An industrial revolution is happening in automotive supply chain. It’s having its Kodak moment. But can the industry get ahead of the curve to avoid a similar fate?

Traditional OEMs are feeling the pressure from electric vehicle (EV) startups. Dealing with disruptive, innovative new entrants is nothing new for most industries, but it feels fresh for automotive.

In round two of this special Auto Supply Chain Prophets interview, we’re rejoined by veteran auto writer and editor Gary Vasilash to talk about the automotive supply chain future that’s already arrived.

Themes discussed in this episode: 

• How traditional OEMs can adapt supply chain strategies in preparation for the EV revolution.
• Why creating a stable supply chain for EV isn’t the same as for the internal combustion engine.
• Why managing supplier performance is new ground for automotive, and how to learn from other industries — or even pivot into them.
• How distinctive premium products might kill the mass market.
• Why separating product and process is all in the execution.

Featured on this Episode  

Name: Gary Vasilash

Title: Transportation Editor, Gardner Business Media

About: Gary Vasilash has been working for Gardner Business media for 30 years, where he writes about design, engineering, manufacturing and management within the automotive industry. He also co-hosts Autoline After Hours, a weekly podcast for car lovers and auto industry enthusiasts.

Connect: LinkedIn 

Episode Highlights

Timestamped inflection points from the show



[1:25] Here today, gone tomorrow: Is EV technology a revolution for the automotive industry? Gary seems to think so, and explains how.

[3:11] Ch-ch-changes: EV is shifting strategy for automotive supply chain in some obvious (and some surprising) ways. It all depends on what you’re making and how you’re making it.

[6:01] Keeping it stable: OEMs creating a capable, stable supply chain when it comes to EV isn’t going to be the same as the internal combustion engine — especially in light of all the new startup entrants.

[9:35] Have faith: With all this change, managing supplier performance isn’t new for most industries but it is a new challenge for automotive.

[11:47] (Trying to) stay alive: Are new EV startups niche players in the making? Will traditional OEMs buy them up or merge with them? It’s like automotive in the Great Depression. Maybe the future isn’t in economies of scale but in charging for a distinctive, premium product that isn’t a mass product.

[13:58] The rules they are a-changin’: Right in front of our eyes, traditional automotive giants have pivoted into software to drive revenue.

[15:09] Premium models: Batteries — and the plants that build them — are what costs the most in EVs, which drives a high-end market. Gary explains it has little to do with tax breaks or the Inflation Reduction Act.

[18:30] The one thing: Automotive supply chain leaders need “to separate the product from the process.” It’s all in the execution, whether the vehicle’s electric, hydrogen fuel cell or internal combustion engine based. With the right resources from a process standpoint, they’ll get costs right and profit.

Top quotes

[1:25] Cathy: “EV [is] the automotive industry’s Kodak moment: [It’s] here today, gone tomorrow — in terms of a technology.” 

[2:59] Gary: “The auto industry is doing better than other industries did, in terms of saying, Hey, we're going to make our future. We're not going to be reacting to the future.” 

[4:15] Gary: “If this is revolution — as we submit — there are substantial changes such that what you used to be doing may not be relevant, and this is devastating for a lot of people. What did those people who were making horses and buggies do? … What happened to sailing ships when Robert Fulton said, Hmm, steamships might be a better way of going? Did the sailmakers continue in their robust way? Did the people who were making the masts continue in their robust way? No, I don't think so. And this is what the auto industry is facing right now. ”

[10:52] Gary: “This is nothing new for different industries — this is something new for the automotive industry. Many of the new entrants don't have legacy in terms of practices, therefore [it’s not as] much of an issue for them as for traditional manufacturers. But traditional manufacturers all have a solid manufacturing footprint, so they're going to continue to work the way they work.”

[18:32] Gary: “What [automotive supply chain leaders] need to do is to separate the product from the process … It all comes down to the execution: If their needs, requirements and capabilities are different in terms of process for the electric vehicle, they need to identify and acquire that … By having the resources on the process side that will put them in a position to cost effectively and — profitably — do what needs to be done.”

