In Jan 2020 some 35 different electric vehicles were available in China. By January 2021 there were 134 models; that rose to 172 in January 2022. How were firms able to bring so many vehicles to market so quickly? The answer: suppliers had already done most of the work. Cars are an assembled product, and the main task of a car company is fixing the design, providing a chassis, coordinating production, and organizing marketing and distribution. Of course existing car companies already have the latter two tasks in hand, with assembly plants and dealership networks. Automotive design and engineering consultancies can help with the former. Meanwhile, suppliers provide batteries – only BYD, which started as a battery manufacturer, makes its own in any volumne – battery management systems, control modules to handle charging and power to the drive motor, and the shafts, rotors, bearings, wire winding machines and castings for the motor.
This represents a qualitative change in the automotive industry. When the MIT International Motor Vehicle Program published its landmark The Machine That Changed the World in 1990, the PhD dissertations on which it drew found that GM and Ford made many of their own components. That was matched by their internal engineering structures, with engineers who would design door handles, and then provide drawings to a multitude of small suppliers that then provided the brackets and bolts and chrome plating.
Japan was different. In the late 1940s and early 1950s, 30-odd firms assembled 3- and 4-wheel trucks. They didn’t have the resources to make their own parts, and neither banks nor the stock market would provide the financing to do so. Toyota was in the worst shape, going through a de facto bankruptcy restructuring in 1950. Instead, they turned to a host of small manufacturers from the textile and wartime munitions industries to make parts. Toyota even contracted with a couple of the least successful of the 30 new entrants to stamp body panels and undertake final assembly. As the car market started growing in the late 1960s, this structure remained in place (Smitka, 1991). Europe was in an intermediary position, with an older industry and suppliers such as Bosch that dated to the late 1800s. They of course were also capital constrained, but relative to the Detroit Three they could turn to external suppliers for electrical components, transmissions and other components.
During the past 30 years the global industry converged to a common structure. At the OEM (car company) level, developing a new product came to focus on integrating the components provided by outside “Tier I” suppliers that had global manufacturing and engineering capabilities. This was driven by, and in turn enabled, the growth of global vehicle platforms, with the Toyota Corolla or Ford Kuga produced in Europe, Asia, Africa and North America. The OEMs maintained enough internal engineering capabilities to understand how to integrate components, but they leaned for example on Valeo for alternator/motors that enabled cars to automatically stop/start at traffic lights, and on Nexteer for e-steer that eliminated belts and hydraulics, and proved crucial for electric vehicles.
One among many management adaptations is the rise of roadmapping (Warrian and Smitka 2015). Suppliers and car companies both look at where the industry is going, driven in part by new technologies, but above all by increasingly stringent safety and fuel efficiency / emissions regulations, which are similar in the four biggest markets, the EU, North America, Japan and China. Suppliers such as Denso and BorgWarner map out where they are going with electric vehicle power control modules, in terms of switching speeds, voltages and other metrics. Internally this lets them spot bottlenecks where they need to find new technologies or ways to reduce costs, and to help plan overall product development and manufacturing capacity. In turn, they selectively share these roadmaps with key customers, the Nissans and BMWs of the world. The car companies can then combine such information from multiple suppliers to plan on when the various pieces will be available to allow them to switch to 800 volt power systems.
Since 1994 I’ve been privileged to watch these developments as a judge for the Automotive News PACE Awards, which recognize innovations by suppliers. I’ve watched as car companies spun off internal operations, as mergers and acquisitions and direct foreign investment led to the rise of 50-odd global Tier I’s, and as firms grew their engineering capabilities to bring new technologies to market (Smitka and Warrian 2017). In the process I’ve been able to visit 100+ factories in Asia, the Americas and Europe, sitting through day-long off-the-record presentations on technologies, market developments and business strategies. The pace of new technologies is not slowing: new battery chemistries, bearings and reduction gears suitable for electric drive motors, new infotainment capabilities, lidars and seats with active cooling. To be successful car companies must stand out from the crowd. It’s suppliers that enable them to do so, but suppliers also level the playing field allowing new technologies to become widely available.
Smitka, Michael J. 1991. Competitive ties: subcontracting in the Japanese automotive industry. New York: Columbia University Press.
Smitka, Michael, and Peter Warrian. 2017. A profile of the global auto industry: innovation and dynamics. New York: Business Expert Press.
Warrian, Peter J., and Mike Smitka. 2015. The Changing Dynamics of Innovation in the Auto Supply Chain. Journal of Business and Economics 6: 799–821. https://doi.org/10.15341/jbe(2155-7950)/04.06.2015/015.
Womack, James P., Daniel T. Jones, and Daniel Roos. 1990. The Machine That Changed the World. New York: Rawson Associates.