This week, Ford said it would slow down its planned electric vehicle expansion, the latest move from major automakers to slow their push into EVs amid lower than expected demand. The step comes at a steep cost: the company will take $1.9 billion in write downs as a result of the move.
As significant as the costs are for Ford, the stop-and-go transition away from gas-powered cars happening across the industry weighs even greater on the tens of thousands of companies that directly or indirectly supply automakers. These companies typically operate with less access to capital and can struggle to change their business overnight.
The success of top automakers receives a lot of attention in the press and from political leaders. But the story of suppliers is also important to consider. They collectively employ millions of people around the globe, meaning they represent a key piece of local economies as well as a key political constituency to ensure the durability of the transition. But their story is applicable to businesses outside the auto sector, too. The push to address climate change is going to affect businesses in every sector, but for many it will be difficult to know how fast to move.
On a trip to Michigan earlier this year, I joined a conversation between suppliers convened by state and local officials. Sitting at a conference table overlooking downtown Detroit, the executives shared experiences, frustrations, and tips about their efforts to navigate a rapidly evolving transition. No one doubted that it was happening, but the executives also noted how difficult it remains to plan when you don’t know how fast it is happening.
Read more about the political ripples of the EV transition in Michigan here
Andrew Clemence, who heads the “green business” group at auto supplier DENSO, described the challenge of deciding how much capacity to keep in producing radiators for gas-powered cars and how much to lean into heat pumps, which rely on electricity. “It’s a little bit of a dilemma,” he said. “How quickly do we move to transition to the future product, that we know is going to have a longer runway, while still supporting our customers’ needs?” he asked.
Transitions are complicated and there is no easy answer for businesses. But companies that figure out how to adapt to the gyrations of the transition will thrive—while those that can’t adapt will struggle or fail. In the conversation in Detroit, “flexibility” emerged as a key word. Businesses benefit when they find ways to pivot and prepare new products and new markets while not abandoning their core offerings too soon.
“About a year ago, if you weren’t in EVs, you were missing the boat,” said Tim DeBastos, head of North America battery development at LG Energy Solutions. “Fast forward to today, and it's a bit of a struggle. We have had to remain flexible.” DeBastos described, for example, exploring government incentives that allow the company to remain flexible. Others touted their diversification into manufacturing products for other industries entirely.
The suppliers I met were all from fairly sophisticated firms, even as they expressed frustrations interpreting market signals. But many others–particularly smaller suppliers–may not have the time or wherewithal. In Michigan, state and local officials are trying to help fill the gap.
At the head of the table, Jonathan Smith described the state-funded office he is setting up to address these transition-related issues. Known as the Community & Worker Economic Transition Office, the office will form “SWAT” teams to help communities with plant closures and work with suppliers to help them diversify their products. “This could be a really powerful way for us to get out ahead of some of the economic change that’s coming,” Smith said.
As I wrote last month, efforts like this help make the transition away from fossil fuels politically sustainable. But businesses would be wise to figure out how they can get ahead of the challenge on their own, too.
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