Work the core: How auto suppliers can get fit for the EV transition

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Driven by an urgent decarbonization agenda, the automotive world is increasingly defined by electric powertrains and digitization. In response, suppliers must navigate a subtle transition. As electrification rolls out, many light-vehicle components (such as batteries and electric motors) will see strong growth. However, the majority of parts will remain the same as it did in vehicles powered by internal combustion engines (ICE). As suppliers seek to unlock new opportunities, they can create value by continuing to focus on the core.

Over the coming years, the light-vehicle component market will evolve on twin paths. As electrification becomes more widespread, amid increased automation and connectivity, some demand dynamics will shift. We expect electric vehicle (EV) and advanced electronics components, such as electric powertrains, advanced driver-assistance systems (ADAS), and infotainment electronics to account for 36 percent of the market by 2030, compared with 11 percent at present.1 However, core vehicle components, including the axle system, suspension, body in white, and front and rear structure, will remain a key part of the equation. We estimate these will represent 55 percent of total market revenues by 2030, compared to 69 percent at present, and will generate revenues of $886 billion, compared to $748 billion in 2022 (Exhibit 1).

Core vehicle components will represent 55 percent of the revenue pool in 2030, compared with 69 percent in 2022.

Demand for individual core components and the volume of design adjustments required will be contingent, among other things, on the pace of change in consumer demand for electrification. To gauge possible outcomes, we modeled four potential scenarios (see sidebar, “Potential developments in the component market”). In this article, we focus on an intermediate scenario, which is based on existing regulation and current trends in EV adoption. The scenario predicts stable growth in the core vehicle components business up to 2030, in line with the outlook for global light-vehicle production (Exhibit 2).

The core component market is expected to grow in line with vehicle production.

The dominance of core revenues

Despite a rising focus on electrification, core and ICE-based components still dominate revenues across the light-vehicle supply industry. Indeed, 89 percent of global tier-1 suppliers generate more than 90 percent of their revenues from these categories.

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Across the supplier cohort, we differentiate four key archetypes: process-focused, portfolio conglomerates, new technology players, and ICE specialists (Exhibit 3). The largest share is controlled by process-focused players, accounting for 57 percent of the total. These companies rely on core components for 89 percent of their revenues. Portfolio conglomerates, meanwhile, account for about 20 percent of the revenue pool, with around 30 percent of revenues associated with ICE-related business. Most portfolio companies are focused on building market position in EV and electrical and electronic (E/E) trend components.

Process specialists are the sector’s biggest revenue generators, followed by portfolio conglomerates.

New technology players naturally make most of their money from E/E trend plays and represent just 8 percent of the core component revenue pool. Finally, ICE powertrain specialists account for about 14 percent of revenues. Many companies in this group are positioning for the inevitable transition, amid strategies ranging from consolidation to last-player-standing, and portfolio shifts toward EV and E/E components.

Chassis and body structure in an age of electrification

The two critical subcategories in the core component market are chassis, accounting for 24 percent of revenues in 2022, and body structure, accounting for 21 percent in in the same year (Exhibit 4).

Key chassis and structure component revenues will grow in line with the wider market.

The chassis market encompasses axles, suspension, braking, steering, and wheels. Growth in demand is projected to be in line with that of vehicle production. That would be about 3.5 percent from 2022 to 2025, but just 1.6 percent from 2022 to 2030.2 Body structure parts include body in white, closures, fasteners, and front and rear structures. We expect growth in that segment of 3.3 percent from 2022 to 2025, and 1.5 percent from 2022 to 2030.

Two player archetypes dominate. Process-focused players account for 84 percent of the body structure market and 67 percent of the chassis market, while portfolio conglomerates account for 11 percent and 23 percent respectively. Still, as electrification plays out, there will be nuanced shifts in demand across both categories. This will be in relation to the parts themselves, as well as safety standards and production technologies.

