On the Road to Vehicle Electrification
Here are the auto-parts suppliers that should benefit.
Automakers’ product plans for vehicle electrification are already on the road to mass adoption of hybrid electric vehicles and battery electric vehicles. With a mapped-out route to electrification, hybrid and battery electric products will be arriving en masse through 2022 and beyond. The relatively short and steep route to electrification has been mapped by government clean air regulations around the world, largely following the European Union’s rules for carbon dioxide emissions.
However, owing to capital intensity and high competition, we see no possibility for automakers to extract economic rents solely due to the adoption of electrified vehicles. We believe automotive-parts suppliers are more likely to extract economic rents from powertrain electrification. Vendors have long been the source of much of the industry’s innovation. Parts suppliers’ moatiness is driven by intangible asset (intellectual property) and switching cost moat sources, enabling them to capitalize on electrification.
Richard Hilgert does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.