Over the years, automakers have increasingly divested from making most components in cars and instead rely on extensive supply chains.

Now the industry’s transition to electric vehicles is affecting both automakers and their suppliers.

So much so that Daimler now warns that it might have to support financially some of them during the transition.

Daimler has several major electric car initiatives that should result in a drastic increase in EV production for the German automaker by the end of the decade.

It started transitioning its smart car brand, which is now all-electric in the US, and Mercedes-Benz’s new all-electric sub-brand, EQ, is launching next year starting with the EQC all-electric SUV.

The automaker is reportedly planning several more electric vehicles to be released in the next few years under those brands.

They have been preparing their own production for those changes, including recently revealing an aggressive electric vehicle production plan with 6 factories and a ‘global battery network’.

But their suppliers will also need to adapt.

The company wrote in its annual report (via Reuters):

“Due to the planned electrification of new model series and a shift in customer demand from diesel to gasoline engines, the Mercedes-Benz Cars segment in particular is faced with the risk that Daimler will require changed volumes of components from suppliers. […] This could result in over- or under-utilization of production capacities for certain suppliers. If suppliers cannot cover their fixed costs, there is the risk that suppliers could demand compensation payments,”

The risk doesn’t only fall on the suppliers since the automaker could have ordered some of those production capacities.

Therefore, it could be required for them to issue compensation and also participate in the expansion of other components related to electrification:

“Necessary capacity expansion at suppliers’ plants could also require cost-effective participation,”

The company didn’t provide any expected amount to be spent on securing suppliers for electrification, but they plan to spend $11 billion on electric vehicles by 2022.

Several major auto suppliers are already making significant investments to support automakers in their electrification efforts. Bosch has ramped up its electric drive unit line-up and it is considering a major investment in battery production. Other tier one suppliers, like Continental and GKN Driveline, are also expanding their production of EV components.

 

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