Electrification and parts. With electrical motors often located in the rear rather than the front, as in internal combustion engines, rear axles’ design must evolve to carry the extra weight, while the front subframe could become simpler. There will be additional requirements for chassis and structural components to protect high-voltage batteries. In addition, the new configuration will create more space at the front, creating an opportunity to build more storage, as well as impacting design of thermal management systems and heating, ventilation, and air conditioning (HVAC). An overall heavier EV will require a redesign of structural parts and suspension. In the meantime, more affordable twistbeams are seeing a revival for less expensive battery electric vehicle (BEV) segments with front-wheel drive.

Safety. Given the structural changes required in EVs, suppliers should expect regulators to tighten safety requirements for structural parts. This will lead to rising demand for high-strength steel, for example, to protect users in case of rollover, and active countermeasures to avoid cabin intrusions from small overlap crashes with rigid barriers.

Production technologies. The industry is already in the process of replacing steel clamshell designs with aluminum-casted subframes—mostly relevant for higher-performance segments due to the cost. This will reduce design and manufacturing complexity and facilitate the integration of linkage to other components in the casting. There will be large structural part casting (mega and giga casts) of the rear and front ends.

From a regional perspective, the fastest chassis market growth from 2022 to 2025 is likely to be North America, which is predicted to expand at 4.6 percent (compared with Europe’s 3.9 percent and Asia–Pacific’s [APAC] 3.0 percent), due to the fast recovery of production after the decline during the COVID-19 pandemic. From 2022 to 2030, however, North America will likely grow at just 0.6 percent as volumes stabilize, compared with 2.76 percent in Europe (Exhibit 5).

The fastest growing region in the short term will be the United States, but in the longer term it will be Europe.

Next steps: How should core suppliers respond?

As the transition to EVs plays out, the task for supply-side decision makers will be to retain a firm grip on the most promising aspects of the business. In most cases, this could mean staying focused on core vehicle components while aligning with the latest trends and closely monitoring opportunities associated with the EV rollout.

Amid intense global competition, the key to long-term competitiveness will be to prioritize production efficiencies for core components, while building capabilities that will support the innovation agenda. Players with expertise in body glass may wish to focus on sunroofs or moonroofs (projected to grow at 11 percent CAGR, and potentially to reach $5.8 billion of annual revenue by 2030). Meanwhile, experience with conventional braking and steering could provide an opportunity to roll out steer-by-wire or brake-by-wire systems, amid rising demand for components that will enable autonomous driving.

Among leading chassis and structural component suppliers, only about 30 percent offer EV- or E/E-oriented components, and these generally account for 5 to 10 percent of their revenues. Most commonly, they are focused on powertrain components (battery housing, e-motors, and inverters) and sensors.

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However, as the green transition accelerates, companies can consider additional opportunities. We expect the battery-pack housing market (including battery thermal management) to grow by 23 percent CAGR and the market to be worth $30 billion by 2030. The housing is increasingly integrated in vehicle structure (for example, cell to pack) and requires knowledge of cooling plate design. Additionally, the redesign of structural and thermal management systems could lead to opportunities in components such as heat pumps (expected to grow at 30 percent CAGR, with a potential market size of $6.1 billion by 2030).

Suppliers should also reflect on their regional strategies. Right now, the revenues of the top ten chassis market suppliers emanate from APAC (approximately 4 percent), Europe (around 22 percent), and North America (about 20 percent), with similar proportions among body structure suppliers: APAC (around 46 percent), Europe (approximately 17 percent), and North America (about 19 percent). Both markets are highly fragmented. The top five players in structural components account for just 27 percent of the market, with the top 50 creating a long tail of 73 percent. In chassis, the top five account for 23 percent and the top 50 for 72 percent. With that in mind, it may make sense for suppliers to consider inorganic strategies such as M&A.

Finally, the biggest risk in a time of change is inertia. Indeed, as the core component market continues to grow, the decisions that leaders make now will be critical to business prospects in the longer term. As suppliers make strategic decisions, it will pay to adopt a change management mindset across the organization and act decisively in identifying new and continuing pockets of opportunity.

As the light-vehicle automotive industry goes electric, some changes will be inevitable in the core components market. By remaining aware of the shifts and maximizing the opportunities, players in the market can ensure they remain relevant in the changing world.

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