Electrifying suppliers

The automotive sector is more electric than ever. According to estimates, around eight million purely battery-electric passenger cars were sold worldwide in 2022. This represents a remarkable 66-percent increase over the previous year. According to forecasts by the management consultancy Arthur D. Little, the figure is expected to double to 16 million new electric vehicles (EVs) annually by 2025, rising to 35 million units in 2030. In turn, the market for vehicles with internal combustion engines (ICEs) is continuously shrinking.  

This marks the dawn of a new era for the automotive industry, as the shift to electrification will fundamentally change our current ideas about vehicles within a few years. This is especially true for the supplier industry, which is responsible for around 75 percent of added value generated in the automotive sector and acts as the main contributor in developing and producing today’s vehicles. According to a survey by Deloitte and the German Association of the Automotive Industry (VDA), the switch to electromobility is in full swing for four out of five suppliers. On average, they are investing more than a third of their research and development budgets in the new technology, although it currently generates less than 15 percent of their total revenues. “The behavior of automotive suppliers shows that they see electromobility as an investment in the future and are making great strides in pursuing the transformation,” concludes Dr. Ralf Petri, head of the Mobility Division at VDE. However, suppliers face individual challenges depending on their level of innovation and the reliance of their technologies on ICEs, for example.  

Gradually saying goodbye to combustion 

Companies with a wide range of products have the advantage. Bosch is a prime example. The world’s largest automotive supplier traditionally delivers engine parts such as ignition and injection systems, as well as components for other areas of the vehicle, such as running gear and brakes. Microelectronics are especially crucial. Bosch was one of the first companies to introduce them in cars, along with other developments such as gasoline injection, airbags, anti-lock braking systems and electronic stability control. The company also manufactures its own chips. “If you’re positioned that broadly, the transition to e-mobility will be comparatively easy since you can build on existing know-how,” says Petri. Bosch already manufactures components and systems for the entire spectrum of e-mobility, from e-bikes to 40-ton trucks. In 2021, e-mobility sales for passenger cars and light commercial vehicles topped €1 billion; in 2025, they are expected to reach €5 billion. Compared to Bosch’s total 2021 sales of just over €45 billion in the automotive segment, however, this figure is still small.  

Bosch plans to phase out combustion engine technology globally in a step-by-step process. “According to Bosch forecasts, hybrid and pure combustion vehicles will still account for more than a third of all new registrations worldwide in 2035. The share is even higher for heavy commercial vehicles. To protect the environment and conserve resources, Bosch will continue to develop combustion technology and systems for exhaust gas treatment in the future,” explains Dr. Thomas Pauer, president of the Powertrain Solutions division at Robert Bosch GmbH. The company’s research and development, which saw investments of €6.1 billion in 2021, is already focusing on e-mobility, as well as driver assistance systems, electrification in industry and heating technology. “This underscores the company’s future orientation. Bosch invests over €800 million annually in the electrification of mobility alone,” said Pauer.  

However, the impacts of the transformation at Bosch go much deeper: they directly affect the traditional cooperation model that has developed between suppliers and automotive manufacturers over many years. In contrast to conventional internal combustion engines, for which Bosch supplies individual components or systems, the company also produces completely pre-integrated modules for electric vehicles encompassing the electric drive, steering and brakes.  

Employees are already noticing the change today. While its share in the conventional drive segment is declining, Bosch is simultaneously trying to ensure its workers are fit for future developments with qualification and further training opportunities. However, the shift to e-mobility will probably not lead to a massive increase in jobs overall: “At the same time, we have to clearly show the way towards new jobs, including outside the company. Politicians also have a central role to play. When regulating the future of mobility, they need to consider the balance between ecological, economic and social issues,” says Pauer.

Making electromobility practical for the masses 

Vitesco is entering the e-mobility race in a position similar to Bosch. The supplier, which spun off from Continental’s drive division in 2019, has reportedly been investing in e-mobility since 2006 and is able to supply 80 percent of the components required in electric vehicles from its own production facilities – including inverters, electric axle drives, battery management, controllers, DC-DC converters, on-board chargers and thermal management components. “The transition to electromobility is in full swing. In 10 to 15 years, there will be hardly any new vehicles with a pure internal combustion engine in the core markets. We have set a clear, strategic course towards electromobility, which means we’re investing in our high-growth electrification components and gradually reducing our investments in non-core technologies,” says Thomas Stierle, head of Electrification Technology and Electronic Controls at Vitesco Technologies. 

