Profile: SME Interview on Evolving Partnerships with Automotive OEMs

It's a really dynamic time. And if you think about kind of the arc of the evolution of the EV space, there were really a number of barriers that that stood in the way of EV implementation, and those barriers are really starting to fall down. The first barrier was technology and could we make batteries that would last long enough and be cost effective to use in vehicles. And if you go back a decade ago, the cost of a battery was about five times higher than it is today. So we've seen a meaningful evolution in technology and that battery technology continues to evolve. The second big barrier was how do we get through that period of time where it's not economically viable to have electric vehicles? And that's where you needed regulation, government intervention, building up of ecosystems, and charging infrastructures. And in many parts of the world, we're well down that road now. It is uneven geographically, but we are seeing real progress there. And the third barrier was really will people want to drive these vehicles? And I think the good news is for anybody that's driven the electric vehicles of today, I always call it the EV giggle. When people are in the cars and they step on the accelerator and they really feel that instant torque and instant performance. And what we're seeing is this combination of performance, which continues to improve reliability, which continues to improve. And then the overall driving experience becomes one that's a little less scary for folks that haven't been through it before. 

And as people get exposure to EVs, the things like range anxiety and a lack of understanding of what the technology will start to go away. And so what we're really seeing is rapid, rapid acceleration of acceptance of electric vehicles. I think faster than anybody thought. And that's one of the big challenges that the OEMs face, because there's these two dimensions: there's capability and capacity that have to be built. And from a capability perspective, we see this very natural evolution. OEMs continue to innovate. They continue to create systems that are more robust. They continue to create systems that are able to be charged faster. But building that out to the scale of the automotive industry is a meaningful challenge. And so they have to make sure they have a way of building up enough capacity to keep up with this growth and also building out their supply chains to be able to do that. And so there's both process innovation and product innovation that's necessary just because the rate and pace of change is much faster, I think, than anybody anticipated. 

Now there's short term, there's mid term, and there's long term challenges. So from the short term, I think everybody's dealing with supply chain disruptions, not only in the automotive space, but I think throughout the entire economy of the world today, we're seeing disruptions. And so at a time when we're seeing a rapid adoption of EVs, the OEMs are really struggling with how do I secure my supply chain, how do I get the parts to build the vehicles I've already designed, and I've got customers who are signed up and waiting for those vehicles. And we'll work our way through that. Just like the like the rest of the world will. In the medium term, there's two bigger obstacles. One is how do you make sure those supply chains are robust, long term? And how do you continue to drive that innovation? And then the long term, what are the region-specific obstacles that we face? And what you see is that there are different ecosystems within which electric vehicles will function, but they essentially do the same thing. They get people safely from point A to point B and hopefully do it in a sustainable way.   

And so if you think about those challenges, we have to have charging standards across the world. We have to have charging infrastructure. And then the energy that feeds electric vehicles needs to be clean energy for this whole sustainable model to work. And so what we see is a meaningful challenge in making sure that the ecosystems within which the vehicles perform continue to evolve. And there's a great deal of pressure that you see on that from a regulatory perspective, from a geopolitical perspective, and just from the people of the world wanting to be in a more sustainable space. They're really pressuring that. All of that's really good for EVs in the long run. But it also puts pressure to accelerate that, that implementation. And we see different challenges in different parts of the world. In most cases, the supply chains are able to react within a year or so. But when you look at some of the raw material challenges that we're going to face ramping up things like lithium and nickel and some of the battery raw materials, those don't get ramped up in 6 to 12 months. So we'll likely be facing a challenge where demand outstrips supply for a period of time.   

But those investments are being made, and I think the OEMs are really starting to pay attention to how do I manage this supply chain from beginning to end? And make sure that it's secure? And then the other piece of it, which I think is really important and I think is one of the biggest drivers of innovation is not only is it secure, but it's sustainable and it's sustainable along the dimension of it's able to deal with geopolitical uncertainty. It's able to deal with economic uncertainty. It's able to deal with volatility that we might have from natural disasters. But also it's sustainable in the fact that we are creating a less carbon-intensive transportation network. And not just carbon, but so many other harmful emissions that come from the traditional internal combustion engine. Balancing those things out - that speed and that capability - is the big tradeoff. And there's limited amounts of capital that have to be deployed. So the OEMs need to find the right partners to help them with that, and they have to make sure that they're making the tradeoff decisions to move at the right pace.  

