All major automotive OEMs anticipate having an all electric (EV) or hybrid vehicle (HV) offering by 2011 in response to worldwide concerns about the environment and aggressive regulations for fuel economy and vehicle emissions. As a result, all major OEMs are dealing with or have made the decision to develop, buy or partner for the instrumental motor and battery technology, but it does not appear that there is a consensus or prevailing strategy.
Nissan, Honda and Tesla all have been working on in-house motor technology, while Ford, VW, BMW, Daimler, Mitsubishi and Porsche all source or have plans to buy the eco-friendly motors. Toyota currently produces motors in house for the Prius, but plans to strategically leverage Tesla's electric powertrain technology for the new RAV 4 model, and also partner with Tesla for batteries. Moreover, Toyota's hybrid technology will be licensed by Mazda to accelerate its having a hybrid vehicle in the Japanese domestic market by 2013.
On the other side of the world, GM too is making tough decisions. It has relied on Remy International for strategic parts for decades, but now is investing heavily to bring electric motor development in house for the Chevy Volt. GM, like others who have made the decision to build versus source electric motors, feels this is the only way for technology development cost control and strategic advantage.
But electric motor technology has been around for a century, and there is plenty of innovation and expertise inside the auto industry pool of suppliers. Remy has patented technology on bending copper wire for electric motors and has already spent $20 million on scrap figuring out how to build a hybrid motor. In 2009 Bosch invested $4.3 Billion on R&D as a testament to its commitment to address future industry topics, which of course include reducing oil dependence.
There is even greater abundance of expertise outside the industry, especially in battery and charging technologies.
- Flux Power, a 2009 spinoff of LHV Power, just introduced new safe lithium batteries and charging systems which offer reasonably-priced, improved energy density, discharge ability, communications, and life cycle tracking, intended not only for EVs but for industrial, solar, wind and peak-shaving power applications.
- Saft recently developed a super-phosphate technology for the defense industry to expand its range of high-power lithium batteries, and incidentally, JCI advantageously entered into a joint venture with them in 2009 to form Johnson Controls-Saft to advance their own hybrid and electric battery systems.
- Companies in this field are also closely watching universities like MIT, Stanford, and Penn State that are constantly demonstrating advances in their battery charge and storage research.
Of course a significant element of GMs decision has to do with mitigating supply chain risk. Recall that in 2005 Ford licensed Toyota’s hybrid technology and sourced components from Toyota's suppliers, but as the demand for the Toyota Prius increased these suppliers gave priority to meeting Toyota's needs, leaving Ford high and dry.
OEMs must rationalize a long term technology innovation strategy. They must determine how strategic battery and motor technologies are. Is a technology mature enough that it is not a sufficient barrier to entry (or will it mature faster outside the industry)? How should this protection be weighed against the cost and risks of in-house development of proprietary technology, and the cost and time-to-market advantages offered by suppliers? These are difficult decisions to make at a time when the industry is in distress, budgets are tight and the traditional landscape is changing rapidly. In house development will cost an OEM billions of dollars, and a delay to mature a technology or design-- let alone a total failure-- could be detrimental.
IDC Manufacturing Insights believes that OEMs should consider leveraging more outside innovation. By utilizing suppliers, especially from outside the traditional auto industry, there is an opportunity to accelerate innovation and rejuvenate the industry as a whole. Of course this does not mean delegating complete design responsibility to suppliers and possibly losing a strategic advantage. Ventures should be blueprinted to include specific tactics and conditions for protecting intellectual property and mitigating supply risk. Look, for example, at Asian OEMs. They are notorious for long established, closed relationships with their suppliers, and by leveraging an equity stake they establish strong influence and control over design and innovation. Following a similar strategy, GM (through GM ventures) has strategically invested in battery developer Sakti3 in return for a stake in its company.
It seems that OEMs are struggling to change traditional engineering and business culture to keep pace with market demands and successfully lay the ground for the future. The economic and environmental crises and continued pressures from established and new competitors are forcing tough decisions which necessarily include seeking out innovation from nontraditional sources. But will OEMs stay the course in paving new partnerships or will they resort to the old "not invented here" Detroit mentality, resisting outside inspiration?