Car makers, suppliers in electric car power struggle

PARIS — Electric cars offer a chance to develop lucrative new technologies, and suppliers would benefit from grabbing more of this work — but they will have to fight car makers keen to hold on to control of future profits.

Over the years, suppliers have gradually taken on more of car development, now covering around 75% of the cost, but car makers chasing elusive profits may want to reverse this trend to keep control of new electric vehicle (EV) technologies.

“In an electric vehicle, the engine, in which a car maker has a greater share, is taken away, the gear box is taken away, and an electric motor and, most importantly, a battery are added,” said Henri Trintignac, head of EVs at French car parts maker Valeo .

“If we imagine suppliers making 100% of the electric motor, electronics and battery, the car maker’s share [of the cost of a car] would fall from 25% to around 10%,” said Mr. Trintignac, adding: “I don’t see them accepting that situation.”

Carlos Ghosn, chief executive of Renault and its Japanese partner Nissan which are jointly investing in electric vehicles (EVs) to the tune of around €4 billion, has said he sees an EV’s battery as “the heart of the business.”

Estimates vary, but the battery accounts for between a third and half of the final price of an EV.

Nissan’s Leaf is due to go on sale in Europe early next year, while Renault’s electric Kangoo and Fluence will arrive a few months later.

Mr. Ghosn thinks electric cars could account for 10% of new vehicle sales by 2020, but many others are more cautious. HSBC analysts have estimated that EVs will win 4.5% of the total light vehicle market by then.

Speaking at last year’s Frankfurt Auto Show, Mr. Ghosn said: “We won’t rely on someone else; we’re going to produce [batteries] internally.” Supplying batteries to another car maker was not out of the question either, he said.

But while this EV evangelist may want eventually to be a battery maker too, most car makers’ access to this potential gold mine with its complex and specific technology will have to come through joint ventures with specialist suppliers.

Nissan itself already has a JV in place with Japan’s NEC Corp. to jointly develop the lithium-ion batteries for its Leaf EV hatchback, while Germany’s Daimler has a joint venture with Chinese battery maker BYD.

Some car manufacturers are starting to think about what else they can claw back from suppliers, said John Searle, chief executive of battery maker Saft.

“They are starting to think about what they have to do to replace their engine know-how,” said Mr. Searle.

“We have noticed that some clients — not all — are starting to say to themselves electrochemistry is too complicated, too different, but perhaps systems integration.”

Barclays Capital analyst Kristina Church, who cited France’s Valeo and Germany’s Continental as leaders in electrical know-how, agreed car makers would not accept being “held to ransom” on certain technologies by suppliers.

“I think they (car makers) are certainly looking to make sure that they have some control over the development,” Ms. Church said.

“They don’t want to just purely outsource it because they are aware that at some stage there will be a technology that becomes the technology of the future,” she added.

With car makers keen to stamp their ownership on these technologies through joint ventures and partnerships, and early investment costs high, the arrival of electric vehicles will be more of a risk than a reward for these suppliers, Ms. Church said.

Saft’s Mr. Searle warned, however, that car makers looking to explore new areas would find it difficult to overturn the existing modus operandi, especially given the complexity of battery technology.

“In the Western model, the car maker buys all the key components, except the engine and the gear box. The customer buys a fairly complete system to integrate into the car,” he said.

“We think this is the model that some Western car makers will continue to use because it is easier, they don’t need to make large investments.”

IHS Global Insight analyst Tim Urquhart agreed, saying there would not be a “sea-change” in the relationship between car makers and suppliers, with their existing knowledge of the myriad components an EV will need.

“The electric vehicle market is not just the batteries and the motors,” he said.

“It’s the lights, the heating, the air-conditioning systems. All this has to be absolutely optimized because if you have components draining the battery you’re not maximizing the range and the capability of the vehicle.”

And while keeping control of technology is lucrative, it’s important to recognize the risks, as competing technologies battle for dominance in the early stages.

“Not everyone is going to be spending the money in the right way,” warned Barclays Capital’s Ms. Church. — Reuters