OESA Strategic Insights Executive Briefing Series 2021 — Preparing Suppliers for Market Disruptions, Searching the Deep Sea to Electrify Vehicles, and Introducing the Lucid Air

The Original Equipment Suppliers Association (OESA) recently convened a hybrid in-person and virtual session of its Strategic Insights Executive Briefing Series. Addressing the theme of “Supplier Competency and Electric Vehicle Readiness,” the OESA invited industry experts from Deloitte Consulting LLP, the Metals Company, and Lucid Motors to discuss fresh perspectives on grappling with the dramatic pace of industry change, technology advancement, sales volatility, and supply chain disruptions stemming from the global push to transition to electric vehicles.

Deloitte kicked off the conference with a panel featuring U.S. automotive consulting leader Jason Coffman, managing director Raj Iyer, and automotive research leader Ryan Robinson that shared actionable insights from Deloitte’s 2021 Global Automotive Supplier Survey. Based on the survey, which explores what drives industry change and how suppliers can adapt, the panel first identified four significant forces disrupting the automotive supply industry: (i) electrification, (ii) technology convergence, (iii) new entrants, and (iv) supply chain difficulties. Next, the experts discussed their findings on which component industry segments are growing, shrinking, and remaining stagnant. Finally, the panel concluded with suggestions on strategies for how suppliers can stay abreast of the shifting industry dynamics.

Robinson started the discussion on the significant disruptive forces by addressing the growing adoption of electric vehicles. Although many American consumers are hesitant about buying electric vehicles, he predicted that the adoption of electric vehicles will continue growing. The factors driving this anticipated growth include regulatory pressures, global government mandates, battery technology advancements, declining costs, and increasing environmental concerns. Despite the potential incongruence between the supply and demand of electric vehicles, Robinson expects that the increased pressure to go electric will squeeze profit margins for traditional powertrain-related segments.

Next, Iyer delved into the increasing technology convergence in the automotive industry. As cars evolve, users increasingly demand different functionalities, shifting the value from hardware to software. Based on the rapidly-changing consumer preferences, software may soon make up over 30 percent of vehicle content. This would shift revenue and profit pools from traditional hardware sectors to new content creators. Relatedly, Iyer expects the proliferation of new entrants from big tech and other consumer industries to put additional pressure on traditional players to innovate quickly. These fast-growing tech businesses enjoy soaring valuations and are flush with cash, allowing them to capture market share expeditiously at the expense of traditional players. Coffman concluded Deloitte’s presentation on disruptive forces by discussing the rapidly evolving supply chain. He emphasized that the supply chain disturbances caused by the COVID-19 pandemic and ongoing semiconductor shortage have brought a new focus on the resiliency and agility required to manage supply chain operations, with success shared by new high performers. According to Coffman, supply chain agility is the best antidote to the increasing supply chain complexity. Suppliers can develop their agility by actively monitoring fast-moving markets, predicting and prioritizing an endless stream of risks, and orchestrating internal and partner recourses to respond quickly.

According to Deloitte’s Global Automotive Supplier Survey, producers of electric drivetrains, batteries, fuel cells, and Advanced Driver-Assistance Systems (ADAS) have experienced significant growth and may continue to see exponential growth of up to 475 percent from 2020 through 2025. Meanwhile, growth for certain other traditional automotive components is projected to stagnate or even shrink.

So what are traditional automotive suppliers to do? According to Deloitte, they need to adapt. Fast. Some crucial strategies may include critically evaluating and preparing for supply shortages (what will cause the next semiconductor crisis?), eliminating “dead weight” by retiring nonperforming or obsolete technology, and developing diverse and multidisciplinary talent. Suppliers also can help keep abreast of the turbulent supply chain by improving and standardizing data retention and significantly investing in digital technology, like robotic process automation solutions, artificial intelligence, and predictive analytic technology.

After Deloitte’s presentation, the Metals Company continued the OESA conference with a panel featuring director of business development and marketing research Kristin Hengstebeck and CFO Craig Shesky. While Deloitte focused on overarching issues impacting suppliers, the Metals Company focused on challenges and solutions for securing raw materials for the rapidly growing electric vehicle market.

Beyond the ongoing and well-publicized semiconductor shortages, Hengstebeck explained that the US electric vehicle market faces a unique problem: securing reliable sources of metals necessary for high-powered batteries, including lithium, neodymium, copper, nickel, cobalt, and manganese. The upstream supply chain for these materials is extraordinarily complex and global. Although the US has ample access to lithium and neodymium, the Metal Company projects significant deficits in nickel, copper, and manganese supply by 2025. The Metal Company attributes these issues to bottlenecks in China and other Asian countries. Compounding the effects of the bottlenecked supply chain are US regulations, which require environmental, social, and governance (ESG) transparency on issues like child labor, deforestation, toxic waste, and greenhouse gas emissions. Not only do these regulations reduce supply, but complying with them necessarily entails higher costs, potentially impacting the adoption of electric vehicles.

But rather than doom and gloom predictions, the Metals Company offers a potential solution: deep-sea mining. Shesky explained that the company is positioning itself to harvest polymetallic nodules, or rocks rich in manganese, nickel, copper, and cobalt, from the Pacific Ocean floor between Hawaii and Mexico (the Clarion-Clipperton Zone). The Metals Company believes that these nodules are incredibly abundant (the Metals Company claims access to over 1.5 billion tons—enough to electrify the entire U.S. passenger fleet), easy to spot, relatively easy to gather as they sit atop the ocean floor, comply with America’s ESG regulations, and provide an opportunity to mitigate the current supply chain bottlenecks.

Lucid Motors, an electric vehicle producer based in Silicon Valley that recently went public in July 2021, concluded the OESA conference. Peter Hasenkamp, VP of Lucid’s global supply chain and operations. Hasenkamp explained that the company provides new opportunities for suppliers to break into the next generation, cutting-edge market. It actively seeks suppliers with strong executive support and commitment, fast and nimble long-term partners, operational excellence, and a capacity to dedicate resources to the company. He also expressed Lucid’s preference for locally sourced products and invited attendees to reach out to establish potential business relationships with the company.

There is no question that the market is still reeling from the effects of the global pandemic and various supply chain disruptions. And although “time is perhaps the scariest commodity” in addressing these challenges, Coffman of Deloitte put it well: “there has never been a more exciting, technologically-advanced time in the automotive sector.”