How EVs Are Shaking The Car Parts Supplier Industry

Summary

The automotive industry faces a transformative challenge as it shifts from internal combustion engines to electric vehicles (EVs). With a projected 44% decline in revenues for traditional engine parts and a 245% rise for EV components by 2027, suppliers like Stauch Magnetics in Michigan must innovate to survive. The transition to EVs, which require fewer parts, impacts thousands of suppliers worldwide, prompting some to pivot to new business areas or risk obsolescence.

Takeaways

• 🚗 The automotive industry, traditionally centered around internal combustion engines, is facing a significant shift due to the rise of electric vehicles (EVs).
• 📉 Revenues for parts associated with internal combustion engines are expected to decline by 44% through 2027, while those for electric drivetrains and batteries are anticipated to increase by 245%.
• 🔋 The transition to EVs is causing a reduction in the number of parts needed in vehicles, from around 2000 in internal combustion engine vehicles to as few as 20 in EVs.
• 🏭 The shift to EVs affects not only automakers but also thousands of global suppliers, including many small family-owned firms that have been integral to the automotive supply chain for decades.
• 🌐 A typical car contains about 30,000 parts sourced from hundreds of suppliers, and the transition to EVs threatens the viability of many of these suppliers.
• 💼 Stauch Magnetics, a family-owned business in Michigan, exemplifies the challenges faced by suppliers as they must adapt to the EV market or risk becoming obsolete.
• 🛠️ Stauch Magnetics, which relies heavily on the automotive industry for its business, is exploring new areas of growth and innovative ideas to stay relevant in the changing market.
• 🚧 The move towards EVs is causing hesitation in orders and large development programs, as manufacturers and suppliers await clarity on the future direction of the industry.
• 📈 Despite a 55% increase in EV sales in the U.S. in 2022, concerns about the cost, charging infrastructure, and battery longevity persist among consumers.
• 🛑 The industry is grappling with the implications of reduced parts requirements for EVs, which could lead to a smaller market share for suppliers and potential pricing wars.
• 🔄 Automakers are considering bringing more EV production in-house, which could further reduce the opportunities for traditional suppliers to sell into the vehicle manufacturing process.

Q & A

What are the revenue projections for internal combustion engines and electric drivetrains through 2027?

Revenues for internal combustion engines and fuel and exhaust systems are expected to decline by 44%, while revenues for electric drivetrains and batteries or fuel cells are expected to rise by 245%.

How does the complexity of internal combustion engine powertrains compare to that of battery electric vehicle powertrains?

An internal combustion engine powertrain has about 2000 parts, whereas a battery electric vehicle powertrain has about 20 parts, sometimes less.

What impact does the shift to electric vehicles have on small family-owned automotive parts suppliers?

Small family-owned firms, many of which have been around for decades, face significant challenges due to the shift to electric vehicles as they rely heavily on making specific components for internal combustion engines, which are becoming less in demand.

How many parts are typically found in a car, and how many suppliers are there in North America?

A typical car contains about 30,000 parts sourced from hundreds of suppliers. In North America alone, there are about 100 suppliers that together generate half a billion dollars or more in revenue.

What is the main product Stauch Magnetics manufactures for internal combustion engines?

Stauch Magnetics manufactures a magnetic slide conveyor belt used in the manufacture of internal combustion engines.

What percentage of new car sales in the United States in 2022 were electric vehicles, and what was the increase from the previous year?

Electric vehicles made up about 8% of new car sales in the United States in 2022, which was a 55% increase over the previous year.

What are some of the main concerns consumers have about electric vehicles according to the AAA survey?

Consumers are concerned about the high price of EVs, the lack of charging stations, and the risk of running out of battery while driving, among other issues.

What is a significant change in vehicle manufacturing introduced by Tesla?

Tesla introduced the concept of Gigacastings, which involves making parts of the car, such as the vehicle chassis, out of a single large casting rather than many smaller ones that need to be welded together.

What four basic options do suppliers have in response to the shift towards electric vehicles according to S&P Global Mobility?

