Motor sector faces ‘critical challenges’ in transition from ICE

The automotive industry faces “critical challenges” as it transitions from Internal Combustion Engine (ICE) to Battery Electric Vehicles (BEVs).

That’s the view of Lee Swinerd, director and head of automotive at financial advisory firm Interpath, writing in Cox Automotive’s latest Insight Quarterly.

The cost of BEVs and ongoing concerns over charging infrastructure have softened demand in Western Europe and North America, according to Swinerd.

He said OEMs are needing to accelerate BEV adoption, driven by political pressures and looming penalties under the Zero Emission Vehicle (ZEV) mandate, while assessing their new vehicle launch programmes.

“The rush towards BEVs is creating a precarious situation for the ICE supply chain,” said Swinerd.

“While some softening was expected, production schedules are increasingly unpredictable, creating uncertainty for suppliers. This, combined with the post-COVID-19 production challenges, is affecting working capital and liquidity across the sector.”

Cox Automotive insight director, Philip Nothard, said:  “As BEV demand struggles to meet expectations, we have to ask questions about the short to medium-term future of ICE vehicles and the supply chain which supports them.

“Interpath raises some key points about how suppliers – and OEMs – will need to adjust their strategies to meet the fluctuating and unpredictable demand/supply dynamics for both ICE and BEVs.”

Swinerd added: “Many suppliers, who have already adjusted strategies from diesel to petrol, are now seeing reduced levels of OEM investment and shrinking manufacturing capacity.

“The declining investment in ICE production is leading to ageing equipment and more frequent production downtimes, exacerbating the issue. These challenges may force OEMs to either absorb higher costs or pass them onto consumers, making ICE vehicles potentially more expensive.”