We’ve been anticipating this and now it’s happening and it’s big news.  The blur between supplier and OEM in the automotive sector is increasing.  The giant Canadian-based automotive supplier to OEMs has announced a new facility in Austria to assemble both the Jaguar I-Pace (JLR) and the BMW 5-Series plug-in hybrid vehicles.  Now, with contract manufacturer responsibilities, a firm like Magna is moving toward status as a “partner OEM”.  This is likely to portend other moves where suppliers take on assembly of specialized vehicles for legacy OEMs, but also for some of the new-on-scene tech-oriented automotive start-ups.

The emergence of the mega-supplier in the auto manufacturing sector over the past decade or so has given birth to global firms with a dazzling range of multi-disciplinary capabilities – and these giants in some ways are the foundation of today’s automotive industry.   Increasingly these suppliers are tasked with providing comprehensive product solutions by the traditional OEMs and undertake conceptual development, materials development, design, engineering and component assembly.  So with the JLR and BMW announcements, we now are seeing outsourcing of both the design and manufacturing of major product components, but also whole-vehicle assembly.  This is a major step and one we know will be replicated in other situations.  In our work, we are seeing key suppliers assume far more fundamental roles, especially with the technology-driven/funded start-ups and for companies (some Chinese) that will be expanding substantially into new geographic markets.

An extraordinarily interesting time in the auto sector.  Stay tuned for more announcements over the next 6-12 months.

Magna International Inc to build BMW’s new hybrid as the world’s only contract auto manufacturer

Contract manufacturing creates a niche for the company as automakers slowly bring more electrified vehicles to market over the next decade

June 19, 2017

Canadian auto supplier Magna International Inc will produce BMW’s new 5-series plug-in hybrid at its Austrian factory, the company said on Monday, part of a strategy to produce electric cars on a contract basis for global automakers.

The BMW 530 plug-in hybrid will be manufactured beginning this summer at Magna’s plant in Graz, Austria, where it already plans to produce Jaguar’s I-PACE SUV beginning in early 2018.

Global automakers and their suppliers are investing heavily in fully-electric and gasoline-electric hybrid vehicles. Consumer demand is still low versus that for gasoline engine vehicles, but companies are beginning to offer more choices to respond to government mandates for greater sales of vehicles that emit little or no carbon dioxide, and prepare for a future experts believe will be dominated by electric vehicles.

Rival tier-one auto supplier Continental AG, for example, said in April it was increasing spending by 300 million euros (US$334.68 million) on new products such as charging systems and battery management components related to electric vehicles.

Magna, North America’s largest automotive supplier and the third globally, is alone among the top auto suppliers to perform contract manufacturing for carmakers. Its Austrian plant can produce about 200,000 cars per year. Magna is currently building a new paint shop in Slovenia due to increased demand.

A Magna spokeswoman would not comment on a statement by the Slovenian government in March that the auto supplier would potentially invest up to 1.24 billion euros in the country, including a car plant with capacity of 100,000 to 200,000 vehicles per year.

Having contract manufacturing in its portfolio creates a niche for the company as automakers slowly bring more electrified vehicles to market over the next decade. For automakers, outsourcing the assembly can be an advantage on low-volume models to minimize capital expenditures and avoid tying up their own production lines.

Swamy Kotagiri, Magna’s chief technology officer, said he sees contract manufacturing of electric vehicles as a “near-term opportunity” for the company, given that by 2025, 40 to 50 per cent of all vehicles produced will include some electrification elements.

“We are setting up knowing the penetration will be higher.”

Magna has also produced non-electric cars at its Austrian facility, including BMW’s Mini Countryman and Mercedes-Benz’ luxury G-Wagen SUV.

Last month, Magna raised its full-year sales forecast on higher demand.

© Thomson Reuters 2017

GLDPartners is an international investment advisory firm that works at and around high-potential and emerging airports, seaports, railports and strategic trade and logistics hubs. GLDPartners assists private and public clients to understand where and how best to position their resources and attract investment, and importantly in many cases acts as delivery partner in revenue growth and infrastructure development. The firm offers a unique interdisciplinary blend of hands-on senior business expertise to support next-generation revenue growth, infrastructure development, project finance and economic development strategy. GLDPartners’ core businesses are: 1) market-based strategies and projects at and around industrial and logistics assets – strategic inland trade hubs, seaports and airports; and 2) supply chain and site location advisory services to domestic and global firms. GLDPartners has offices in the United States, Canada, Mexico and the United Kingdom.