We really can't predict the future because nobody can. What we can do, though, is help auto manufacturers recognize, prepare for in profit from whatever comes next. Auto Supply Chain Prophets gives you timely and relevant insights and best practices from industry leaders. It's all about what's happening now in the automotive supply chain and how to prepare your organization for the future. Because the auto supply chain is where the money is.

Gary, welcome back!

Thank you!

Gary, in the last episode, we talked about the here and now in the automotive supply chain. Let's change gears, switch gears just a little bit here. And let's talk about the future. Let's look onward and upward, shall we?

I think the future is now!

In thee, we totally agree with you from that standpoint, Gary. So the last time that our automotive industry was disrupted, to the extent that we're seeing right now was when autos replaced the horse and buggy. And the changes that we've seen since that time in terms of the automobile have really been incremental in nature. I mean, we've made a lot of progress, no doubt, but they've really been incremental when you kind of look at the big picture is electric vehicles is EV. The automotive industry is Kodak moment. And what I mean by that here today gone tomorrow, in terms of a technology. We talked about this previously, is this a revolution for the industry?

Well, I think it absolutely is revolution for the industry. If by revolution, we mean that there's such a dynamic going on. And there's centrifugal forces that are really roiling, to the point of the Kodak moment. And I think what you mean is, is that okay, Kodak, was once leading in the industry, and suddenly Kodak basically ceased to exist as a not only the leader, but a player. And I think the difference is, is that Kodak had digital camera technology, they had developed that they had that it was sitting on a shelf, but the people who were in charge of Kodak simply decided that we don't need that we're making too much money on film, we'll just continue to do what we do. And that will be fine. I think the difference is that every major OEM in the world has basically said, the future seems to be electric vehicles, we must participate in this future. And every single one of these companies is doing something to do that. This could take the form of Ford separating to Ford blue, and model E, where Ford blue is their internal combustion engine part. E is, of course, their electric vehicle initiatives, software initiatives, the auto industry is doing better than other industries did, in terms of saying, Hey, we're going to make our future we're not going to be reacting to the future.

How is the shift to the EV strategy going to change the automotive supply chain from your perspective?

Okay, so for example, McKinsey thinks that in 2030, could not that very long in automotive years, more than 55% of global production will be of electric vehicles, what do you do if your job is making pistons? What do you do if your job is making crank shafts? What do you do if your job is making valves? You've really got to start thinking about these things. And therein lies you know, the whole potential of disappearance, right? You disappear. So what you have to do is not simply look at your operations and say, Oh, we've got a whole bunch of milling machines, we've got a whole bunch of machining centers, and we've got a whole bunch of stamping machines, and therefore how can we use these going forward? I think what you have to do is say, Okay, where are other opportunities? Because if this is revolution, as we submit, there are substantial changes such that what you used to be doing may not be relevant. I mean, and this is devastating for a lot of people. I mean, what what did those people who were making those horses and buggies do? You look at lots of industries. So what happened to sailing ships? When Robert Fulton said, Hmm, steamships might be a better way of going. So did the sailmakers continue in their robust way? Did the people who were making the masks continue in their robust way? No, I don't think so. And this is what the auto industry is facing right now. Certainly, there's going to be lots of stuff that will continue to be viable cars are still going to look like cars, SUVs are gonna look like SUVs, you know, the powertrain changes significantly. And as a result of that, the companies that are involved in making these components, pistons, heads, blocks, and so on, they need to have a new strategy going forward. But if you're making wheels, you're still gonna be in business, you're making steering wheels, no problem. If you're making glass, still need glass, you're making body panels still need body panels. So there will be changes, but not everybody will be affected the same.

It's not just what they're making. It's also how they're making it because I was reading recently how 3d printing is emerging as how they're producing parts for series production, which traditionally, we wouldn't even think about doing that in the industry. But with the advances that have happened in additive manufacturing space, now that's even an option. So even those process technologies that existed in the past, or may not be viable as well. So what do you think it'll take for the industry to really have a stable and capable EV supply chain like we've been able to more or less developed over the past decades for internal combustion engines?

And I want to add one more thing to that in light of all these new startups, too. So we have a lot of new entrants coming in. So, add that to Cathy's question as well.

