Suppliers eye new contract terms, more collaboration to lessen EV risks

DETROIT — Executives at some of the world's biggest suppliers are rethinking how they manage risk as they deal with increased uncertainty on electrification.

Magna International Inc., the largest North American supplier, has talked with its customers about restructuring contract terms to account for vehicle production volume falling short of expectations, CEO Swamy Kotagiri said. Some automakers have agreed to share the capital risk if vehicle volumes come in below expectations, he said.

"Even though we're asking for a nonregular term where they have to deploy capital, which is not normal, it shows that they want Magna on their side," said Kotagiri, speaking to reporters at a Sept. 9 media event.

Suppliers are grappling with heightened uncertainty surrounding parts programs for electric vehicles as automakers scale back their EV targets and plans, particularly in North America. Magna, for example, reduced its 2026 outlook earlier this year, saying it expects $2 billion less in sales because of changes in EV plans.

Magna's shift underscores the increased risks suppliers face if volumes for costly EV parts programs fail to materialize to the degree companies expected.

Consolidation of product development and capital is a "very viable path" to spread risk, said Paul Thomas, Bosch's North American president.

"Whether it's with our [automaker] customers or whether it's with our partners in Tier 1 or Tier 2, I don't think there's a way to invest going forward without having some level of partnership," he said during a Sept. 10 media event.

One of those partnerships was on display at the Bosch event. Reporters were given the opportunity to ride in a modified Ram 2500 equipped with an electric powertrain and e-axles as part of a collaboration between Bosch and Canadian supplier Linamar Corp.

"We have to work across the industry to develop solutions for the future of mobility," Thomas said.

More Bosch customers are discussing forms of risk sharing as it relates to emerging technologies, he said.

"Especially on the software side and the engineering side, we're starting to see more likelihood to share the upfront capital in those areas," Thomas said.

To be sure, suppliers are still making their own investments related to electrification and software. Bosch, for example, plans to spend about $1.5 billion on its semiconductor facility in Roseville, Calif., to make silicon carbide chips by 2026.

Many companies see silicon carbide chips as key to reducing EV battery charging times and improving range. Bosch is committed to its plans for U.S. silicon carbide chip production despite the EV sales growth slowdown because the chips can also be used in hybrid or nonautomotive applications such as data centers.

"Demand for silicon carbide will be there," Thomas said.

Major suppliers are also increasingly leaning on their teams in China and Europe to spearhead developments in EV parts and software as they rethink their North American strategies.

Global suppliers such as Magna, Bosch and Valeo might have an advantage over smaller companies as they weigh which technologies to invest in.

By having a presence in markets with larger EV demand, global suppliers might be more likely to justify the spending and risks that come with developing new tech. Meanwhile, companies heavily reliant on North America might be less prone to make such investments because they deem them too risky.

"We're dipping our toes in the water on electrification" in North America, Mark Dawson, an engineer at Valeo, said at a Sept. 11 media event.

Despite that, some of Valeo's EV applications are in their second or third generation because they were first developed for the Asian and European markets, where demand for EVs is stronger.

"That's a very big advantage," he said.