It's really interesting. There's obviously going to be investments in technology. And so along with the electrification of the powertrain, you're seeing at the same time the advent of levels of autonomy within the vehicle. And it's a really interesting combination because if you fast forward a few decades and you have fully autonomous vehicles that are fully electrified, it's a very different model for how transportation will work. And so the OEMs themselves are stepping back and saying, we have to evaluate what our business model is. And if you rewind the clock a decade ago, and I don't mean to oversimplify, but a car company was a car company was a car company. They all had the same business model. We make cars that appeal to people that are safe and economically viable, and we sell them. That's very different. If you talk to OEMs today, many of them view themselves as transportation companies. Many of them view themselves as service providers. Many of them view themselves as traditional auto manufacturers, and they all have a different mentality as to how they want to manage that business model. How vertically integrated do they want to be, and where do they want to vertically integrate in order to achieve that vision that they have for their company?

The good news is, I think, that there is a convergence which is advancing battery technology is critical regardless of what your business model is. Ensuring that the infrastructure of the vehicle, the electrical infrastructure of the vehicle is robust, reliable, cost efficient, and able to handle what is every single year becoming increasingly more challenging specifications is critical regardless of what your business model is. And that's kind of one of the great things is that we try and make sure that we provide a set of solutions that allow people to choose how they partner in a way that's aligned with what their business is. And those partnerships are evolving in the raw material space. They're evolving in the battery space, they're evolving in the connectivity space, and they're evolving in the software and services space over time. And that's really challenging the OEMs. They're moving much faster. They're being much more creative in the way they approach it. And the competitive dynamics of the industry have been disrupted as non-traditional players have come in. And one of the really interesting things and things that I think are great for society as a whole is that that disruption has enabled a new set of players to bring real value, but it's also allowed some of the traditional players to really challenge the way they did business, and it's accelerating their pace of innovation. So across the board, the entire industry is more innovative, and I think it has a greater sense of urgency around addressing these things.  

Well,  what's interesting is if you think about the beginning stages of the electric vehicle market, in many cases those were either extremely cost-efficient vehicles that were there to help people with I'll say urban transportation, not a lot of performance, not a lot of range, but to proof of concept around EVs, or they were really interesting performance vehicles, where you're kind of on the envelope of performance. But what we're seeing now is EVs going mainstream. And so what you see is it's really important to have expanded range. So for most folks, they may be more interested in getting an extra 80 miles on a battery charge than an extra 10th of a second off of their 0 to 60 time. That doesn't mean that that 10th of a second off the 0 to 60 time isn't a lot of fun. But an awful lot of folks are really thinking about, okay, how do I get the kind of range that I want to get out of these vehicles? And now we're seeing the move as we start to see SUVs and pickup trucks start to be vehicles that are happening, you start to see, okay, what kind of uses can these vehicles have? What's the rating for towing? How much torque do the vehicles have? Can I use this truck to power my construction site for a short period of time? Can I run tools off of it? How do I have electricity flowing in both directions? So that I can use this as an on-site battery? And so I think we're at the beginning stages of people imagining the use cases for these vehicles.   

If you think about the needs of an Amazon delivery van that's on in a fleet. It's got a very fixed range for delivery. That's predictable on a daily basis. You can within a relatively narrow range define what the usage of that vehicle is going to be. And then you compare that to an electric SUV that a family might use for the daily go to work, drop the kids off at school and occasionally take that long trip for a vacation or that long trip to visit a relative. These are very different usage cases. But in every case, what you have to have is a level of reliability, a level of performance, and an ease of charging, and a reliability of charging that is something that people can count on. And you have to have access to that charge. And in places like a suburban environment in the US, access to charge is not that complicated. You know, folks can typically get that installed in their garage for a very low price. But if you live in a high rise communal living setting in the middle of Shanghai, the likelihood of you having your own dedicated charging spot is very low, which means that the ecosystem has to be built out so that people can consistently have access to that. We're seeing around the world, governments really committed to this. There's been meaningful investment, both public and private, to make that happen. But as people approach that charging, the ability to do it fast and reliable and safe, it continues to grow.  

