The race by governments and industry to build and capture portions of the global zero-emission vehicle (ZEV) supply chain is gaining steam. Analysts at Morgan Stanley recently noted that “the birth of the battery economy is reshaping century-old supply chains and creating a new industrial order.” The opportunity is ripe to leapfrog the challenges of early adoption and to enter the market right when ZEVs are becoming a large-scale reality with consumer awareness.
Governments are also pursuing policies that speed ZEV uptake. The Government of Canada has set a mandatory target of 100% new vehicle sales to be ZEV by 2035 and it, along with the governments of British Columbia and Quebec all offer purchase incentives. The aftermarket should take note - the vehicle fleet is transforming and the time for industry to plan and prepare is now.
In recent weeks, we have been closely monitoring the race as it plays out in real-time. The Government of Ontario just unveiled Phase 2 of its auto sector strategy, which has a strategic focus on building a complete domestic ZEV supply chain - from mineral extraction and refining, to ZEV battery and vehicle production.
Elements of Phase 2 include:
- Investing in Ontario’s auto workers, including job training
- Securing ZEV production mandates from automakers with a goal of 400K produced by 2030
- Repositioning vehicle and parts production for the car of the future
- Attracting a new battery assembly plant
- Leveraging critical mineral wealth in Ontario's north to support a broader supply chain that includes mining and the refining of those minerals
The United States is also making moves to capture portions of the ZEV supply chain. In June, the Department of Energy released a roadmap to have a domestic battery supply chain in place by 2030. This November, the infrastructure package passed and the Build Back Better Act made its way through the House (still to go through review and possible re-vote). Combined, the two will “kick start new batteries, materials and parts production and recycling, boosting the manufacturing of clean vehicles.”
A ZEV tax incentive included in the Build Back Better Act is concerning to Canada’s automotive sector. The total incentive is $12,500 per ZEV. To get the full incentive, consumers must purchase a ZEV that is assembled domestically with union labour and outfitted with a U.S. made battery. The incentive disproportionately benefits Detroit's Big Three that assemble made-in-America vehicles at union-represented plants. This could adversely impact future ZEV and automotive production in Canada as it provides automakers with a strong incentive to locate final assembly in the U.S.
Businesses along the aftermarket supply chain should view the momentum behind ZEVs as the right time to start planning and preparing for a ZEV-dominant fleet. Businesses that plan and prepare now will be better positioned to remain competitive in a changing aftermarket industry.
Older model ZEVs are already on shop floors. Shops must be equipped to convert these opportunities into regular customers; failure to do so will limit a shop’s customer base. Shops need to consider the tools and equipment that they need to be able to offer services for new vehicle technology and upskilling of their workforce. Critically, shops need to consider business models that largely cater to parts-based, internal combustion engine vehicles. Overall, aftermarket maintenance costs for ZEVs are expected to be approximately 40 percent lower than for combustion engine vehicles.
Parts manufacturers, wholesalers, distributors and retailers face disruption from ZEVs that create less demand for vehicle parts and are software-defined. Businesses need to rethink their products, services, business models, etc. Businesses along the supply chain should consider enhancing their online presence and integrating big data and advanced analytics to optimize logistics, build customer leads and boost sales. A trend in automotive is towards consolidation, mergers, partnerships, etc. Deals can help businesses shortcut to innovation, scale, and growth and acquire technology and launch new business models faster than they could on their own.
AIA Canada continues to educate government about the impacts that new mobility will have on the aftermarket sector. AIA advocates for solutions that will mitigate disruptions and support traditional aftermarket stakeholders remain competitive in a changing automotive industry.