The losses due to the COVID-19 pandemic and the high cost of developing new platforms in line with the CASE (Connected, Autonomous, Shared and Electric) trend could be an incentive for automakers to switch to a contract model and use third-party platforms.
Analysts from Strategy Analytics undertook to assess the prospects for the transformation of the industry. They examined both the advantages and disadvantages of the contract manufacturing trend, and analyzed how the “traditional automotive OEM landscape” is adapting to market needs through mergers and cooperation, calling into question the shift to contract manufacturing.
Companies such as Foxconn, Magna and REE Automotive have introduced platforms for electric vehicles, offering economies of scale and eliminating duplicate costs. Their services may, in particular, be in demand by young companies creating electric vehicles and lacking capital to organize or develop their own production.
Foxconn, well known as a contract electronics manufacturer, formed its subsidiary Foxtron in November 2020 to enter the electric vehicle sector and developed the MIH EV open platform, partnering with over 200 supplier companies to further develop MIH. Israeli startup REE Automotive partnered with Mahindra to develop a modular, scalable platform. Magna International recently launched EtelligentReach, which is designed to compete with OEM-designed plug-in hybrid powertrains and offers 38% reduction in emissions. Magna International’s contract manufacturing subsidiary, Magna Steyr, manufactured the Sony Vision-S concept car and was also selected as a manufacturing partner for the Fisker Ocean electric vehicles.
However, analysts warn that new entrants will take time to gain experience in the automotive industry and gain the trust of customers. And classic manufacturers, investing heavily in the transition to electric vehicles, are not at all interested in the emergence of competitors. Contract manufacturers will have to compete with major automotive concerns such as Volkswagen.
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