This is one of the really interesting places where partnership really helps an auto OEM because there's this interaction that occurs where the two things that have to happen in vehicles is that the data needs to flow through vehicles faster and faster and faster, and more and more power and electricity needs to flow through that vehicle simultaneously. And without turning this into an engineering discussion, those are not really two factors that love each other very much. So as you have high voltage and high power flowing through a vehicle, it tends to create a good deal of RF interference. And that RF interference really degrades the robustness of those high-speed electrical signals that you have in the vehicle. And so this is pretty complex. And so the OEMs are really partnering with people like TE Connectivity to say hey, help us understand how we architect a vehicle so that we can get both because it's not an either/or. When I talked earlier about that future vision of fully autonomous vehicles that are fully electrified, that has to coexist. And even today, where while we may not have fully autonomous vehicles, we are seeing more and more advanced driver assist systems come into vehicles. And those advanced driver assistance systems every single year are requiring us to have faster and faster data rates and lower and lower latency.   

Now, when you start to talk about vehicle-to-everything communication, that's when you can really start to talk about cloud-enabled vehicle services. So where the vehicle is able to, in real time, understand what's happening with the vehicles around it, understand what's happening with the ecosystem around it. So if you're driving through a city, you can understand where the emergency services are and how things are happening. So if there's an accident, the vehicle can navigate through traffic, it can change stoplights, and allow that emergency vehicle move through the city. It can make sure that the elevator in the building that the ambulance is showing up to is at the right floor and waiting for the EMTs to get there. It can go there once they're there. And it guides the path back. That's an extreme example, but just the ability for vehicles to be able to communicate more broadly with the ecosystem around them will allow autonomous and advanced driver systems to be much more robust and much safer and give them a much greater level of functionality. And ultimately, that's when what's going to happen. Now, as we solve those problems, there's a whole bunch of easier problems to solve about, say, okay, if I don't have to drive the vehicle myself, how do I turn the vehicle into a connected and productive space? For me as an individual, that tends to be a much easier problem to solve than the one that says, hey, I want to leverage vehicle-to-cloud communications to make real time decisions about how a vehicle is going to respond to a situation that's occurring today. It's really important that we understand that relationship between high speed and high voltage, and it's really important that the OEMs know that they have partners that they can trust as they build that out because they have so many other technical problems to solve. I oftentimes like to talk about the connectivity of the vehicle being the central nervous system. And it doesn't matter how good a brain they develop. If the central nervous system doesn't work, the signals can't get to where they need to for the right things to happen. And so that's really our responsibility to make sure that we continue to develop that capability within the central nervous system that can keep up with the ever-evolving brain that the OEMs are driving.  

It's interesting, I think, if you think about TE, we sit in a very privileged position. Our customers trust us to work with them on every production vehicle in the world. And so we're fortunate enough to be able to be having advanced development conversations with customers in every region of the world. And we have a good idea of what vehicles are going to look like five or seven years from now. And we're solving those problems well ahead of time. And so as an OEM may address or confront a problem for the very first time, it's highly likely it's not the first time that we've seen the problem. And so we can come in, we can work with their teams early in the design process. We can help them to understand, hey, this application, here are the factors that you don't fully understand because it's the first time you're seeing it. In the OEM world, that's a really new muscle for them to build because it's been a fairly consistent and steady trajectory of technology evolution within the automotive industry. And it's been pretty linear and pretty predictable. And so the teams and the processes that they have for innovation were suited for that. Now we see this very non-linear level of innovation and disruption. And it feels very non-linear to the OEM. It's actually quite linear to us because we have the ability to see how that's evolving over time in different innovation centers. And it gives us the perspective to really help the OEM to understand what questions maybe they should be asking that they don't fully anticipate, and then help them with the answers to those questions in a way that really accelerates their pace of innovation.   

