# Engine parts makers must cross ‘valley of death’ to reach EV era Author: Pal Sinha, Barnali Author URL: https://financedigest.com/author/pal-sinha-barnali Published: 2022-10-05 Category: NEWS Category URL: https://financedigest.com/category/news Meta Title: Auto Engine Parts Makers Face Uncertain Future Amid Shift to EVs Meta Description: Learn how engine parts makers in Kidderminster are navigating the shift to electric vehicles, facing challenges and opportunities in the evolving automotive URL: https://financedigest.com/engine-parts-makers-must-cross-valley-of-death-to-reach-ev-erahtml ![undefined](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/2022-10-05t074922z1lynxmpei940csrtroptp4autos-suppliers-engines-1736815099430-compressed.jpg) By Nick Carey and Christina Amann KIDDERMINSTER, England (Reuters) – Auto engine parts makers eyeing the promising electric-vehicle market are dealing with a severe case of delayed gratification. Until EVs truly take off, engine parts makers face a perilous few years where they must invest heavily in new machinery, while struggling with falling sales of fossil-fuel cars. Evtec Aluminium, a small supplier with two plants in England, is a case in point. It barely survived. Within the last decade in the European Union – when Britain was still a member – diesel was the green fuel of the future. Carmakers, including Evtec’s main customer Tata Motors-owned [Jaguar Land Rover](https://www.financedigest.com/jaguar-land-rover-opens-three-european-self-driving-tech-hubs.html "Jaguar Land Rover opens three European self-driving tech hubs") (JLR), invested tens of billions of dollars in new diesel models and production capacity. Suppliers followed suit. Evtec, then known as Liberty Aluminium, [invested tens of millions](https://www.financedigest.com/sse-to-invest-122-million-in-scottish-pumped-hydro-project.html "SSE to invest 2 million in Scottish pumped hydro project") of pounds in new machines, some of which sit idle but are still being paid off. Then the EU, spurred on in part by Volkswagen’s “Dieselgate” emissions cheating scandal, swiftly abandoned diesel in favour of EVs and now plans to effectively ban combustion-engine [car sales](https://www.financedigest.com/mercedes-posts-rise-in-q1-sales-boosted-by-evs-premium-cars.html "Mercedes posts rise in Q1 sales boosted by EVs, premium cars") by 2035. We went in [thinking diesel is the future,”](https://www.financedigest.com/the-pull-of-the-past-1-in-5-keep-items-they-think-will-be-valuable-in-the-future.html "The pull of the past! 1 in 5 keep items they think will be valuable in the future") said Evtec’s business director, Brett Parker, on a tour of the company’s half-empty foundry in Kidderminster in England’s Midlands, the historical heart of Britain’s car industry. “We backed the wrong horse, unfortunately.” Evtec was saved [last year](https://www.financedigest.com/uk-new-car-sales-rise-in-january-full-year-sales-to-top-last-year-smmt.html "UK new car sales rise in January, full-year sales to top last year – SMMT") when a group led by investor David Roberts bought it. Roberts [says Evtec’s foundry in Kidderminster is Britain’s](https://www.financedigest.com/britain-sets-5g-goal-says-no-magic-number-of-operators.html "Britain sets 5G goal, says no ‘magic number’ of operators") most modern – vast machines here pump molten aluminium heated to around 660 degrees Celsius (1,220°F) into castings to make complex shapes – and stands to benefit as UK carmakers look to build EVs that need aluminium parts. For me it was a no-brainer to [invest in that business,”](https://www.financedigest.com/why-investing-in-employee-health-can-be-good-for-business.html "Why investing in employee health can be good for business") Roberts said. As recently as 2015, diesel made up nearly 52% of EU [car sales](https://www.financedigest.com/uk-new-car-sales-rise-17-in-march-best-ever-month-for-evs.html "UK new car sales rise 17% in March; best ever month for EVs"). After Dieselgate and the shift in favor of EVs, diesel fell to 19.6% of EU [sales in 2021 and has fallen further this year](https://www.financedigest.com/spains-november-retail-sales-fall-0-6-on-year.html "Spain’s November retail sales fall 0.6% on year"). In Britain, diesel [car sales](https://www.financedigest.com/eu-approves-law-to-end-sales-of-new-co2-emitting-cars-by-2035.html "EU approves law to end sales of new CO2-emitting cars by 2035") halved to just 8.2% in 2021. Petrol car sales in the EU declined to around 40% in 2021 from over [45% in 2015 and will fall](https://www.financedigest.com/bitcoin-falls-4-5-to-26916.html "Bitcoin