Electric Vehicle Revolution: Will Automakers Build Their Own Electric Motors or Compete on Software?

In the world of electric vehicles (EVs), lithium-ion batteries and electric motors are no longer exotic technologies. As the industry transitions from internal combustion engines (ICEs) to electric powertrains, these components are becoming commodities with significant engineering behind them. But does this mean that automakers (OEMs) will build their own electric motors for a competitive edge?

From Lithium-ion Batteries to Electric Motors

Just as smartphones and PCs use off-the-shelf components, the automotive industry is likely to follow a similar path. By the time batteries and electric motors become affordably priced for wholesale conversion, these components will no longer be the differentiating factor. Current trends suggest that both batteries and motors are becoming standardized, facilitating large-scale production and reducing the need for OEMs to invest heavily in proprietary technologies.

Consider the smartphone and PC industries. Despite the ongoing innovation in these sectors, the basic components are readily available from a variety of suppliers. The key competition is in the software, design, and integration, rather than the individual parts themselves. Similarly, in the EV industry, OEMs will likely outsource electric motors to specialized manufacturers, but they may still invest in software and autonomy to create a unique value proposition.

Building Your Own Parts vs. Competing on Different Standards

Building your own parts may not necessarily give you a competitive advantage in the long run. For instance, Apple manages a network of hundreds of suppliers, including some smartphone manufacturers, to build critical functioning parts. On the other hand, NVIDIA and Qualcomm offer best-in-class processors and GPUs. In the EV industry, batteries and electric motors will provide a limited competitive advantage, as almost every OEM will have access to similar technologies.

Tesla is already leading the charge in software and autonomy, and their battery production is a testament to their innovation and efficiency. By partnering with other battery manufacturers, Tesla aims to remain a significant supplier in the global EV battery market. However, in the next 10 to 15 years, this 10 to 15 percent share is impressive for a new entrant.

While OEMs can purchase components off the shelf, the true differentiator will be the software and vehicle experience. Tesla is setting the bar high in this area, and other automakers will need to compete on these fronts.

Outsourcing vs. In-House Engineering

For many automakers, outsourcing electric motors is the more viable option. For instance, some cars already use engines from other manufacturers. The electric motor will likely be outsourced unless the cost of manufacturing them in-house is significantly lower.

CEOs of big corporations often have big egos and a belief that they can do things better than anyone else. It is almost inevitable that they will try to build their own electric motors to gain a competitive edge. However, this might not be the most cost-effective or innovative approach for all OEMs.

At the end of the day, the real game-changers will be software, vehicle experience, and ultimately, autonomy. Companies that can provide superior software and innovative autonomous driving capabilities will stand out in the crowded EV market.