The EV sales reality has settled in — and suppliers worry they'll be left holding the bag

TRAVERSE CITY, Mich. — The sunny electric vehicle forecasts of past CAR Management Briefing Seminars at a northern Michigan resort here gave way to a cloudier picture this year.

The reality of a slower EV transition in North America has settled in as automakers pull back some of their plans in the wake of lower-than-expected sales, auto executives and analysts said.

Until the industry addresses consumer concerns on charging times, battery range and price, EV sales are going to grow more gradually than many expected, they said.

"I've been pleased to hear all the conversations up here where 'consumer' is said so much, whereas the last five years, it's been about government and policy and all this other stuff," AutoForecast Solutions CEO Joe McCabe said. "We're finally saying, 'Guess what? The consumer drives the market.' We all know that, but we're finally saying it out loud."

By delaying vehicle launches or cutting back production targets, automakers are adapting to what they're seeing in the market. Those adjustments are already having massive ripple effects throughout the supply chain, leaving many suppliers with stranded capital as fewer EV parts are needed than previously thought.

General Motors President Mark Reuss said the automaker remains committed to making significant investments in EV production and retooling its internal combustion assembly plants for it. The automaker said in July that it would delay plans to build electric pickups at a plant in Michigan and would defer Buick's first EV. It will continue to invest in combustion-powered vehicles to fund long-term EV plans, Reuss said.

"Now, that's a big execution risk, but I would say, timed right with the supply base, we know how to do that pretty well," Reuss said.

But getting properly aligned with the supply base is easier said than done. Suppliers, coming off nearly five years of reduced profits due to the pandemic, inflation, microchip shortages, two UAW strikes and other factors, are "under a great deal of stress" as they now adjust their EV strategies to reflect those of their customers, said Ann Wilson, executive vice president of government affairs at MEMA, which represents more than 1,000 companies in the automotive supply chain.

"One of the biggest problems for suppliers right now is stranded capital," she said. "They've got programs they thought were going forward that aren't going forward."

That causes significant issues for suppliers banking on higher EV parts sales to pay off large investments in new or retooled factories.

In the second quarter, many major suppliers outlined cuts to their full-year or multiyear financial guidances, expecting less revenue than before because of the EV sales growth slowdown. Some are reducing head count and R&D spending as a result, and many are looking for ways to become leaner and more efficient.

Larger suppliers with diversified product portfolios are likely to weather the storm. But analysts warned that smaller, lower-tier suppliers, which are more likely to depend on one or two programs to stay in business, face significant financial risks that bigger suppliers and automakers need to monitor.

"The Tier 2 and Tier 3 suppliers are really going to feel this," said Michael Robinet, executive director of automotive consulting at S&P Global Mobility. "Your average smaller supplier that focuses on one or two sectors, their exposure here is extreme."

Eric Wilds, Magna International's chief sales and marketing officer, said the supplier is working to maintain visibility into its supply chain. The company, North America's largest parts maker, is working with its suppliers that haven't had a chance to recover investments made in EV-related manufacturing to help them maintain production.

"We're watching constantly," he told Automotive News. "We have to figure out how to support ourselves and support them and then, ultimately, our customers."

Suppliers could also be hurt by falling utilization rates at North American factories in the coming years. S&P Global Mobility expects capacity at North American assembly plants to fall from around 72 percent in 2024 to around 63 percent in 2030, driven by uncertainty in battery-electric vehicle demand and new UAW contracts that make it difficult to close underutilized Detroit 3 factories, among other factors.

Suppliers to underutilized plants are going to be at significant risk, Robinet said.

"If you're on a BEV program and your volume isn't where it needs to be, you have a situation," he said.

Companies will need to be more discerning about which companies and programs to supply, AutoForecast Solutions' McCabe said. By 2031, 27 vehicle manufacturers are expected to be operating in North America, compared with 25 today and just 14 in 2016 — despite projecting volumes still below pre-COVID levels at the start of the next decade.

That means more companies will vie for a slice of a smaller pie, all while rolling out dozens of new electric models during the next several years.

"This is a very difficult time to be a supplier and really identify which horse to back," he said.

Still, despite all the challenges they face, suppliers can't just turn their backs on EVs.

"Electrification is too big to fail," McCabe said. "It's here to say. But we have to get there in waves."