Suppliers can switch from serving ICE vehicles to EVs, milk the cash cow dry before shutting down, buy competitors and consolidate, or sell out.

What innovative product did Stauch Magnetics develop during the COVID-19 pandemic?

During the COVID-19 pandemic, Stauch Magnetics developed a filter and an apparatus that could stick to the ceiling to keep dust from the shop out of the building's front office, which also helped with airborne pathogen control.

Outlines

00:00

⚙️ Shifting Gears: The Automotive Industry's Transition

The automotive industry is undergoing a significant transformation with the decline of internal combustion engines (ICE) and the rise of electric drivetrains. The number of parts in ICE powertrains far exceeds those in electric vehicles (EVs), affecting thousands of small family-owned suppliers that depend on ICE components. Companies like Stauch Magnetics, a long-standing supplier in Michigan, are feeling the pressure as the industry shifts towards EVs. Stauch, which has been operational for nearly 50 years, faces the challenge of adapting to this change or risking obsolescence.

05:03

🔋 The Uncertain Future of Electric Vehicles

Despite the growing market for electric vehicles (EVs), with an 8% share of new car sales in 2022, many challenges remain. These include concerns over the high cost of EVs, insufficient charging infrastructure, battery longevity, and the availability of critical minerals. The market's response to these challenges, compared to the solar industry's past experiences, will ultimately shape the future of EV adoption. Suppliers must decide whether to adapt to the new landscape or continue focusing on traditional ICE components, risking falling behind as automakers increasingly embrace EV technology.

10:04

📉 Supply Chain Struggles Amidst Industry Changes

The shift towards electric vehicles (EVs) poses significant challenges for auto suppliers, especially those heavily invested in internal combustion engine (ICE) components. The transition to EVs means fewer parts are needed, affecting both large and small suppliers. Many traditional ICE components, such as transmissions and engine systems, are expected to see a drastic decline in demand. The adoption of technologies like Tesla's Gigacastings, which reduce the number of parts needed, further exacerbates these challenges. Suppliers are now facing a smaller market with more competition, as automakers increasingly produce EV components in-house.

15:05

🔄 Adapting to New Realities: Strategies for Survival

Suppliers in the automotive industry face a complex landscape marked by the transition to electric vehicles, economic challenges, and global market fluctuations. Companies like Stauch Magnetics are exploring new opportunities, such as creating specialized magnets for different industries and developing innovative products like Supermac. However, these transitions are not without difficulties, including securing new customers outside traditional automotive sectors and overcoming bureaucratic hurdles. The industry's future will depend on how well suppliers can adapt to these changes, with potential strategies including diversification, consolidation, or exiting the market.

Keywords

💡Internal Combustion Engine (ICE)

An internal combustion engine is a type of engine in which the combustion of fuel occurs within a confined space called a combustion chamber. This process generates power by expanding gases that drive the engine’s pistons. In the video, ICEs are central to the discussion as their market is expected to decline by 44% through 2027, affecting numerous suppliers dependent on this technology.

💡Electric Vehicle (EV)

Electric vehicles are powered by electric motors using energy stored in rechargeable batteries or other energy storage devices. The video highlights the rise of EVs, with expected revenue growth of 245%, and discusses the challenges and opportunities this transition poses for traditional automotive suppliers.

💡Supply Chain

The supply chain refers to the network of organizations, people, activities, information, and resources involved in supplying a product or service to a consumer. The video emphasizes the complex and interconnected supply chain in the automotive industry, which includes thousands of parts and suppliers, many of whom are small, family-owned businesses facing significant changes.

💡Stauch Magnetics

Stauch Magnetics is a company mentioned in the video that supplies magnetic products primarily to the automotive industry. Founded in 1952, it is a family-owned business that faces challenges due to the declining market for internal combustion engines. The company is exploring new opportunities to adapt and survive in the evolving market.

💡Gigacastings

Gigacastings refer to large-scale castings used in vehicle manufacturing, particularly by Tesla. This process involves creating large parts of a vehicle chassis in a single casting, reducing the number of parts and labor required. The video discusses how this innovation is part of the broader shift towards more efficient and streamlined production in the EV era.

