THE PREMATURE DEATH KNELL OF THE INTERNAL COMBUSTION ENGINE THE FUTURE WINNERS OF THE IAM

Five years ago, electric vehicles (EVs) were forecast to account for ~3% of new light-vehicle (LV) sales in the U.S by 2023. Hindsight is 20/20 and has proven these forecasts to be far too conservative as EVs made up ~6% of U.S. sales in 2022, buoyed by strong consumer demand, renewed EV tax credits, and constrained sales of vehicles overall. Traditional light vehicle OEMs have announced expanded EV product offerings while new (EV only) OEMs continue entering the market. Recent forecasts from IHS estimate the pace of change to continue accelerating with EVs accounting for ~39% of new vehicle sales by the end of the decade.

Will these forecasts prove to be too conservative as well?

Only time will tell, but the shift to EVs is not without challenges. Many of the raw materials used to manufacture battery cells (Lithium, Cobalt, and Manganese to name a few) are becoming increasingly expensive due to rising demand. Key mineral deposits are commonly located in developing countries where mining practices raise environmental and human rights concerns. Global supply chains are still recovering from the onset of COVID-19, while geopolitical risks and protectionism are creating new disruptions. Significant investment is required in the U.S. to expand electricity distribution to meet the future energy demands needed to power electrified transportation. I could go on and on…

Despite these challenges, Roland Berger forecasts that EVs will increasingly penetrate the U.S. car parc and account for ~12% of all vehicles on the road in the U.S. in 2030, ~25% in 2035. However, even with millions of EVs on the road, the near-term impact on players in the independent automotive aftermarket (IAM) will be muted. It will take time for electric vehicles to make up a significant share of the older vehicles that are commonly served by the IAM. Even though new vehicle sales may be 30%+ by the turn of the decade, the share of vehicles that are 8+ years old and electric will be much lower. As you know, the IAM’s primary segment are these older vehicles. Our most recent analysis finds that in 2035 only 3% of LVs that are 12+ years old will be EVs and 21% of vehicles 8-11 years old. In total these “old” EVs will only account for ~5% of vehicles on the road in the U.S (2035).

This gives you the time you need to prepare! IAM players will be tested to see how well they can adapt, as the long-term forecast is cloudy. New and more complex systems may reduce the share of the market served by the IAM. Consumer spending on vehicle repair will decrease as EVs have fewer mechanical parts requiring repair. In fact, we have studied the impact of electrification on hundreds of components and conclude that each EVs will only require 60-65% of the spend of a comparable ICE vehicle – this considers that the batteries will last for the life of the vehicles. That is not to say that all components will be affected equally though.

Some traditional service offerings will benefit from EVs. Tire replacement will benefit from the shift to EVs as the instant torque and increased weight from the batteries cause tires to wear faster. Suspension is another category to benefit, as EVs are equipped with more expensive components to manage the increased weight.

Other traditional service offerings are at significant risk as markets will continue to shrink across many categories, one example being brakes. Kinetic energy is transformed into electricity by the electric systems as vehicles slow down, resulting in far slower wear on EV brakes. Other components such as spark plugs, engine air filters, fuel pumps, and oxygen sensors are eliminated from an EV entirely.

The future winners of the IAM will be the companies who prepare in advance! This does not necessarily mean that an EV-centric strategy is the right decision for every supplier.

In fact, many companies are making the strategic decision to do the exact opposite. Here is an overview of the three strategies that we see in the market today.

Going all-in on EVs: Some suppliers, especially larger and more technologically advanced ones, are ditching their legacy product lines and going all-in on EV products. These companies have been aggressively divesting their profitable ICE portfolios and investing heavily in R&D required to develop new EV-focused solutions.

Riding the ICE train into the sunset: While EVs are the future, ICE vehicles will continue to be produced for quite some time and will still constitute the majority of the parc for the next 25+ years. There is clearly still a lot of money to be made in producing components and systems for ICE vehicles. The past few years have seen aggressive consolidation of ICE products into large, comprehensive portfolios. PE firms have been particularly interested in pursuing this strategy. The recent increase in interest rates has made this strategy even more attractive as near-term cash flows are considerably more valuable than cash flows a few years down the road.

