Vehicle electrification will drive the growth of new EV companies. According to DIGITIMES Research, start-ups tend to rely on contract manufacturers for car manufacturing, so they can focus on building their brand and marketing.
DIGITIMES Research analyst Jessie Lin says EVs typically require 37% fewer components than gasoline vehicles. Because her chain of supply is less complicated, EV companies can take advantage of contract manufacturing, which is common in her ICT industry.
Lin said partnering with other experienced automakers will allow new EV companies to enter the market without first making a large capital investment. Typically, he needs US$1 billion to build capacity for 100,000 EVs.
Source: EV Volume, DIGITIMES Research
If EV companies have not yet reached economies of scale, building their own vehicle factories will be a serious financial burden. According to Lin, a common metric for achieving economies of scale is that he sells 10,000 cars a month. Different businesses may have individual requirements to meet in order to achieve results.
She added that the EV consists of about 19,000 parts, challenging the new company’s ability to manage its supply chain. Contract manufacturers allow startups to focus on building their reputation and gaining market presence without worrying about managing their supply chain.
Source: EV Volume, DIGITIMES Research
Contract manufacturing of EVs is common in China. One of his new EV giants, Nio, has been partnering with JAC Motors since 2016. JAC is his nearly 60 year old automaker. The pair jointly owned a factory in Hefei, China. Nio later independently built a second factory in the area.
At the end of 2022, JAC announced plans to purchase Nio’s installed assets for RMB 1.7 billion (US$251.8 million). According to industry sources, the deal is all about Nio selling his self-built factory to his JAC.
Foxconn, a leader in Electronics Manufacturing Services, is also targeting the EV contract manufacturing market. By 2024, it aims to mass produce cars for companies such as US-based Fisker. Additionally, another US-based EV startup of his, Canoo, will use third-party services for initial production of vans to supply Walmart.
Manufacturing services help break down barriers to entry for new businesses, but many companies later build their own factories. According to Lin, modern car manufacturing typically integrates hardware and software. Emerging he-EV businesses may want to produce their cars in-house to protect their proprietary technology and accelerate the realization of new features when sufficient funds have accumulated in the production base.
Lin also said that as the electronic/electrical architecture (EEA) of automobiles becomes more modular, assembling an EV will become similar to building a smartphone. Therefore, a similar contract service model for the ICT industry can be applied to the EV segment.
She added that the current EEA tends to combine different functions to form multiple systems and modules in the car. This trend allows automakers to build vehicles more efficiently.
About the analyst
Jessie Lin holds a Master’s degree in Business Administration from National Taiwan University of Science and Technology. She is Chief EV Analyst at DIGITIMES Research. Her research covers CarTech, LED, and flat panel displays.
Credit: DIGITIMES