So, we have two things here. One, the question of a stable EV supply chain, one of the EV startups now I think that the EV startups are going at this. Some of them are in a slightly different manner. So if you look at a company like Fisker, let's say, so Fisker said from the get go, Okay, we want to have what they describe as an asset light strategy. Asset light strategy means we're not going to build a factory, we're not going to be sourcing all of the materials that we need to build cars. What we're going to do is we're going to turn that over to another company, so they've turned over, the manufacturer of the Fisker ocean to Magna. Magna will make the vehicle for them. And I mean, in magna's tier one supplier has history made hundreds of 1000s of vehicles for name brand manufacturers for years. The Fisker pair, which is another vehicle, Foxconn will be doing that for them out of Ohio. So, you know, we put that to the side, because if you're a traditional OEM, you really don't have that same sort of opportunity to make that move to the point of the stable EV supply chain. By and large, much of that supply chain is already in place. Because again, if you look at what constitutes an electric vehicle, made by anybody, whether it's made by General Motors, or Ford, or Tesla, or lucid, you've got many the same components. The question of stability is, is more a question of one that relates to the battery rather than to the electric motor? Okay, electric motor is different than an internal combustion engine. But basically, you're still casting, machining, assembling that stuff is all the same car companies know how to do that they've been doing that for their entire history, the stability that as I say, it comes down to material choices. Where do you get the lithium from? Where do you get the nickel from? I mean, where do you get the cobalt from? Those are all the iffy parts. Those are all things that I believe the OEMs have a good handle on. But if we get back to the very first thing we talked about, there are going to be unexpected things. For example, it was reported today that Apple is thinking about moving some of its production to Vietnam from China, because they were concerned about political issues and the lockdowns that occurred in China, which completely disrupted everything. If you think about that OEMs are going to have to come to grips with issues of what are the political ramifications of sourcing things from different countries. And I think that the impact is going to be far greater because this is something that there is no real long history with. They know where they're getting their aluminum from, they know where they're getting their fabric from. That's something they've done for a long time. These other things that are new that are just completely characteristic to EVs. Therein lies the question of the stability of the supply chain.

I've got a question along those lines, you bring up a very good point about many of these new EV entrants that are asset light as you refer to it. And I wonder how they'll manage supplier performance because when you're in a traditional OEM, even though the actual sourcing activity may take place, let's say at corporate and you've got your manufacturing plants who are actually consuming those supplies parts, they're in the same organization, there's there's a relationship there. But now when you start talking about an entity that sourcing, I'm assuming perhaps the OEMs would be doing that. And then they're having somebody else actually do the manufacture? How do we get a handle on supplier performance? How do we manage that?

Well, I think the question is, is one of standard practices within the auto industry versus standard practices in other industries for the aforementioned Apple, okay, Apple makes nothing, right? They, they have no manufacturing, yet, all of us who have Apple products, have confidence that they are going to be able to execute, in a way that we as consumers are happy with the products. So this is nothing new for different industries. This is something new for the automotive industry. If you think about many of the new entrants, I mean, the new entrants don't have the legacy in terms of practices. And therefore, I don't think this is as much of an issue for them as it would be for traditional manufacturers. But again, the traditional manufacturers all pretty much have a solid manufacturing footprint, so they're going to continue to work the way they work. But that said, we're seeing a number of companies saying we want to do things differently. And therefore they are either organizationally changing their practices or are acquiring other companies and the other companies bring that new culture to them.

I want to get your thoughts around the new EV startups, do you think they'll survive, because there's many coming on board? Will they become niche players? Will OEMs buy them up or merge?

