Why automakers are entering the electric vehicle supply chain
Henry Ford invested in the production of Brazilian steel and rubber. Today’s automakers are getting into batteries and software.
On Tuesday, Chrysler Stellantis owner and iPhone assembler Foxconn, also known as Hon Hai Precision Industry,
announced a joint venture to develop embedded software and services. It is the latest in a long line of steps taken by automakers to improve their supply chains for fully electric and digital vehicles.
Automakers want more control over components critical to the performance and experience of electric vehicles. But they don’t have a lot of experience with these coins and face a lot of competing demands for investment. JVs with specialized suppliers offer a solution.
So far, batteries, the most expensive EV component, have been the focus. General Motors GM -0.27%
has a JV with South Korean battery giant LG Chem to manufacture cells; Stellantis and Volkswagen VOW -0.60%
have agreements with European battery companies; Toyota TM 1.25%
has one with Panasonic.
Ford said last month that he also wanted to get into cell production, although he has not yet detailed how.
The Stellantis-Foxconn JV, called Mobile Drive, applies this approach to software. It’s a logical step, but still unusual. Toyota and Volkswagen, the two largest automakers in terms of sales, are setting up their own software companies. Small players like Volvo and Renault rely heavily on the owner of Google Alphabet, which has a version of its Android operating system for vehicles.
The 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 plant and even established an ill-fated rubber plantation in Brazil, spurred by concerns in Washington over a British stranglehold on East Asian rubber as the auto industry was booming. With the take off of electric vehicles, the US government is concerned about China’s control of the battery supply chain. Tesla spoke about mining and refining lithium, a key component of the battery.
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There is therefore a political side to investment in batteries in the United States and Europe, where industry is a pillar of a new industrial strategy. Amid much concern over semiconductor shortages, however, it is also about competitive moves by automakers to secure the supply of what could become another scarce component. The quality of the battery is a third consideration, both in terms of cost and performance. Automakers are still working on what will differentiate their brands in a world of electric vehicles, but battery technology – the equivalent of their traditional engine know-how – is a plausible part of the mix.
The so-called user experience, increasingly defined by touch screens which are now essential components of automotive design, is even more important in the competition for electric vehicle buyers. This will be the goal of Mobile Drive. The main benefit of the JV for Stellantis could be access to Foxconn’s electronic and software expertise for brands such as Jeep and RAM.
Stellantis and Foxconn want to sell Mobile Drive to other automakers, just as GM and LG Chem have presented their cells to third parties under the “Ultium” brand. These ambitions are perhaps best interpreted as a recognition that investments in the supply chain can be more easily justified with a scale that few unique automakers offer.
These are riskier bets than those traditional car manufacturers are used to. Software and batteries are changing rapidly, and Silicon Valley is much more experienced than Detroit in building sophisticated digital interfaces. Missteps are inevitable, but investors take comfort in the fact that companies share the risks.
Write to Stephen Wilmot at [email protected]
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