There's that piece of it. And then there's also another dimension, which is we help these customers scale. So if you're an emerging OEM, if you're a new player in the space, typically you're not going to have a customized solution for you made specifically for you at that stage. But TE has a portfolio of standard solutions that are building blocks that help you when you're in that prototype stage, when you're in that early production stage, and even as you migrate into the first couple, three years of production, we have off the shelf solutions that we can work with you to bring in. And then over time, as volumes build, we're there as a technology partner to say, okay, here's how we can optimize this solution around the way your vehicle has evolved. And we're their partner there from kind of the very beginning blank sheet of paper before they build their very first vehicle all the way through the evolution, where they're on iteration number five or iteration number six, and they want to really drive the optimal performance. We're there with them every step of the way, which is incredibly valuable because it allows them to focus on the rest of the vehicle, which is a lot. It's not trivial the tasks that they're undertaking for sure.  

This is really where the regional story comes in. If you ask me about a place like China, it's already done. The race is over. This is a matter of building out capacity so that the transition can continue. But the preference is strongly in favor of EVs. In Europe, we're seeing that preference shift very quickly. And it's shifting for a couple of reasons. First is there are meaningful carrots and sticks that are in place. And so for the OEMs, there is a significant benefit for them to increase the percentage of the vehicles that they sell their EV. And there's a significant cost for not doing that with respect to regulatory penalties. But also you have an enthusiasm about sustainability and enthusiasm about addressing some of the challenges we face as a species around the climate, and that enthusiasm is a bit stronger in Europe than it is in the US. There's a little bit less debate around some of the impacts and driving it. And from a government perspective, if you look at the power of some of the political parties that have this at the top of their agenda, that the level of power they have is quite disproportionate to the power that they have in the US. So we're seeing in Europe both and the US. I will say, the geography of the US is a little bit different than the geography of most places in the world. When the US is one of the few places in the world where somebody on the East Coast would say, I would really love to see the national parks in Utah, and I'm going to drive there. That kind of load cycle is one that is not typical elsewhere in the world where people are talking about literally driving thousands of miles in a single trip. And so people will start to understand what that really looks like, the reality of charging infrastructure, supercharging infrastructure and what that looks like. And I think once people get over the fear of that then it'll be well accepted. So I'm convinced. But I what I will tell you is I actually believe that the shape of the acceptance curve of EVs and the deployment curve of EVs over the next five years will be more driven by the industry's ability to meet demand than by the actual demand itself. I think that the industry won't be able to keep up with the rate and pace of transition. We're already seeing that in markets like China and Europe.    

I think what you can expect to see is a continued acceleration in the evolution of functionality within vehicles. Not only electrical and battery performance, but also just the broader functionality of the vehicle. So advanced driver assist and safety systems within vehicles will continue to evolve more rapidly. Many vehicle manufacturers are going to be able to provide over-the-air software updates. And so your vehicle will evolve after you purchase your vehicle. And so as new capabilities come on, particularly in in the infotainment space, you'll have a different vehicle a year and a half after you purchase it than the day you purchase it, which is new for most folks. Most folks buy a car and that car really doesn't change. Occasionally there'll be a firmware update when they bring their vehicle in if there's a recall or something along those lines. But what we're seeing are vehicles that will evolve over time and continue to gain functionality. But at the same time, the rate and pace of the technology evolution is going to create a bigger difference between a car that's three or four years old, and a new car than what we see today. Five years from now, that gap will be even larger just because of the rate and pace. And so we expect to see that advanced driver functionality is going to be there. You'll see more range, you'll see faster charging, you'll see lower battery costs. And you'll see a much broader adoption. And so if you think about the number of production EVs that are available today that you literally have access to, because most of them have pretty long, long waiting lists, and you think about the number of models, it's going to be more than fivefold what it is today. And so the choices that folks will have will continue to expand, which means that the competition will continue to expand, which means that the rate and pace of innovation has to accelerate in order for people to stay competitive in that space, which is exciting.