The first reaction is all of the above. One of the interesting things that we've seen happen is that there are these companies that flew up like shooting stars, and like shooting stars, they began to decline. So you saw the stock valuations of many of these companies just explode. And I'm sure that people are sitting in Dearborn and Detroit muttering to themselves, how come we don't have that same sort of valuation? Now we're seeing some of those companies declare bankruptcy. But that said, if we look at what the barriers to entry were to the auto industry for the years following the Great Depression, I mean, it took a lot of money because you needed to have a lot of resources. And that kept many companies out. And there were lots of startups and they all went away. I think that what we saw with Tesla, proving that this is a different game, this is a different world, what we're doing is different, and they've been successful beyond anybody's expectations. So if we think about some of these startups, I think many of them have a better chance than they would have if this were still an internal combustion world. And, of course, one would also say, if this were an internal combustion world, they wouldn't bother getting into this, right. But given the number of them, sure, there's going to be some they're going to fall out. But the question that you have to have is, okay, what is their business case? What is it that they are trying to achieve? We have always thought that economies of scale are the thing that make the biggest difference. So everybody wanted to get bigger, so they would be able to be more cost effective. Maybe the world now is people are saying no, no, we will charge a premium for our product, because our product will be sufficiently distinctive, whereby we will have a sufficient number of people in the market for our product, but it may not be a mass product. And so the rules may be changing. Right in front of us right now. Yes, we will see companies go away, maybe we'll see some new companies come in, I think we'll see the OEMs continue on their paths. But maybe the path will be somewhat different. If you look at what the announcements from General Motors in particular, and Ford to almost the same extent, looking at software becoming a more stable way of them achieving revenue going forward. I mean, when did we ever think about that before? Not at all right? And so they're saying, Okay, we're gonna sell a whole bunch of services, we'll make the money from that. Maybe we won't be making so many cars, maybe post pandemic, we're going to see a situation where jams crews will suddenly start taking on lots of people. People will be feeling more comfortable about getting into shared vehicles if that happens, and if crews is able to make the sort of money they did before. Well, this means that you're going to be taking a certain number of privately owned vehicles out of the carpark, even OEMs may not be making as many cars as they did in the future.

I wonder along those lines, this recent Inflation Reduction Act that was just enacted a couple of days ago, it's really kind of taking a hit at those premium level EVs and not making those eligible for the rebates. So to speak for EVs, do you think that's going to shift the OEMs strategy in terms of what they're bringing to market? Because what we've been seeing is that most manufacturers, even the incumbent OEMs, are coming into the market with their Eevee offerings at the high end the premium offerings and know that they're probably looking to, is there a mass market need in the future? And do we want to fill that with vehicles that are more affordable, what are your thoughts from that perspective?

At this point in time, batteries cost a whole lot of money. And therefore, what type of vehicle is going to sustain that additional amount of money, and that's a luxury car, if you have a conceivable $20,000 car, and most of the money is in the battery, and you're sitting on corrugated cardboard seats, you're probably not going to be all that happy with the thing, right, they're going to put it into luxury vehicles, because A, that's where it makes more sense, B, they get a better return on a luxury vehicle than they do on a mid sized SUV or compact car, transitioning their companies is really, really, really expensive. building all of these battery plants is really, really, really expensive. Therefore, you need to make as much money as you possibly can. And that's where you're gonna make the money, you're gonna make the money at the high end. So let's assume that going forward, we're going to continue to have the cars at the high end, you know, in terms of the effect of the act, how many people bought a Tesla because they said, You know what, I'm gonna get a tax break. Probably not that many. They wanted that because they wanted that. $7,500 is a lot of money. And don't don't get me wrong, I understand that. But if you were going to be given $7,500 to buy something that you're going to be spending $40,000 on that you really didn't care for, does that make a difference? So I think we concentrate too much on what the effect of that act will have on the market. The whole objective is to get manufacturing back in the United States. I mean, this is what the tax dollars are going forward, is to put the money back here. But again, if the products not there, if the products not desirable if the product is something that is a penalty who wants it, right? So I think there ought to be less concentration on the inflation Reduction Act.

Gary, given your vast amount of knowledge, experience and insights. And as somebody who clearly has their finger on the pulse of this industry, let's boil all of that down into one thing. What is the one piece of advice that you would give automotive supply chain leaders out there right now, so that they can prepare their supply chain for the EV future?

I think what they need to do is to separate the product from the process. I think what they need to do is to make a determination of what it is they have to have in order to effectively execute. It all comes down to the execution. And if their needs if their requirements, if their capabilities are different in terms of process for the electric vehicle, they need to identify that and they need to acquire that. So at the end of the day, they are able to get the job done, they're able to do the work and whether this is an electric vehicle, or a hydrogen fuel cell vehicle, or an internal combustion engine vehicle, or something we haven't even dreamed of yet. By having the resource on the process side that will put them in a position to cost effectively and profitably do what needs to be done.

Great advice. Gary Vasilash, thank you so much for joining us for this special two part podcast series.

Thank you!

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