BMW, the German luxury car manufacturer, has accelerated its vehicle electrification plans by introducing the Fifth Generation Architecture, as the company calls it. With the implementation of this architecture, BMW plans to deliver 25 electrified models on roads by 2023, which is 2 years earlier than the company had planned. According to BMW, more than half of these 25 new vehicles will be fully electric.
The company also plans to integrate zone detection technologies into its vehicles, which will automatically switch the vehicle to ‘electric-only’ mode for city zones where only zero-emission vehicles are allowed to operate.
Kumar Rohit, Team Lead in the Automotive & Transportation sector at MarketsandMarkets™, shares his views.
To achieve the fleet CO2 targets, OEMs will have multiple options, including improved efficiency of existing ICE vehicles by engine downsizing, turbocharging, gasoline direct injection, and vehicle light weighting. Electric vehicles are better options for achieving the targets as they are zero emission and also provide credit points to OEMs for higher sales of EVs. The high price of EV battery and the associated materials, slow charging speeds, and lack of proper charging infrastructure have not yet made EVs popular amongst, thereby making them not the most desirable option for OEMs to achieve their CO2 targets.
To solve the above challenges, the concept of 48V architecture or mild hybrids is rapidly gaining traction around the globe, which is consequently expected to drive the demand for vehicle electrification in the near future. The cost of 48V systems has always been the biggest implementation challenge for this technology. However, Morris Garage recently launched a 48V SUV named Hector in the Indian market at a price competitive to ICE vehicles. The success of this vehicle would encourage more OEMs to develop such vehicles.
Additionally, OEMs can also look at electrification technologies that help reduce CO2 emissions form regular ICE vehicles such as start-stop, electric-hydraulic power steering, electric water pumps, and some exhaust technologies like regenerative diesel particulate filter. In developing countries, electric 2W and 3W have better viability than electric cars as they are being funded by local governments and the price point of electric two- and three-wheelers remain in a range for the masses to purchase them or use them for public transport.
FIGURE 1 VEHICLE ELECTRIFICATION MARKET, BY DEGREE OF HYBRIDIZATION
Source: Secondary Research, Primary research, and MarketsandMarkets™ analysis
Impact of vehicle electrification on Tier I component manufacturers due to revenue shift form OEMs
With the increasing focus of OEMs toward vehicle electrification, there will be significant shifts in their revenue mix. This shift in OEM revenues will have a significant impact on Tier I component manufacturers as well. As the degree of hybridization increases in vehicles, the demand for mechanical components will be replaced by the demand for electrified components such as electric water pump, electric oil pump, liquid heater PTC, and integrated starter generator.
Technologies like liquid heater PTC and electric air conditioner compressor are projected to grow at the fastest rate during the forecast period of 2019 to 2027. Similarly, high growth rates are projected for components such as electric vacuum pump and electric water pump. The market, in terms of volume, is projected to be driven by components like electric power steering (EPS), integrated starter generators (ISG), actuators, and start-stop systems. Increasing vehicle electrification will drive revenues for multiple players in the electric and hybrid vehicle ecosystem. For example, the rise in demand for electric vehicles will increase the demand for high voltage batteries for fast charging. Hence, this would directly impact the revenues of companies manufacturing EV batteries and EV battery materials.
Tier I manufacturers such as Bosch, Continental, Denso, Delphi, and BorgWarner are expected to witness a change in their revenues as new sources or technologies will generate future revenues for them. These companies provide vehicle electrification components like start-stop, EPS, electric air compressor, electric vacuum pump, electric oil pump, water pump, starter motor, ISG, and alternator, among others. The increasing trend of vehicle electrification will drive the demand for the abovementioned components, ultimately impacting the revenues of companies manufacturing these components.
OEMs will be using a mix of electric and hybrid vehicles along with modifications to the existing IC engines to meet fleet CO2 targets. This increasing shift toward vehicle electrification will impact the revenues of OEMs and Tier I component manufacturers. For example, there are thousands of small parts and components that constitute the engine and exhaust systems in a regular ICE vehicle. In an electric vehicle, these components are not required, and the increase in sales of electric vehicles will affect the revenues of companies manufacturing these components.
Vehicle electrification technologies are all set to drive revenues for Tier I manufactures, and companies should focus on these technologies to grow their revenues in the coming years.
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