The Strategist

Automotive suppliers will not benefit from electric cars

06/26/2017 - 12:47

According to Moody’s analysts, car component manufacturers will not receive much benefit from the spread of electric vehicles. The reasons for this are increased competition not only among the carmakers themselves, but also with semiconductor manufacturers. According to the agency's forecasts, various types of cars on alternative energy sources can account for up to 15-20% of the entire car market by 2025.

Michael Movchin
Michael Movchin
A new report of Moody’s rating agency says that the positive effect of the spread of electric vehicles for suppliers of auto parts will be relatively modest. This can be explained by the fact that, although the growing number of electric vehicles will increase the demand for components produced by these companies (for example, transmission systems), competition with semiconductor manufacturers, which in turn will also supply components, will reduce their share and affect profits.

Moody’s forecasts that by 2025 the share of cars on alternative energy sources, including electric vehicles, will reach 15-20% of all cars produced. Their distribution will be stimulated by factors such as tougher regulation of toxic emissions, declining popularity of diesel vehicles, consumer interest, as well as government subsidies and benefits.

So, in order to comply with European rules, automakers are forced to reduce vehicle emissions by an average of 4% per year, while this decline was twice as slow in the period from 2012 to 2016.

According to Moody’s estimates, GKN Holdings, Valeo, ZF Friedrichshafen and Continental will receive the biggest profit among the participants of the European automotive parts manufacturers market - from 15% (Continental) to 40% (GKN) of the total revenues of these companies account for the production of transmission systems.

The internal combustion engine is one of the components of a car, production of which is usually not transferred to outside companies. In the case of electric vehicles, the situation may change. While batteries for electric vehicles will not become quite cheap and common, the main share will be occupied by so-called soft hybrids, combining the internal combustion engine with the electric motor. In comparison with conventional cars, the production of hybrids will be € 1 thousand more expensive because of the need to equip them with additional components. Nevertheless, according to Moody’s forecasts, only traditional manufacturers of auto parts will lose additional incomes. In the case of electric cars, semiconductor manufacturers such as Infineon, STMicroelectronics and NXP Semiconductors will enter the game - they can supply electric motors, inverters, DC converters, etc.

"The distribution of cars on alternative energy sources with hybrid or all-electric transmission systems will help increase revenue of GKN Holdings, Valeo, ZF Friedrichshafen and Continental. However, semiconductor manufacturers also want to benefit from the supply of such components, so that the revenue growth of auto component suppliers will be lower than expected", said vice-president and senior analyst at Moody`s, one of the authors of the report, Scott Phillips.