will need to consider making strategic acquisitions to attain the expertise they need, though the pool of strong candidates is shrinking.
Traditional suppliers should look at how their areas of expertise can realistically be applied to solve BEV problems. Some face a particularly difficult task here because it remains unclear which options will be favored by automakers. But in core supply areas such as thermal management, powertrain and metal bending for chassis components, the form and shape of technology is pretty established for the next decade.