💡Battery Electric Vehicle (BEV)

Battery electric vehicles are a type of electric vehicle that use chemical energy stored in rechargeable battery packs. The video compares BEVs to traditional ICE vehicles, noting that BEV powertrains have significantly fewer parts, which impacts the automotive supply chain and the businesses dependent on ICE components.

💡Revenue Decline

Revenue decline refers to the anticipated decrease in sales and income for businesses involved in producing internal combustion engines and related components. The video predicts a 44% decline in revenues for these products by 2027, posing a significant threat to companies that rely on ICE technology.

💡Market Transition

Market transition describes the shift from internal combustion engines to electric drivetrains in the automotive industry. The video addresses the implications of this transition, including the expected rise in EV-related revenues and the need for suppliers to adapt to the changing demands.

💡Tier One Suppliers

Tier one suppliers are companies that provide parts or systems directly to original equipment manufacturers (OEMs). The video mentions major tier one suppliers like Bosch and Denso, who are investing heavily in EV components to stay competitive as the market shifts away from internal combustion engines.

💡Pivot

To pivot means to make a fundamental change in strategy. The video discusses how companies like Stauch Magnetics are pivoting by developing new products and exploring different markets to offset the declining demand for internal combustion engine components. This includes creating products like the magnetic slide conveyor belt and innovative solutions like the Supermag for road debris removal.

Highlights

The automotive industry is shifting from internal combustion engines to electric drivetrains and batteries, with revenues for electric components expected to rise 245% by 2027.

Internal combustion engine powertrains have about 2000 parts, while battery electric vehicle powertrains have about 20, which impacts the supply chain.

Many small, family-owned firms in the automotive supply chain are at risk as the industry transitions to electric vehicles.

Stauch Magnetics in Livonia, Michigan, a long-standing supplier with about 30 employees, is heavily reliant on the automotive industry.

Electric vehicles comprised about 8% of new sales in the US in 2022, a 55% increase over the previous year, but concerns remain about their high price and charging infrastructure.

The viability of electric vehicles is questioned due to concerns about the availability and longevity of batteries, the cost of replacement, and the need for government support.

The global auto industry has faced numerous challenges, including declining sales in China, a labor dispute between GM and the UAW, and the impact of the COVID-19 pandemic.

Stauch Magnetics has innovated by developing products like a magnetic filter for dust control and a magnet for removing metal debris from road surfaces.

Pivoting to new business areas is challenging due to different customer bases and manufacturing scales, but it's necessary for survival.

Despite innovative products, Stauch Magnetics has struggled to gain traction with some state transportation agencies and hospitals.

The COVID-19 pandemic significantly impacted production and led to layoffs at Stauch Magnetics.

Rising raw material costs, supply chain shortages, and inflation have further pressured automotive suppliers.

The transition to electric vehicles requires heavy investment in R&D and poses a challenge for suppliers due to fewer parts needed for EVs compared to internal combustion engines.

Many automotive suppliers are now competing for a smaller market share of EV components and facing competition from OEMs.

Stauch Magnetics continues to explore new markets and products to adapt to the changing automotive landscape.

Transcripts

The automotive industry was built around engines, but

now anyone who makes parts for them is facing a harsh

future. Revenues for internal combustion engines

and fuel and exhaust systems are all expected to

decline 44% through 2027.

Meanwhile, revenues for electric drivetrains and

batteries or fuel cells are expected to rise 245%.

But there is another problem. An internal

combustion engine powertrain has about 2000

parts. Battery electric vehicle powertrains have

about 20, sometimes less.

Beyond the major automakers, there are

actually thousands of parts in cars that come from

companies all over the world.

A whole branching supply chain of firms, each

dependent on the success of the others.

Many of those companies are small family owned firms

that have been around for decades.

A typical car contains about 30,000 parts sourced

from hundreds of suppliers.

In North America alone, there are about 100

suppliers of varying sizes that together generate half

$1 billion or more worth of revenue.

Stauch magnetics in Livonia, Michigan, is one of

those suppliers.

We've been in this building for about 50 years, and the

trees that are out front weren't there.

