Assembly lines bring together parts sourced from numerous suppliers
Car firms eye in-house parts supply As industry moves to EVs, manufacturers want to control production of vital parts
‘C
ar maker’ is a common term, but the truth is that today’s car companies are more assemblers of bought-in parts than actual manufacturers. That was highlighted in a recent comment by Stellantis CEO Carlos Tavares, who said that the value of a car once it has emerged from the factory is “85% bolt-on parts”. These parts are sourced from thousands of lesserknown suppliers, but as we shift from internal combustion engine cars to electric cars using ever-more sophisticated software, car makers are trying to recapture some of the value lost to suppliers. The process of making parts in-house is called vertical integration, and car makers are going further down that route in specific areas – most notably batteries but also computer chips and software. This is happening for a number of reasons: to keep some of the profit lost to suppliers, to ensure a good flow of limited supply and even to work out exactly what the CO2 costs of the components are. Some manufacturers have always leaned towards
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vertical integration, notably Volkswagen. But the trend in recent years has been to farm out more work to suppliers. This keeps capital investments to produce the parts off the car maker’s books and, if the parts supplier is large enough, can actually work out cheaper. The rapid pace of technology change is forcing a rethink, however. Car makers will focus on parts very specific to EVs – power electronics, batteries and the raw materials for those batteries – and not just take over the jobs of the tier-one suppliers (those that sell parts directly to the car maker, rather than to other parts suppliers). “The traditional tier-one and tier-two go-to-market model has evolved,” said Enrico Salvatori, president of Qualcomm Europe. The new vertical integration approach is different from the old model, whereby car makers would forge cylinder blocks themselves. They don’t have or
battery tie-up with want the capability Panasonic. Tesla to make chips or has also moved refine battery to secure raw materials, but materials via they do want deals with to secure the Proportion of electric BHP for nickel supply long motors that will be made and Glencore before they in-house in the future, for cobalt. need it, and that up from 33% now Jeremy means investing (Source: IHS Markit) Wrathall, boss of in or partnering British mining startspecialists. up Cornish Lithium, said: Volkswagen has partnered “We’ve had various approaches Chinese company Gotion for by auto makers. No one has a new battery cell plant in made us an offer to buy us, but Salzgitter, Germany, to start the mood music is hotting up.” in 2025. Both Volkswagen and One other big advantage Volvo have invested in Swedish of going direct to the source of battery company Northvolt to raw materials is that you know create partnerships that will exactly its provenance and secure them cell production. probably also its CO2 footprint. Stellantis and Mercedes-Benz each have a stake in French battery company ACC, while Renault has put its own money into battery maker Verkor. As ever in the modern car industry, they are generally following the lead of Tesla, which showed the way with its
70%
“It’s important that you know your CO2 intensity of your input materials,” said Jon Regnart, automotive trend strategist at the UK government’s Advanced Propulsion Centre. He cites Volkswagen’s investigation of lithium mining in Chile as an example. Cars will continue to be largely made from bought-in parts, but makers’ targeted dives into the supply chain should yield better visibility of parts bottlenecks and better understanding of what goes into the final product. Neither of those things is a given right now, due to the often opaque sources of parts within parts. NICK GIBBS
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It’s important you know your CO2 intensity of your input materials” a
Volvo will make EVs with batteries from a firm it part-owns
