The previous chapter in this series discussed the evolution of the automotive ecosystem, upcoming changes due to electrification, and the impact of this transformation on the automotive industry ecosystem. This chapter is focused on the stakeholders including new ones getting added due to the automotive landscape due to electric vehicles. It is important to consider stakeholders and their interests to facilitate the assessment of opportunities and challenges due to powertrain transformation.
Automobile Industry – Value Chain Perspective
At a high level, the industry ecosystem is constituted by Infrastructure, product, and supporting network system and each of these players add value to the complete ecosystem. Referring to figure 1 (from a World Economic Forum white paper), the ecosystem has majorly three value chains – Product [EV], Infrastructure, and Network. The product ecosystem is based on customer requirements – specifications, needs, and the ability to adapt the product to solve their problems. Customer is the key and pivotal point for product development where organization R&D invests resources. The product value chain includes conceptualization, development, and introduction of the product to market for customers to use.
Infrastructure is another key value chain that facilitates product growth as well as carves the path for next-generation products. The network value chain serves two purposes – it ensures product upkeep and uptime is supported by the ecosystem. The network value chain also serves the important objective of feedback to complement the ecosystem as well as bridge the gap between customer and product expectations.
Customer, R&D, manufacturing [production], and service are the key enablers that influence ecosystem building. In this article, infrastructure value chain, network value chain and their stakeholders are discussed. The impact of electrification on these stakeholders also is discussed. The product value chain is kept out of the scope of this article as by now the stakeholders and the impact are well conversant with industry players.
Automotive Industry Ecosystem – Stakeholders
Automobile electrification is largely considered as the energy source change from fossil fuel propelled vehicles to electric energy-driven vehicles. However, it is not merely a change of energy source. Over the century, the automobile industry built the infrastructure for the fossil fuel ecosystem to produce, transport, and deliver the fuel that enabled the growth and sustainability of the industry.
Infrastructure building takes structured and consistent effort over time. Infrastructure value chain players require a huge number of resources including funds, human and environmental capital.
Infrastructure value chain stakeholders and impact due to EV transformation
Original Equipment Manufacturers [OEM] or automakers are part of the infrastructure value chain. ICE automakers’ infrastructure is built and enhanced over time considering the growth of the industry. Automakers acquired huge knowledge and mastered the art of making vehicles by investing their resources. Each automaker has its work methods to produce reliable vehicles. The transformation for electric powertrain demands cannibalization of a large part of this know-how. However, the genitive impact is limited to fast transformation or turnaround to acquiring the new knowledge. In my opinion, the impact due to vehicle electrification is neutral or short-term negative for ICE vehicle manufacturers, if they adapt to the transformation with the same vigour. The knowledge of building vehicles, already established supply chain, market, as well as capital leverage and access to customers’ voice, are some of the competitive advantages to automakers and hence impact of EV on these players will not be long term.
Most refineries focus on producing transportation fuels. The adoption of electric vehicles and transformation towards electric powertrains will impact oil refineries. Almost 60% of crude oil production is utilized for transportation purposes according to an article by Vinni Malik in energyworld.com. It is difficult to remove complete reliance on fossil fuels. There will be a major impact on the oil refineries business due to vehicle electrification in the long term . However, the good news is that there can be possible parallel usage and new products can be explored from the fossil oils.
Retail fuel delivery happens at the fuel station. However, the medium to long-term fuel stations will have a negative impact due to vehicle electrification depending upon the vehicle density as well as the geographical location of the fuel stations. Some experts believe the contrary view that fuel stations may also benefit from electrification. Fuel stations can start the battery swapping stations to complement their current business. Retail deliveries and their business economics are highly dependent upon the adoption rate of electric vehicles as well as the demand depletion of fossil fuels.
Charging Stations, Renewable Energy, Electricity Distributors
Electric vehicles demand battery charging. Faster adoption of vehicle electrification will increase the demand for charging stations. More charging stations and convenience to access the same will promote faster electric vehicle adoption in the market.