When I pull in, I see that and that's the history for

me that that makes me excited and reminds me just

how long we've been around and that we've got a duty,

especially in my role as president, to make sure that

we can continue.

Today they are threatened.

And if you can't adapt, then you're going to be again on

the outside looking in as the industry moves towards

battery electric.

The Storage was founded in 1952 by Edward Stauch, His

wife Ruth, and daughter Marjorie.

Really built the business from the early 60s all the

way up until just a few years ago.

So we were women, owned and operated, and the ladies

really cut their teeth heavily into the automotive

sector by selling magnets and magnetic bases to all of

the top three automotive companies that were here in

Detroit at the time. We're involved with lots of

different magnetic applications globally.

We've done about $7.5 million last year.

It was our banner year.

It has about 30 full time employees.

Alexis Zukowski, a welder and fabricator, is one of

them.

I'm really into mini bikes and cars and stuff, so it

kind of just started at home. And then I went to

school at MIT and learned through their welding

program and then Stauch is actually associated with

MIT. And so I applied here and I got the job on the

spot.

75 to 80% of its business revolves around serving the

automotive industry.

About half of its business is in making a machine that

is used in the manufacture of internal combustion

engines. The magnetic slide conveyor belt.

Like so many other companies, Stauch's fate is

closely tied to the fate of the fuel burning engine.

I think the internal combustion engine supply

chain might be somewhat stunned right now.

There is there's this big movement heading towards EV.

A lot of us are waiting to see what that really pans

out to be. And I'm seeing some hesitation on orders

and large programs that take years for development,

if you would, in order for them to get into the lines.

As we don't spend money on redoing new engines or

revising engines, then there's less reason for the

vehicle manufacturer to say, well, I need to buy a

new conveyor. Well, if it still works, they're

probably just going to keep fixing the old one or maybe

just revamp it slightly.

It's only when you spend money on a brand new

facility, then that's when the vehicle manufacturers

say, you know, I probably want all new equipment in

here just to make sure that I've got the latest.

And those are the opportunities to spend

money.

On the other hand, electric vehicles made up about 8% of

new sales in the United States in 2022.

That was a 55% increase over the previous year, but

still, 92% of cars sold are either hybrids of some kind

or are strictly gas burning.

Many questions around the viability of EVs don't

deliver simple or certain answers.

The Automobile Association of America or Triple A,

surveyed about 1000 people in 2022 on electric cars.

60% of them were still concerned about the

relatively high price of EVs, worried there are not

enough places to charge and fretted about running out of

battery while driving.

Among other things.

There are other concerns about the availability of

the minerals needed to make the batteries, about the

longevity of the batteries and the cost of replacing

them, about how well EVs can compete without

government support.

Looking back at solar as an example, there was a lot of

solar plants in Michigan that were brought online

because it was a big push by the government and I

watched a lot of those get shuttered and closed.

So it makes a lot of us think, I think internal

combustion engines, is this for real?

Does this stick around?

Is this something that's going to be our path?

The market will ultimately dictate that.

And I think the technology is exciting.

I think that there's absolutely change coming.

I just hope that it's paced more so this time.

All of these factors kind of weigh on suppliers and they

say, well, if if, if there's not going to be

enough of this or not enough power or whatever the

case might be, I'm just going to keep doing what I'm

doing. But yet the vehicle manufacturers are moving

ahead. And as they move ahead, the suppliers, if

they don't follow them, they're going to be

increasingly without new opportunities to sell more

product into those vehicle manufacturers.

The surge is coming.

The problems are affecting firms much larger than

Stauch. Even many of the largest publicly traded Tier

one suppliers such as Bosch, Denso, Magna and ZF.

I think that we're in a period now of heavy

investment, either through R&D or through M&A.

So I think it's actually very difficult to invest in

this group. I the companies that we like are companies

that really don't face this issue at all.

Larger suppliers are pivoting toward EV

components.

A lot of these suppliers are uniquely positioned to make

them. They already do stamping and they already

have relationships with the OEMs.

Some of the products they're making are

different, no doubt.

