The best sourcing strategy for BEVs? It’s complicated

BEV panel Vitesco.jpg

Different strokes.

That’s the conclusion of a 2022 CAR MBS panel on the battery-electric-vehicle-powered evolving supply chain and who – Tier 1s or OEMs – will make what in the future.

Whether manufacturing key components in-house or outsourcing them to suppliers, it’s an age-old question that automakers have grappled with and struggled with for decades. And that’s no different today in the transition to BEVs, notes Sandy Stojkovski, CEO of Vitesco North America, a manufacturer of intelligent and electrified propulsion systems that were spun off from Tier 1 giant Continental a year ago.

“I think we’ve seen this movie before,” she says of the auto industry’s internal/outsourcing pendulum that can often go one way or the other and back again.

She notes that when it comes to BEVs and some of the key components Vitesco makes, it seems like automakers want more control over engine production but are less territorial over inverters. But even that can differ, as the panel discussion shows.

The decision to design and manufacture in-house rather than outsourcing often depends on several factors.

Keeping a part close to the vest can potentially help an OEM gain a competitive advantage in technology, help it meet its obligations to unions, increase its understanding of how an emerging technology works, and maintain a steady supply of guarantee products.

But outsourcing can allow an automaker to shop the market for the best technology and price and reduce its investment risks.

When you add all that up, car manufacturers often come up with very different solutions.

Take the case of Volkswagen, one of the largest and oldest automakers in the world – and newcomer Faraday Future.

VW has focused on developing its own electronic architecture, notes: Reinhard Fischer, senior vice president of strategy for the North American region and VW Group.

BEVs are built differently than combustion engine vehicles, which typically have a network of more than a hundred electronic control units, he says. Because BEV platforms are created from scratch, automakers can streamline that architecture with fewer, powerful zonal computer controls that enable over-the-air updates and constant upgrades to new features and capabilities.

With BEVs we have the opportunity to unify the electronic architecture. That determines what we build ourselves and what we outsource,” says Fischer.

Batteries are also at the top of VW’s list of components to control. “Batteries don’t do (the job) pro-bono; they want to make money,” he says, adding that VW is committed to building it themselves. “It’s the most expensive part, so every dollar we can squeeze out can lower the price (of BEVs) and maximize profitability.”

And most importantly, VW wants its vehicles to be all built in its own factories.

Faraday Future, a startup without the volume, size or industrial complexity of VW, has gone in a different direction.

“We do a lot of our engineering and design in-house, but we do strategic contract manufacturing (we have intellectual property),” says Bob Kruse, vice president of product execution.”

For example, it designed and builds its own motors and inverters, but sends the inverters to China, where they are integrated into propulsion systems and returned to Faraday Future’s assembly plant in California.

As for the car’s electronic architecture, the automaker uses the open-source Android operating system and adds layers of its own software. Faraday Future will also outsource its battery, although it won’t say where for now.

“We’re taking advantage of what’s out there,” Kruse says of high-voltage lithium-ion batteries. “Given our volume, there is enough.”

And while Faraday Future is building its first model — the FF91 luxury sedan — in its own assembly plant, it will outsource its next-in-line FF81 Tesla Model X competitor to a contract manufacturer in Korea.

Navigating all this is difficult for a supplier, who must find ways to support their OEM customers in whatever way they can.

Flexibility is a must, Stojkovski says. She points to a recent deal between Vitesco and Renault in which the two partners are developing an electronic powertrain that combines the DC:DC converter, inverter and on-board charger in one box, but which Renault will eventually produce in its own facilities.

“It’s a win-win,” she says. “We support them in scaling up their (production) capacities and they give us contracts that support our portfolio. That is an example of being agnostic about sourcing strategies for customers.”