Why car makers are taking on the EV supply chain - Greater Cincinnati Automobile Dealers Association

Why car makers are taking on the EV supply chain

By Stephen Wilmot

Henry Ford invested in steel production and Brazilian rubber. Today’s car makers are getting into batteries and software.

Chrysler owner Stellantis and iPhone-assembler Foxconn, also known as Hon Hai Precision Industry, on May 19 announced a joint venture to develop in-vehicle software and services. This is the latest in a long series of moves by auto makers to improve their supply chains for fully electric, digital vehicles.

Car makers want more control over components central to the performance and experience of EVs. But they don’t have a lot of experience with those parts, and face many competing claims for investment. JVs with specialist suppliers offer a solution.

Batteries, the single most expensive EV component, have been the chief focus so far. General Motors  has a JV with South Korean battery giant LG Chem to make cells; Stellantis and Volkswagen have deals with European battery companiesToyota has one with Panasonic. Ford said last month that it too wanted to get into cell production, though it hasn’t yet detailed how.\

The Stellantis-Foxconn JV, called Mobile Drive, applies this approach to software. It is a logical step, but still an unusual one. Toyota and Volkswagen, the two largest car makers by sales, are building up their own software companies. Smaller players such as Volvo and Renault are leaning heavily on Google owner Alphabet, which has a version of its Android smartphone operating system for vehicles.

So-called vertical integration with the supply chain has a long history in the automotive industry. In the 1920s, Henry Ford built his own steel mill and even established an ill-fated rubber plantation in Brazil, encouraged by concerns in Washington about a British stranglehold on East Asian rubber as the car industry boomed. With EVs taking off, the U.S. government worries about Chinese control of the battery supply chain. Tesla has talked about mining and refining lithium, a key battery component.

There is thus a political side to battery investments in the U.S. and Europe, where the industry is a pillar of a new industrial strategy. Amid much anxiety about semiconductor shortages, though, they are also competitive moves by car makers to secure supplies of what might become another scarce component. Battery quality is a third consideration, both in terms of cost and performance. Car makers are still working out what will differentiate their brands in a world of EVs, but battery technology—the equivalent of their traditional engine know-how—is a plausible part of the mix.

Even more important in the competition for EV buyers might be the so-called user experience, defined increasingly by the touch screens that are now essential components of car design. This will be the focus of Mobile Drive. The JV’s main benefit for Stellantis may be access to Foxconn’s electronics and software expertise for brands such as Jeep and RAM.

Stellantis and Foxconn want to sell Mobile Drive to other car makers, just as GM and LG Chem have pitched their cells to third parties under the “Ultium” brand. Such ambitions are perhaps best interpreted as a recognition that investments in the supply chain can be justified more easily with a scale that few single car makers offer.

These are riskier bets than traditional car makers are used to. Software and batteries are both changing fast, and Silicon Valley is much more experienced than Detroit in building slick digital interfaces. Missteps are inevitable, but there is some comfort for investors in the fact that companies are sharing the risks.