Automakers relinquish control to suppliers in race to EVs

As automakers ramp up electric vehicle production and scramble to secure their battery supply chains, they are meddling less in the business of traditional parts suppliers, according to an industry expert and executive.

That’s because the automakers are faced with the once-in-a-century challenge of reinventing their companies, a capital-intensive task that leaves fewer resources for the legacy business.

An EV has a fraction of the total parts in a gas-powered car, which poses an existential threat for parts producers tied to internal combustion. But for some large suppliers, the consolidation of the supply base and outsourcing for traditional parts is a “golden opportunity,” said Mark Barrott, principal at Plante Moran who specializes in the automotive industry.

As a matter of necessity, automakers are letting top-tier suppliers take the driver’s seat when it comes to producing some parts of the car that won’t be eliminated with electrification, Barrott said. At the same time, carmakers are more hawkish about controlling the future of the vehicle.

“As we move into this electric future, what OEMs have become very focused around is data, making sure that they continue to own the brains of the vehicles, which in the EV world is battery management systems,” Barrott said. “They are being very protective about that. But what that means is their focus and their capital to support other areas of development of the vehicle and components lessens.”

An automaker typically purchases about 70 percent of a vehicle from suppliers and provides 30 percent of the value in-house. Automakers have tightly controlled the supply chain since the Great Recession, which sent them on a survival mission to drive down costs wherever possible.

But micromanaging is no longer a viable strategy when speed and innovation are now the keys to survival.

The seating business is a prime example of how the automakers have shifted their parts supply strategies over the decades, Doug Del Grosso, CEO of Adient plc, told Crain’s Detroit Business in a recent interview.

“It’s almost gone full circle. When the seating business started, the seating suppliers had very little capability,” Del Grosso told the affiliate of Automotive News. “Over the course of time, they built that competency to be a complete seat supplier. A lot of it was done through divestitures and acquisitions of what was formally in-house capabilities of the OEs.”

After the economic downturn in the late 2000s, which hit the auto industry especially hard, automakers tightened the leash on suppliers and began directing sourcing strategies for better visibility on costs, Del Grosso said.

“Prior to the Great Recession, a seating supplier like Adient would be sourced kind of black box, and we would control the supply chain, some of which was vertically integrated, some of which was bought on the outside,” he said.

Wrestling over control of the supply chain created friction between suppliers and automakers, which boiled over when the pandemic sparked a supply chain crisis. Suppliers bore most of the pain, but it also gave them more negotiating power with customers.

Now, the transition to EVs provides new opportunity for suppliers, particularly large Tier 1s that are either insulated from the EV shift — such as seat makers — or those that have strong engineering capabilities and can adapt quickly, Barrott said.

“The emphasis that we’ve seen mainly on the bigger suppliers is that they’ve been encouraged by the OEMs to bring in more of a complete solution, more of a design aspect to the component,” he said. “The OEM is less interested in maintaining complete control over a lot of these aspects.”

Del Grosso will gladly take that work off their hands. Pacing for $15 billion in revenue this year, Adient is among the world’s largest auto suppliers. It has invested significantly in research and development in recent years, evidenced by the newly renovated, 365,000-square-foot Plymouth Technical Center, which serves as the supplier’s North American base. The company has 3,000 engineers globally working on seating design.

Adient and other suppliers, such as competitors Lear Corp. and Magna International, are aiming to position themselves as cutting-edge designers and tech companies instead of merely just manufacturers. Even for parts as primitive as seats, those companies are looking for an edge with sleeker design, thermal comfort and more environmentally sustainable material — aspects automakers are now happy to outsource, Barrott said.

“They just don’t have the capacity to manage all aspects of the vehicle,” Del Grosso said. “Some of our customers have gone fully back and said no, ‘I’m just going to source you the complete system. You’ll present us how you’re going to source the subcomponents, but I’m ultimately going to leave that decision to you.’”

The seating CEO said its customers around the world, including in North America, have either adopted that strategy or are warming up to it.

“We just move faster than when the customer is trying to navigate all of that,” Del Grosso added. “It just shorts up that decision-making tree, and it allows us to get things done quicker for them.”