falls 4.5% to ,916") further as Europe goes electric. [Major engine parts suppliers like Vitesco Technologies](https://www.financedigest.com/banks-deploy-ai-3-major-technological-advances.html "Banks Deploy AI – 3 Major Technological Advances            ") Group AG and Schaeffler are already investing in transitioning to electric, but smaller players like Evtec – for which tracking data is not widely available – must adapt or die. Engine parts makers are ground zero for the most amount of pain in this transition because they have the least amount of portability into EV world,” said Mark Wakefield, [global co-leader of consultancy AlixPartners’ automotive and industrial](https://www.financedigest.com/german-industry-calls-for-delay-to-global-minimum-tax-bdi.html "German industry calls for delay to global minimum tax – BDI") practice. Some major carmakers have [warned of huge job losses](https://www.financedigest.com/uk-motor-and-home-insurers-headed-for-heavy-losses-ey-warns.html "UK motor and home insurers headed for heavy losses, EY warns"), as EV motors have only a third of the parts of a combustion engine and require less labour. Fewer parts also mean fewer suppliers. Engine [parts suppliers must either transform](https://www.financedigest.com/digital-transformation-in-corporate-lending-the-whole-is-greater-than-the-sum-of-its-parts.html "Digital transformation in corporate lending. The whole is greater than the sum of its parts") into an EV-focused business, or diversify into other industries making parts for anything from heavy equipment to hair dryers. Or go out of business. [“People have to realize this transition comes](https://www.financedigest.com/people-dont-like-to-be-told-no-when-it-comes-to-finance.html "People don’t like to be told no when it comes to finance") at a cost,” Evtec investor Roberts said. “We all have our own valley of death to get to EVs, but for some suppliers it will be so much harder.” ‘CAN’T GROW WITHOUT MONEY’ Declining combustion-engine car [sales have already cost jobs](https://www.financedigest.com/sap-to-cut-3000-jobs-explore-qualtrics-stake-sale.html "SAP to cut 3,000 jobs, explore Qualtrics stake sale"). World No. 4 carmaker Stellantis NV, for instance, is shifting its plant in Tremery, France – long the world’s largest diesel engine plant – over to EV motors. Tremery employs 2,400 people now, down from 3,000 in 2019. Many others will not be replaced when they retire. [German supplier Bosch is transforming its plant](https://www.financedigest.com/intel-wants-5-billion-more-in-german-subsidies-for-chip-plant-bloomberg-news.html "Intel wants billion more in German subsidies for chip plant – Bloomberg News") in Rodez in southern France away from diesel injectors to new products including hydrogen fuel cells, cutting 750 of 1,250 jobs. Auto industry consultant Bernd Bohr said larger, deep-pocketed suppliers will likely be the “last man standing” for delivering a particular part. “A lot of companies are fighting for a piece of a smaller and smaller cake and the question is, who’s getting that volume?” he said. Powertrain supplier Vitesco is focused on combustion engines, but by 2030 the company [expects EVs will account](https://www.financedigest.com/theres-a-fine-line-between-relinquishing-control-and-accountability-financial-institutions-must-balance-both-to-successfully-cloudify-operations-and-meet-customer-expectations.html "There’s a fine line between relinquishing control and accountability. Financial institutions must balance both to successfully cloudify operations and meet customer expectations") for 70% of sales. In January, the [German supplier will split its business](https://www.financedigest.com/german-businesses-expect-only-mild-recession-as-disruptions-ease.html "German businesses expect only mild recession as disruptions ease") into two main divisions, one focused on EV components and the other on higher-value technology that can also be used in combustion engines to bring in cash as that business winds down. Some parts of the [business no longer considered](https://www.financedigest.com/pizza-firm-dp-eurasia-considers-divestment-of-russian-business.html "Pizza firm DP Eurasia considers divestment of Russian business") to be core will be shut down or sold off. We have to generate the necessary funds so we can [invest in the future,”](https://www.financedigest.com/investing-in-the-city-thats-investing-in-itself-welcome-to-the-liverpool-of-the-future.html "INVESTING IN THE CITY THAT’S INVESTING IN ITSELF – WELCOME TO THE LIVERPOOL OF THE FUTURE!  ") Vitesco CEO Andreas Wolf said. “I can’t grow without money.” Parts supplier Schaeffler expects its future EV [business will be smaller than today’s combustion-engine sales](https://www.financedigest.com/the-ultimate-excel-sales-tracking-templates-for-businesses.html "The Ultimate Excel Sales Tracking Templates For Businesses"), so the German company is focused on diversifying its customer base. For instance, the ball [bearings Schaeffler sells to carmakers could be sold to other industries](https://www.financedigest.com/automotive-roller-bearing-market-2017-outlook-current-and-future-industry-landscape-analysis-2027.html "Automotive Roller Bearing Market 2017 Outlook, Current and Future Industry Landscape Analysis 2027"). ‘OTHERS WILL DROP OUT’ Smaller suppliers are already struggling with soaring raw material and energy costs, plus the [need to invest in greener products to meet carmakers’ climate](https://www.financedigest.com/analysis-global-climate-coalitions-need-safer-harbour-from-antitrust-turbulence.html "Analysis-Global climate coalitions need safer harbour from antitrust turbulence") goals. Funding new equipment for EV parts could be tough. Evtec’s [investor Roberts said the company has around 330 million](https://www.financedigest.com/optable-closes-20-million-series-a-financing-broadens-investor-syndicate-in-new-round.html "Optable Closes Million Series A Financing, Broadens Investor Syndicate in New Round") pounds’ worth ($363.8 million) of business lined up for EV parts for JLR over a seven-year contract, plus around another 250 million pounds with other carmakers. But because of long auto [industry lead](https://www.financedigest.com/eu-announces-plans-to-lead-green-industrial-revolution.html "EU announces plans to lead green industrial revolution") times, the models in those contracts will not start production for two to three years. Evtec must spend up to 70 [million pounds for new tools and machines for those contracts](https://www.financedigest.com/incentive-qas-expands-retail-portfolio-with-million-pound-shopping-centre-contract.html "Incentive QAS Expands Retail Portfolio With Million Pound Shopping Centre Contract"), of which Roberts will pay half, long before any revenue comes in. Evtec also has support from JLR, which considers it a strategic supplier. “Our suppliers play a pivotal role in our transformation,” a JLR spokesperson said. We are working closely with them during the [automotive industry’s](https://www.financedigest.com/consumer-electronics-and-automotive-industries-to-drive-demand-for-li-ion-pouch-batteries-persistence-market-research-study.html "Consumer Electronics and Automotive Industries to Drive Demand for Li-Ion Pouch Batteries: Persistence Market Research Study") transition … to electrification.” AlixPartners estimates carmakers have committed $526 billion to go electric and if they do not proactively address supplier problems they could end up [spending](https://www.financedigest.com/chipmaker-infineon-ready-to-spend-billions-on-acquisitions-ceo.html "Chipmaker Infineon ready to spend billions on acquisitions – CEO") another $70 billion to fix them. Suppliers making key components could get rescued, but carmakers cannot afford too many bailouts, Wakefield said. Evtec’s Parker said with an [investor backing](https://www.financedigest.com/glencore-courts-120-teck-investors-for-bid-backing-as-spinoff-vote-looms-source.html "Glencore courts 120 Teck investors for bid backing as spinoff vote looms -source") its transition, in the short term the company is looking to “plug the gaps” in revenue. Earlier this year, when an Israeli supplier folded, Evtec took over some of its business. As [suppliers struggle](https://www.financedigest.com/french-energy-suppliers-will-let-struggling-bakers-renegotiate-contracts-le-maire.html "French energy suppliers will let struggling bakers renegotiate contracts – Le Maire") after two years of pandemic, supply shocks and inflation, Parker expects more such opportunities. “If you can hang on long enough, others will potentially drop out,” Parker said. “Then you’ve got more chance of picking up business.” (This story has been corrected to fix paragraph 27 and 28 to [remove reference](https://www.financedigest.com/ireland-to-vote-on-removing-outmoded-references-to-women-from-constitution.html "Ireland to vote on removing ‘outmoded’ references to women from constitution") to third division) (Reporting by Nick Carey in Kidderminster, England, and Christina Amann in Berlin; Additional reporting by Gilles Guillaume in Paris; Editing by Ben Klayman and Matthew Lewis) --- This blog is powered by Superblog. 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