Assess the risk.
Suppliers should develop a realistic point of view on EV adoption in key markets that takes into account the technological and regulatory landscapes and consumer preferences. Then they must take a critical look at product portfolios and determine which components could see slowing demand as EV sales increase.
Determine their digital fitness and take a frank measurement of their capacity to innovate.
To compete in the automotive market of the future, suppliers will need more than manufacturing expertise. A high degree of technological acumen will also be required. It will be important for suppliers to honestly assess their ability to compete to provide software and advanced electronics with technology firms outside the traditional automotive supply chain. This competition will take place on their turf.
Take a hard look at their capital structure.
As competition from non-traditional suppliers ramps up and demand for ICE-related components cools, suppliers need to ask themselves if they have the financial flexibility to remain strategically nimble. Substantial debt burdens may make it more difficult to take risks that will pay off in the long run. While interest rates and risk premiums remain relatively low, it may be a good time to deleverage your capital structure.
Decide on your best path forward.
EVs won’t enter the mainstream until the mid-2020s, according to PwC’s forecasts. That provides suppliers with a 7-10 year window to prepare. Possible strategic moves include adding software or advanced electronics capabilities, either organically or through acquisitions, joint ventures or partnerships; planning to exit lines of business that may see slower growth as EV adoption rises; or preparing for a sale of the entire company while revenue and profit remain strong.