But I think that's really the answer for a lot of

these suppliers is now the issue is EVs obviously use

less parts than ICES do.

So in aggregate, there will be probably less to feed

more mouths, so to.

Speak, in a traditional internal combustion engine

drive line. You've got everything from the radiator

back to the rear axle. You've got not just the

radiator, there's the motor, and the motor

consists of a typically a cast iron engine block.

There's cast iron heads or aluminum heads.

You've got all of the internal combustion engine

pieces that are literally hundreds, if not thousands

that are part of that bill of material.

As you advance to the transmission, same sort of

scenario through the drive shaft to the traditional

rear end. There's also a lot of gears and a lot of

hard metal parts.

Most of all of that gets removed in an EV.

In addition, about 70% of the parts in an EV might be

different from those in an internal combustion vehicle.

That is a big problem if you are a small supplier

whose business relies heavily on making a few

highly specific components.

The size of the transmission market in 2019

was $93 billion.

Engine systems reached 73 billion by 2035.

Both are expected to be fractions of that same with

aftertreatment and fuel systems.

Automakers frequently launch a new engine family,

a group of often several engines with similar traits

to put in the company's different cars and trucks.

New engineering, new design, new features, and

new business for the countless suppliers that

make the parts going into it.

But that is disappearing in 2015.

There were 15 new automotive engine families

launched in North America.

By 2025, just ten years later, there will be only

two. There are even deeper, more profound changes coming

to automotive manufacturing.

Battery electric is more than just, Hey, we're going

to use a battery and electric motor to propel the

vehicle. It's given the vehicle industry a chance to

rethink how they put cars together.

And it's going to have a monumental impact on the

supply base.

Vehicle components have become simpler and

streamlined. Tesla introduced the concept of

Gigacastings. That is the process of making parts of

the car, say, part of the vehicle chassis out of a

single, very large casting rather than many smaller

ones that need to be welded together.

This means fewer parts, less labor all the way down

the line.

Just the mere the sheer fact of what that does to the

tooling industry, to the number of parts that are

required to build that, you know, basically mechanisms

to hold the parts together to weld it properly, all of

that changes.

Automakers want to bring more EV production in-house

than they did in the days of the engine.

Some of these OEMs are really good at making

e-motors and inverters, for example, or power

electronics. So that becomes a headwind for some

of these suppliers.

And they're all basically chasing the smaller pie of

EV components than they once had and that they're

competing against their very customers, the OEMs.

And everybody's trying to make the same fewer parts

and the concern would be that this creates a pricing

war which benefits the OEMs or they just basically

market share. They get a smaller piece of a pie than

they once had before.

It's hard to find an auto supplier that isn't

threatened by this.

Frankly, it's been a really crummy three and a half

years for the for a supplier and in some

respects for a good part of the of the vehicle industry.

The whole global auto industry long relied on

China as a reliable profit source as the country grew

into the world's largest market.

But declining sales in 2019 and other factors have put

car makers and their suppliers under pressure.

Also in 2019, a labor dispute between General

Motors and the United Auto Workers Union dealt a blow

to demand in North America.

The Covid 19 pandemic hit in 2020 first, shutting

production down entirely for nearly two months and

then slowing it for several more.

Production fell 20% for the year.

That we had 22 or 27 employees laid off.

Then came all kinds of supply chain shortages, raw

materials, semiconductors and so on.

Then Russia invaded Ukraine.

Then inflation.

Shipping costs saw an unprecedented rise during

the pandemic. So did oil prices.

Raw material costs shot up by the end of 2020.

For hot rolled steel is expected to rise 14% from

the price it was in fall of 2022.

Wages and rising interest rates also put pressure on

suppliers. Against this backdrop, these companies

are now going to have to figure out what they're

going to do about EVs.

They have four basic options, says a report from

S&P Global Mobility.

They can switch from serving Ice vehicles to EVs.

They can just milk the cash cow dry before shutting

down. They can double down buying competitors,

consolidating and becoming the biggest player in their

industry. Or they can sell out storage.

Magnetics is leaning into some other areas where it is

strong.