Concentrating on efficiency and costs, the development trend is increasingly towards global, modular and scalable platforms, greater integration of components and functions, and growing standardization – especially in manufacturing. “This is the only way we can offer customer-specific solutions while simultaneously reducing system costs and making electromobility suitable for the mass market,” says Stierle. The level of employment is to be maintained worldwide and even expanded as the electromobility sector grows. The company is relying on transparent communication and training for additional qualifications to prepare employees for the transformation. 

Piston producers are changing course 

The situation is particularly challenging for suppliers who have focused in the past on components and systems specific to the internal combustion engine, such as pistons, cylinders and valve control systems. They often have to start by developing new business divisions for e-drives, and building up the necessary expertise costs time and money. One example is Mahle. The company has been producing components such as pistons for gasoline and diesel engines since 1920 and has earned an excellent reputation worldwide. For many years, the Stuttgart-based company was regarded as a model supplier to the automotive industry, but the company’s successful progress has stumbled on the path to e-mobility. Mahle plans to remain active in the internal combustion segment as long as there is demand on the international markets. Their approach for the new era is to develop products that can also be operated with e-fuels and hydrogen. “Although the proportion of conventional drives will decline, the requirements for those products will continue to rise in terms of reducing CO2 emissions, improving efficiency and regulatory requirements – just look at the proposed Euro 7 emissions standards. For this reason, we’ll continue boosting efficiency with state-of-the-art products for combustion engines,” says Dr. Martin Berger, head of Corporate Research and Advanced Engineering at Mahle.  

However, the company’s future lies in electromobility. Mahle embarked on this path several years ago by founding its own business unit for electronics and mechatronics, shifting research and development investments to electromobility and hydrogen applications, and integrating the thermal management division of the air-conditioning manufacturer Behr. One of the current heavyweights in the product range is an innovative electric motor that can be operated at over 90 percent of its peak power on a sustained basis. As a result, Mahle has gradually developed into a full-range supplier in the field of electric drives and reduced its ties to traditional business areas. The company reports currently generating over 60 percent of its sales in areas unrelated to the combustion engine for passenger cars – and the share is to reach 75 percent by 2030. 

A systematic approach to a systemic crisis 

While Mahle used to focus on delivering individual components for combustion engines, the company now follows a systematic approach for electromobility. “The breadth of our portfolio enables us to perfectly coordinate individual components and subsystems. That’s the most important prerequisite for an efficient overall system, especially in the case of battery-electric drive systems,” says Berger. It will probably take some time before the company regains its old strength, though – in 2021, Mahle reported a loss for the third year in a row. According to the company, this has been due not only to the electromobility transformation, but also to COVID-19, tight supply bottlenecks for semiconductors, supply chain problems and massive price increases. 

From charging plugs to complete solutions 

One winner of the trend is the company Mennekes from Kirchhundem in Germany’s Sauerland region. As a manufacturer of industrial plug connections, Mennekes developed the Type 2 connector in 2014, which became the European standard for electric vehicles and contributed to the breakthrough in electromobility. In the following years, this development resulted in two new business areas – the Automotive division, which develops and produces charging cables and charging inlets for leading automotive manufacturers, and the E-Mobility Charging Solutions division, which supplies charging infrastructure such as wallboxes and charging stations as well as the associated billing and monitoring services. The company now generates more revenue from these two business units than from its core business, the production of industrial plug devices. “Electromobility has contributed hugely to the company’s growth. The e-mobility sector is growing by 70 percent every year. When we first ventured into electromobility, we achieved annual sales of €85 million and employed 350 people. In 2022, we have 1,600 employees worldwide and expected sales of €270 million,” said Volker Lazzaro, Managing Director of E-Mobility Charging Solutions at Mennekes.  

Electromobility has led to a noticeably greater innovation dynamic in the company because product life cycles have gotten shorter and electromobility is developing rapidly. It has brought entirely new areas of responsibility and development opportunities for the employees, such as in terms of software. “With electromobility, Mennekes has developed from a product manufacturer to a solution provider. While our focus was once on pure hardware like industrial plug devices, we now offer a complete solution that even encompasses software-as-a-service billing management,” explains Lazzaro. The company therefore finds itself in the same boat as established suppliers like Bosch, Vitesco and Mahle. “The transformation in the automotive industry not only means electromobility, but also more function-oriented and systemic thinking. The support provided by VDE through standardization, testing and certification, as well as a large network of over 1,500 member companies, is therefore becoming an increasingly important innovation engine,” concludes Petri, the VDE mobility expert.  

Richard Backhaus is a journalist and PR expert who focuses on topics related to automotive technology.

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