The charging station can be powered via renewable energy or conventional electric energy. Renewable energy sourcing the charging station will serve a dual purpose, lower operational cost as well as green energy in a true sense. However, more charging stations will have a positive impact on renewable energy generation as well as be beneficial to the electricity distribution network.
Network value chain stakeholders and impact due to EV transformation
OEMs manage vehicle sales and services through dealers. Dealers also handle local product promotion, last-mile deliveries and ensure the inventory of vehicles based on demand cycle. Currently, dealerships are geared up well, with the required resources, training as well as competence to handle both sales and services of an ICE vehicle. The sales vocabulary with EV is changing and it will impact the competency of the dealerships’ staff. It is imperative that dealers need to maintain both the powertrain resources as ICE and EV powertrain will be there for a considerable time.
The services part of the business will have a significant impact due to the transition to electric powertrains. As mentioned in the last article, dealers’ service staff need to handle problems that are significantly different from the conventional vehicles such as software issues, electronic hardware issues, and battery-related issues to name a few. I believe EV transformation will have a major impact on dealership business as well as a business model for the short to medium term and the impact should taper with time with necessary training. However, the learning curve needs to be stiff to minimize the impact.
Suppliers / ICE Component Suppliers
The automotive industry depends on suppliers for R&D and manufacturing components. Suppliers with high or complete reliance on the ICE components need to relook at their offering as they will be impacted negatively by EV transformation. However, if done correctly, these supply chain partners can benefit by diversifying themselves to EV powertrain. The diversification demands a major shift in approach as well as business models. The supply chain side of EV is a major challenge to OEMs and it is the greatest opportunity for the supply chain partners.
The vehicle users will see a positive change due to EV transformation as EVs offer multiple advantages including lower total cost of ownership, multiple new entrants in the segment and government push with subsidies, etc. However, ICE Vehicles are providing the comfort of convenience to customers due to established infrastructure.
EV Component suppliers
To a large extent, the EV transformation is creating a level playing ground for EV component suppliers. It is observed that many start-up or transformative businesses are entering the EV supply chain. However, EV technologies are fast-evolving and hence the component makers need to be watchful of their focus areas and global tech developments. Battery chemistries and electric motor architectures are evolving just to name a few.
Independent Service Stations
In addition to OEMs network, a huge number of independent service stations are available for ICE vehicles in the automotive ecosystem. In India, not all the independent service stations resources are well qualified or educated to do the job, though, many staff members acquire the vehicle know-how on the job or via experience. EV powertrain systems have complex and sophisticated machinery as well as electronics system, which require significant know-how. EV powertrain transformation will impact adversely this independent service network and create huge demand for reskilling. Reskilling the staff is key to continuing in this service business in the long term. In short to medium term, the impact will not so significant as these networks will still have a considerable population of ICE vehicles to serve.
Social Ecosystem Stakeholders
EVs are environment friendly, and getting popular. However, there is another side of the EV ecosystem that will be very significant in the future, i.e. the stakeholders in social ecosystem. Electric powertrains require batteries, motors, and electronics that demand minerals like cobalt, manganese, silica, etc. A recent report published by Amnesty International reveals human rights abuses, including the use of child labor, in the extraction of minerals, like cobalt. Amnesty points to serious health risks to the child and adult workers in cobalt mines in the Democratic Republic of Congo.
In addition to human impact, EV batteries have a finite life and will need to be recycled. The recycling of batteries and other minerals requires investment otherwise it will end up in landfills and may cause damage. I leave this as food for thought.
In an upcoming article, we will strip down electric and ICE vehicle systems, and assess the EV transitions impact on the same.
The transformation of automobiles from ICE to EV powertrains is going to have a long-lasting impact on the overall automotive ecosystem. This series of articles will discuss this impact, challenges, and opportunities for industry players in the coming time.
About the author
Dr. Maruti Khaire is currently working as Head – EV and Special Projects at SKF India Ltd. He possesses diverse experience in the field of R&D, technology roadmap, and new products development in addition to business areas. Dr Khaire also co-authored the recently published book “Advanced Applications of Hydrogen and Engineering Systems in the Automotive Industry”.
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