OEM investment in supply, distribution and technology “crucial”

Implementing “scale” in crucial aspects of business is the key to “automotive survival”, according to Owen Edwards, Head of Downstream Automotive at Grant Thornton.

Writing in Cox Automotive’s latest quarterly insight, AutoFocus, he said that OEMs must seriously invest in areas including supply chain, vehicle distribution and technological evolution to achieve sought-after economies of scale.

He added that as the market continues to evolve with new drivetrain technologies, batteries and so-called e-fuels (aimed at helping ICE vehicles meet new legislation), there has been a corresponding investment increase in autonomous vehicles and mobility services, meaning OEMs forced to spend even greater sums in their supply, distribution and retail chains.

Cox Automotive’s insight and strategy director Philip Nothard said: “Much activity in automotive at the moment has involved OEMs protecting their businesses through mergers and acquisitions. Scaling up is the logical extension of this.”

Edwards asserted that increasing scale in the upstream and downstream automotive sectors has become even more important.

He added: “The scaling up of the supply chain cannot be isolated to new drivetrain technology as traditional OEMs still aim to make profits from ICE vehicles and legacy parts. ICE vehicles reduce their market share on a global basis, and producing such vehicles will inevitably become less profitable. Automotive manufacturing plants depend on volumes and high levels of throughput to make profits.

“Some OEMs are reported not to be making sufficient profits from BEV sales and have continued to undertake increased investment in new battery and vehicle technology. Therefore, with declining sales of ICE vehicles and insufficient profits from BEVs, OEMs are planning for the future, especially when considering the future of ICE vehicles. Owen says Geely and Renault’s joint-venture power plant company is a prime example. Partnerships like these are hugely important to gain economies of scale and maintain profits when the sales of ICE are slowly declining.

“Renault has predicted that the partnership could produce up to 80% of ICE-vehicle power plants global requirements, although no timescale has been outlined for that ambitious target.”