Shifts in the Automotive Powertrain Component Market

The powertrain component market has seen several key shifts in the past three years. First, electrification has consistently accelerated faster than expected, driven by increased action on climate change, government policy, company pledges, and consumer behavior.
Second, automotive original equipment manufacturers (OEMs) are increasingly deciding to insource e-powertrain systems and components. Third, legacy powertrain components for internal-combustion engines (ICEs) are becoming a key consideration for OEMs as demand is projected to grow through mid-decade before declining. Fourth, carve-outs are becoming more common in the powertrain business, as OEMs and suppliers separate ICEs from EV businesses to generate short-term cash and clarify the true opportunity for capital markets.

The implications of these shifts for automotive suppliers are significant, as markets for powertrain components used in light battery electric vehicles are entering a rapid growth phase. Consolidation among suppliers is likely to increase, driven by the shift in technology from ICEs to EVs, the repositioning of value pools within the powertrain industry, and the make-versus-buy decisions by OEMs.

To emerge on top, automotive suppliers can make several moves. They can build capabilities to support the current BEV market, manage e-drive market pressures, and seek new opportunities to create value. Additionally, they can invest in technology to support the electrification of vehicles and adapt their supply chain to meet changing demand. Finally, they can collaborate with OEMs and other suppliers to share risks and rewards and increase efficiency.

A dual-line graph showing electric vehicle sales projections. Left: Global EV adoption scenarios with four lines (Achieved commitments, Further acceleration, Current trajectory, and Fading momentum) through 2030. Right: Accelerated EV adoption for China, EU, and US.
Source: McKinsey & Company


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