Rising demand for electric vehicles (EVs) and declining interest in gas-powered cars is pushing automakers toward further consolidation, according to a new report.
That’s bad news for the broader ecosystem of parts suppliers, service stations and mechanics, which are at risk of going out of business, according to a new report released Tuesday by consulting firm Deloitte.
The report predicts an era shift toward electric vehicles and away from gas-powered vehicles for the rest of the decade.
He predicts that this shift will lead to a larger transformation of the auto market, and the supply chains that feed it, that will outpace even the shift to electric vehicles.
While electric vehicles still make up a relatively small portion of current production, consumer demand is shifting away from gas-powered cars.
Less than two-thirds (62%) of consumers surveyed told Deloitte they wanted a “traditional” car with an internal combustion engine in 2023, a “significant” decrease from the 80% who wanted one five years ago.
This means that while petrol cars still dominate both existing vehicle fleets and new vehicle sales, Deloitte predicts that demand for these cars, and the components that make them up, will decline sharply over the next five years.
The report predicts that revenue from the sale of internal combustion engines and related parts such as fuel systems and exhaust systems will fall by almost half (44%) by 2027.
At the same time, revenue for key electrical parts such as drivetrains and batteries is expected to rise 245 percent, or nearly 2.5 times, over the same period, far outstripping the number of vehicles which are expected to be sold.
These figures are somewhat misleading, because the gasoline market is so much larger than the electric vehicle market that a large growth in the percentage of electric vehicle sales does not necessarily translate into a large change in the global car fleet, at least not during the night
But 1 in 7 cars sold worldwide last year were electric vehicles, up from 1 in 70 in 2017, according to a report by the World Economic Forum.
In terms of new cars sold last year, in China, the world leader, 1 in 4 was an electric vehicle, while in the EU it was 1 in 5 and in the US 1 in 10.
Countering this trend toward lower-emission cars and trucks is the growing preference for electric and gas-powered sport utility vehicles (SUVs), whose emissions will reach nearly 1 billion metric tons by 2022, according to the International Energy Agency.
But while this increase in the adoption of large and heavy vehicles is countering national climate targets and bringing the world closer to dangerous climate tipping points, the Deloitte report suggests it is not enough to offset the decline in conventional car and truck manufacturing, and the disruption associated with automotive supply chains.
For manufacturers, suppliers and technicians, the biggest difference between electric and gas cars and trucks is not the fuel they burn, but the relative complexity of their engines.
According to Automotive News, more than 100 moving parts will be cut from the typical internal combustion engine powertrain (the power system that drives a car) in the transition to electric vehicles.
This wide range of failure-prone parts has resulted in a wide variety of parts suppliers, auto shops, and mechanics working in conjunction with major automakers.
But as these mostly mechanical moving parts, such as mufflers and catalytic converters, are replaced by 41 other mostly electronic components, these suppliers will see their market share shrink.
The Deloitte report suggests that this trend will increase in all vehicles, not just electric vehicles, as automakers look to cut costs by simplifying and integrating their supply chains.
“Less complicated vehicle architectures may result in fewer and more competitive opportunities for suppliers” to sell to major automakers, the authors wrote in an accompanying statement.
The consultancy suggests looking for markets abroad for manufacturers and suppliers of internal combustion cars.
On the other hand, companies can spin off gas-fueled manufacturing chains into separate companies (as Ford did last year), which it advises to eventually sell to private equity.
For electric vehicle and battery makers, and relatively stagnant fields like brake and suspension makers, he predicts a wave of mergers, as companies acquire or merge with their competitors as a means to keep raising prices their actions.
That likely means a wave of further consolidation in auto companies, which will see many companies gobbled up by bigger rivals, the report predicted.
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