Playing both sides: Others are choosing to straddle the ICE and EV worlds. For these suppliers, ICE products are the ‘cash-cows’ that support their still-unprofitable EV projects. While on the surface this seems to be a reasonable strategy, we believe that many suppliers will struggle to succeed in “playing both sides”. The EV landscape is highly competitive and not all suppliers will make it. It is critical to be focused and dedicated to eventually be among the winners in this space. Similarly, the consolidation in legacy ICE products means that those without the necessary scale could find it difficult to compete.

So, what should you be doing?

We suggest to our clients that they start by understanding their Business Essence to identify their transferrable core competencies. It is critical for businesses to honestly evaluate their engineering and business competencies to understand how they can best adapt, as mis-identifying an opportunity and putting energy into the wrong areas can be a fatal mistake.

The next step is to take these core competencies and identify products and markets where these skills give your company a right to play. A comprehensive analysis will reveal the competitive dynamics of these identified opportunities and help executives position their firm in a way to harness the massive opportunities in front of them and ultimately commit to a profitable long-term strategy. 

For more information on our Business Essence framework, or the MADE trends (Mobility, Autonomous, Digitalization, Electrification) and their impact on the automotive aftermarket, please visit www.RolandBerger.com

Nrf Focuses On Ev Development With A Fast Growing Ev Range And Dedicated Trainings

NRF is ready for the future! NRF offers the largest and fastest growing aftermarket cooling range for hybrid (HEV or PHEV) and electric vehicles (EV). Besides the extended offer, NRF is also developing dedicated EV trainings. NRF even has a Tesla training vehicle.

Cooling The Battery And Power Electronics

In an electric vehicle the cooling system remains an integral part of the powertrain. To provide optimum performance, the batteries and power electronics need to be maintained within a specific temperature range. The cooling system thus retains its recognizable layout with the radiator as a main component. The coolant is circulated by an electric pump to ensure the powertrain electronics are operating safely and with the highest efficiency in all environmental conditions.

TESLA SHOW CAR #nrforangelighting

Buying a Tesla and wrap it in orange? NRF did it! The orange Tesla Model S is used to exchange and test NRF parts versus the original parts. Furthermore, the car is used as a show car at international exhibitions and events. It gives people the chance to have a closer look at the part of this vehicle.

DEDICATED EV TRAININGS

A/C SYSTEM IN ELECTRIC CARS

As with internal combustion engine (ICE) vehicles, EV’s also have HVAC (heating, ventilation & air-conditioning) for the passenger cabin. In ICE vehicles the engine provides the power for the HVAC via a compressor on the engine itself. In an electric vehicle the power is provided by an electric motor/ compressor. A poorly functioning HVAC will increase power consumption and reduce the vehicle range, so keeping these systems properly maintained is vital, NRF is in prime position to help its customers with this.

The Largest Aftermarket Range Of

ELECTRIC AND HYBRID COOLING PARTS

In line with the increasing proliferation of electric vehicles

NRF is constantly adding new parts to its range. Included in the range already are a Tesla Model 3 condenser (NRF no. 350517) and a Tesla Model Y cooling fan (NRF no. 470078). Check the NRF webshop to find out what other parts are available.

NRF has a team of technical specialists providing training on demand. Yearly these trainers provide more than 650 technical trainings across Europe. Next to the trainings on location, NRF also offer online training sessions. During the dedicated EV training courses, mechanics gain the necessary knowledge to work on these vehicles. Topics include safety regulations, battery (dis)connection procedures, HVAC maintenance and much more. Very interesting!

MEET BENJAMIN MEEK DIRECTOR E-MOBILITY AT NRF

NRF has recently announced the launch of a dedicated EV development team, headed by Benjamin (Ben) Meek. Ben jamin is in charge of guiding the R&D, product development and marketing teams to ensure NRF has the right focus regarding the development and quality level of the entire EV range.

NRF’s Tesla Model 3 aftermarket condenser (NRF no. 350517)

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