Dusseldorf, Stuttgart The announcement by the VW Group that it will build large parts of the electric drive train itself from 2025 is causing tension in the industry. Affected are the major German automotive suppliers, who now fear for orders. The works councils of Bosch, ZF, Mahle and Vitesco are already sounding the alarm. According to information from the Handelsblatt, the employee representatives of the major suppliers want to meet in Hanover at the end of March to discuss a joint approach. “The suppliers must raise their voices,” says the head of the works council of a large German automotive supplier.
Volkswagen is not the only manufacturer who wants to extract added value from the suppliers. Mercedes is considering manufacturing its own power electronics, BMW is already using its own inverters in its electric SUV iX. When it comes to insourcing, they are following the example of Tesla and the Chinese car manufacturers BYD and Nio.
It’s a gigantic market. Roland Berger estimates that the market for electric powertrain components will grow to 80.7 billion euros worldwide by 2030.
The problem: If a manufacturer like VW builds important components itself, suppliers lose up to ten percent of the overall market in one fell swoop. Meanwhile, VW justifies the increased commitment with economic considerations. “Up to 20 percent more efficiency is possible just by optimally coordinating the individual components,” says the company’s statement. On the other hand, higher economies of scale would also play a role. “The Volkswagen Group is one of the very few car manufacturers in the world that will be able to offer a holistically optimized overall system in the future,” says CTO Thomas Schmall.
Those affected by the VW advance in the drive area include Bosch, Valeo and Vitesco. Both Bosch and Valeo supply inverters for Volkswagen’s MEB series. When asked, neither Bosch nor Valeo want to comment officially on what specific consequences it will have for their own business if VW builds the inverters itself from 2025.
Large price differences between manufacturers and suppliers
Behind the scenes of the world’s largest engine suppliers, however, there is astonishment. According to suppliers, it is questionable whether the Wolfsburg-based company will be able to mass-produce inverters at competitive costs in two years’ time.
Studies by the market research company Yole show how big the price difference between components from suppliers and car manufacturers can be. According to this, the inverter for an ID.3 from Volkswagen, which Valeo currently still supplies, costs 1095 US dollars per unit. BMW’s own inverter for the iX, on the other hand, costs over $5400.
In any case, Bosch does not want to be intimidated by VW. “We see manufacturers pursuing different value creation strategies. The demand for our system solutions is particularly high in China,” says a Bosch spokesman, referring to the words of Bosch boss Stefan Hartung. He recently drew attention to the fact that Bosch’s powertrains in China will soon be in the black.
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The decision-makers at Valeo take a similar view. “At Valeo, we work with all major car manufacturers worldwide, which limits the impact of strategy changes by individual customers,” says the French supplier. Valeo expects manufacturers to outsource about 40 percent of inverters worldwide. “These numbers are probably conservative because our competitors Vitesco and BorgWarner estimate that the outsourced market is larger,” the French company said.
Internally, Vitesco expects that the proportion of inverters manufactured by suppliers will increase to around 70 percent in 2030.
(Photo: dpa)
For Vitesco, the increased insourcing of car manufacturers is at best a snapshot. “It will now be seen over the years how strong the assembly part will be with the customers. We estimate that the trend towards insourcing will flatten out again in the second half of the decade,” reports the MDax group. Internally, Vitesco anticipates that the proportion of suppliers who manufacture inverters (power electronics) will increase from the current 50 to around 70 percent in 2030.
Volkswagen’s decision is therefore being observed very closely in Vitesco’s works council circles. The question arises as to whether the previous traditional partnerships between car manufacturers and established powertrain suppliers will continue to exist, reports a person from the employee environment.
With the announcement by Volkswagen, industry experts see the first signs that the traditionally close connection between car manufacturers and established suppliers is loosening in the transformation to electromobility. Instead of traditional European car manufacturers, suppliers are increasingly starting to supply electric newcomers from China.
VW wants to secure its own jobs with insourcing
Because technical arguments should only play a subordinate role for Volkswagen. What the carmaker does not officially mention is the issue of job security. As part of the transformation, it is also important to secure jobs at VW with the help of greater vertical integration, according to Wolfsburg circles.
In the course of the transformation to electromobility, thousands of jobs in the combustion engine sector will be lost. It’s no secret that a combustion engine consists of significantly more components than an electric motor. The entire industry is therefore looking for additional work content.
Thermal management specialist Mahle would also be severely affected by Volkswagen’s change of course. Surprisingly, Volkswagen also wants to manufacture the thermal management itself in the future, as can be seen from the group’s announcement. At the Mahle headquarters, however, there are doubts that Volkswagen will actually manufacture all the important system components itself. “As usual, the best solutions will prevail on the market – and we see ourselves in a strong position there,” said a Mahle spokesman. Competitor Valeo even expects that the thermal systems will be completely outsourced to suppliers in the long term.
Volkswagen therefore does not dare to go it alone. From industry circles it is said that in the past few days there have been an increasing number of irritated inquiries from suppliers at VW regarding thermal management. The Wolfsburg team then partially backtracked. According to a company spokesman, the car manufacturer no longer wants to buy completely ready-made modules from suppliers off the shelf, but instead wants to build the most valuable thermal management components itself. However, the remaining components would continue to be sourced from suppliers. That should be cold consolation for the suppliers.
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According to Bernhart, some car manufacturers are now integrating their own production so vertically “that they are also beginning to manufacture components in the drive area that do not differentiate themselves from the competition”. Such components are usually produced by suppliers for cost reasons, because they manufacture the components for different car manufacturers and can therefore achieve higher quantities and thus higher economies of scale.
In-house production could make electric cars more expensive
The head of the works council of a large supplier therefore doubts that car manufacturers can achieve greater economies of scale with in-house production: “We will see whether Volkswagen is economically competitive with its cost structures.” Volkswagen could lose a massive amount of market share in electric cars due to high prices, or be forced to lowering prices and forgoing margins.
According to Bernhart, this could take revenge at the latest when the Chinese car manufacturers push their way onto the German market with their electric cars on a much cheaper technical basis. Employee representatives know exactly where both end for local employees: “Insourcing by car manufacturers will further increase the existing massive pressure to relocate to cheaper Eastern Europe,” says Boris Schwürz, the new head of the Mahle works council. He insists on negotiating the entire transformation problem with his employer in an orderly process.
ZF General Works Council Chairman Achim Dietrich does not see the end of the close partnership between car manufacturers and suppliers as yet. “It will not be possible to build excellent cars without the innovative strength of the automotive suppliers,” he says. “We have to make technological and economic offers to the car manufacturers that they cannot do without.”
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