The biggest growth opportunity for us is to

continue to double down and to continue to offer the

expertise that we've had over all these years to

other manufacturers that are looking to incorporate a

magnet into their product.

They're not just magnets.

There's more to it.

There's heat, there's shock and vibration and all sorts

of things that many manufacturers don't know.

And to eliminate the potential for recall, that's

where we shine. We're able to do third party testing

and make sure that the magnets that come from mills

in China are exactly what they're expecting.

But the company is also testing out new ideas.

They have several products.

If you're going to survive, you have to be creative.

You have to be innovative, but you can't let it

overtake your business.

That's been a hard lesson for us here and me in

particular, as I've come up through the rankings here at

Stork. The biggest pivot that we've had here at Stork

was creating an entirely new brand and a division of

this company.

During the Covid 19 pandemic.

They found themselves for unrelated reasons, trying to

figure out a way to keep the dust from the shop out

of the building's front office.

Being a magnet, people, we decided that we would create

a filter and an apparatus that would stick to the

ceiling. Real simple design. And as the people

came back that were laid off from Covid, they asked

to have it above their head for the Covid reasons.

They've also developed supermac.

It's a magnet put on the front of a truck that is

used to pull iron and metal off of a road surface.

The pitch is that it will save people from tire

blowouts, especially at high speed.

Departments of Transportation are buying

these magnets now from us and they're driving over the

road surfaces.

And by keeping all that metal debris up, most roads

agencies report back that within the first month that

the magnet has paid for itself just in the cost of

tires to that one vehicle.

The impact that they make to that region is something

that no one's been able to put numbers to yet.

The company also came up with an especially offbeat

idea.

I had an employee come to me and he wanted to buy a

fishing magnet. He'd seen it online, wanted to do it

with his son.

This isn't a magnet for catching fish.

It is a magnet for fishing pieces of metal out of

waterways. So the company set the employee up with a

magnet and a rope and then got the idea of building a

submersible that could do underwater.

What Superman does on roads.

I don't know that we fully understand who the customer

is for that product yet.

I think that potential customers in the future will

be large areas like Daytona Beach or Myrtle Beach.

In Florida. It would be the larger municipal beaches

where they want to make sure that fishing areas that

are right adjacent to swimming areas are protected

for those that are using it. And I think that those

will be people that will be ultimately buying these or

using them from a rental fleet to take care of their

areas on a periodic basis.

Pivoting to an entirely new business is not easy.

Number one, you don't have the connections outside of

traditional automotive.

So maybe you might say I need to sell more into the

medium and heavy truck space. Well, that's great,

but it's a different set of customers, number one.

Number two, the scale is different.

They build less than a 10th of the number of vehicles

that they do in in what we call light vehicle or

smaller vehicles that you and I drive.

So the scale is different.

The customers are different. The size of the

parts are different. The way you manufacture them are

different. Different, different, different.

About a year ago, there was an airborne pathogen control

program that was put forth by our governor here in

Michigan. $10 Million was set aside for a product that

could potentially eliminate particles settling inside of

the top ten hospitals by count of Covid.

Patients here in the state of Michigan seemed great.

Air Trust was a perfect fit for that.

It was on us over a 30 day time frame to reach out to

all of the hospitals that were identified on a piece

of paper. To us, it was easy pickings and we

thought, This is great.

This is a home run. This is our dream.

We're going to make a lot of aero trusts.

The truth is, after 30 days, we couldn't get one

hospital to write a single page letter request that

they would have interest in the grant program that was

set forth and it expired without one being taken by

any of the hospitals.

Storage has also had trouble selling Supermag products to

some state transportation agencies.

Even though it's seems like such a no brainer from a

budget standpoint that a 15 to $20,000 product can have

a one month of return of investment and over a 25

year cycle in the case of Michigan here, could make a

massive impact.

Upwards of almost $100 Million in Savings of Tires.

But budgets are established, we've learned,

for the replacement of tires, not necessarily for

new equipment.

So getting this through the state and federal levels has

proven to be one of the most challenging.

Things of my career. It's what keeps me up at night.