Automakers have big plans for electric vehicles, but the supply chain upon which their ambitions rest is another story.
Ford plans to invest $11 billion in a fleet of 16 battery-electric cars and 24 hybrids or plug-in hybrids around the world by 2022. General Motors, which offers two plug-in vehicles in the U.S., plans to launch at least 20 full-electric and fuel cell vehicles globally by 2023. Volkswagen said it will produce more than 30 EV models by 2025, with electric vehicles accounting for up to 25 percent of total sales.
But North American suppliers remain cautious about their customers' rollout timelines. Despite the automakers' announcements, consumers haven't shown a willingness to buy EVs in large volumes. Plug-ins represented just 1.2 percent of U.S. sales in 2017, according to IHS Markit, and industry forecasts don't envision the share surpassing 5 percent of the domestic market until 2022.
For the supply chain that will be critical to producing the expected wave of EVs, the future is a question mark.
"There's quite a lot of talk about an S-type curve in EV adoption, similar to smartphones," said Brian Daugherty, chief technology officer at the Motor & Equipment Manufacturers Association, the trade group that represents more than 1,000 parts makers. "But I think it's going to be more of a slow, steady increase driven primarily by government regulation."
Suppliers must decide if and when to invest in EV product capacity.
"Right now, you have an industry that's sort of stuck between the market and what they see from their clients," Matt Stover, an analyst with Susquehanna International Group in Boston, told Bloomberg. "They see Tesla with an enterprise value of $70 billion, and they see what their clients are awarding to them, and they say, 'Wow, something doesn't make sense here.' "
If the automakers' EV forecasts don't materialize, suppliers, which must spend billions of dollars on EV production capacity, will have profitability problems. That's leading to debate in the supply chain on how much capacity to invest in at this early stage.
"Does a supplier build capacity for 100,000 wire harnesses, or 50,000, or 500,000?" Daugherty asked. In many cases, he said, suppliers have created too much capacity for the number of full-electric vehicles sold.
The challenge is whether suppliers can make the necessary investments affordably and whether the demand will be there, says Reid Wilk, an auto analyst with PwC.
"Generally, when the OEs make a call, the suppliers invest the capital to be in position to support," Wilk said.
"The question now is do the suppliers believe the OE forecast, or are they going to shortchange the forecast.'
Daimler warned in its annual report about the impact of the shift to electrified vehicles on supplier profitability. Mercedes-Benz expects to electrify its entire lineup by 2022.