The entire global auto industry is on the brink of a profound technological transformation. Networked or “connected” vehicles, ranging from electrically powered (electrified) and fully automated to autonomous vehicles, as well as new mobility concepts (shared), are ushering in a significant transformation of the auto industry – from changing priorities in customer use to new vehicle functions and technologies, as well as new supplier and value creation structures. The automakers (OEMs) are not only rising to meet the challenge of these new technologies but are also expanding their business models and activities to accommodate new mobility platforms and produce lines, as well as vehicle operation. Indeed, this will present a range of new opportunities for the supplier industry as well – from development service providers to system suppliers and contract manufacturers – as an important innovation and value creation partner for the OEMs.
Stricter regulations on CO2 and NOx emissions are driving the accelerated transformation of traditional combustion engine vehicles to electric vehicles. Although the specific emissions controls and targets vary from region to region (Europe, USA, China, etc.), they are united on one point: fleet consumption targets will be drastically tightened and/or sales targets for electric vehicles will be set by regulators – with billions in penalties to be paid for the failure to achieve targets. The new EU target calling for a reduction of CO2 fleet emissions by -37.5% (passenger vehicles) by 2030 will already require a dramatic shift, and thus a further acceleration of the transformation towards electromobility.
All analysts are accordingly expecting rapid growth in the market for electric vehicles. This market is primarily spread across China and Europe and, trailing slightly, also North America. Nonetheless, considerable uncertainty remains – very often the plans made yesterday are already obsolete by today because of the far more ambitious volume scenarios that are needed. As a 2025 milestone, all German OEMs are aiming for a target share of around 25% of worldwide sales for purely battery-electric vehicles, with significantly higher market shares likely in certain key electromobility markets.
New battery electric vehicle platforms and architectures are creating the basis for the substantial expansion of the product line that is needed – to new sub-brands and entirely new model families, such as the derivatives portfolio under the Mercedes Benz sub-brand “EQ” or the I.D. product facility at Volkswagen. In the future, plug-in hybrids will also be offered in all premium vehicle series, which will have to meet battery-electric distances of up to 100 km (62 m).
For this reason, virtually all automakers have defined high-voltage battery systems as core competencies and in-house services and are building up appropriate development and production capacities. All development service providers and suppliers in the market for vehicle battery systems are accordingly competing first and foremost with the in-house resources of the automakers. Nonetheless, the needs of OEMs are increasing sharply all along the value creation chain, from product development to process development to production and assembly of battery cells, modules, and packs – at a volume that is also putting pressure on new service providers and suppliers in the EV battery market; the business models and spectrum of the competition are correspondingly diverse.
While in the passenger vehicle segment, OEMs tend to acquire development services and/or order production of battery systems in addition on account of their greater in-house value creation, in the van and bus segment it is mainly complete packages that are developed and produced under one roof as a system solution that are desirable; and for that reason system suppliers will be used here that in the future offer “complete” module solutions “off the shelf” in order to then offer the pack integration and assembly.
It is also likely that the OEMs will not only scale their module solutions as a platform solution in the company but will also help external clients as a “3rd party business” – with the goal of achieving additional scaling effects not only in the battery but also in the entire electric drive train. Volkswagen, for example, has announced that it will also open the MEB electric platform to third parties. The OEMs are thus also becoming relevant actors in a market for battery modules that in the future will become ever more competitive.
At the same time, a substantial market is also opening up for testing service, i.e. contract testing (testing as a service), mainly focused on (battery) systems and their integration in the electric power train – a market that, together with development service providers, is also being served by large test providers like TÜV and SGS. Nonetheless, the testing of battery cells, modules, and packs requires substantial investments in order to master the wide range of performance, lifecycle and safety tests. These investments are increasingly expected by the development and testing service providers, since the OEMs only invest in-house for basic needs – in contrast to the combustion engine, where huge motor testing facilities for development were built in the 1990s and 2000s.
With the substantial growth in the number of new battery programs at all the OEMs, a service market is emerging around the prototype construction of high-voltage battery systems. In the coming years, the “Contract Manufacturer” business model will also persist, with the supplier as a partner in industrializing a previously developed battery system and producing under contract for the OEM.
New business models dealing with after sales solutions for battery systems will likely also have to be developed: battery systems that are no longer produced in series production will still have to be available after End-of-Production (EOP) for replacement parts supply – new service business models are emerging that produce such battery systems in smaller volumes and on a highly flexible basis, including in combination with cell upgrades and appropriate development service.
Playing a significant role as system suppliers are the established battery cell producers from Japan, South Korea and China, which are increasingly also offering battery modules and packs; for example, CATL, LG Chem, Panasonic, Samsung SDL, are particularly noteworthy as system suppliers. With Europe being one of the core markets of the future for electromobility, all these players are also active in Europe in cell production and in some cases also with module productions – or have announced such plans.
At the same time, particularly in Europe, traditional automotive Tier-1 system suppliers – whether with or without a powertrain background – are attempting to enter this battery system market and to establish themselves. Their efforts are here almost exclusively limited to pack integration and assembly, as battery cells and modules are defined by the OEMs and purchased in the component platform. Partnerships with cell manufacturers allow these system suppliers to find new customers outside the traditional passenger vehicle segment who must rely on standardized existing battery modules or even battery packs, e.g. in the off-highway segment (e.g. agricultural machines, construction equipment).
With the anticipated rapid growth of electromobility, the production value creation for high-voltage battery systems will also have to become further globalized. Even today, the leading large battery cell producers are already investing in the expansion of their global footprint. The OEMs are building assembly sites for battery systems near, and even inside, their existing vehicle factories in all the large production markets, such as Europe, China, and the USA. As in traditional delivery volumes, the key issue with battery systems for system suppliers will also be aligning their production sites to the vehicle plants of the OEMs and integrating into the relevant supplier parks.
Development service providers and auto suppliers are today more than ever an important innovation and value creation partner for the OEMs. Here electromobility in particular presents a range of different opportunities in enhanced or new business models – and as a partner in the transformation of an entire industry.