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Growth of Hybrid, EVs Leads to Expanding Global Supplier Base

Executive Summary

To date, the U.S. Energy Dept. has awarded 35 auto makers and suppliers more than $8 billion in grants and low-interest loans to produce batteries and related components for EVs and HEVs.

TOKYO – A small but specialized global supplier base is emerging, as hybrid-electric-vehicle sales appear on track to reach 900,000 units this year.

Most of these parts makers are located in Japan, and the vast majority of their business is with Toyota Motor Corp. and Honda Motor Co. Ltd., makers of the Prius and Insight, the world’s best-selling HEVs. Among the bigger names are Denso Corp., Keihin Corp., Panasonic Corp. and Yazaki Corp.

But two recent groundbreakings – one in Michigan, the other in Tennessee – have major implications for the global supplier industry regarding not only hybrids but also all-electric vehicles.

In Holland, MI, a subsidiary of South Korea’s LG Chem Ltd. received a $151 million grant from the U.S. Energy Dept. to construct a lithium-ion battery-cell plant for electric vehicles.

Some 600 miles (966 km) south, the government agency granted Nissan North America Inc. a $1.4 billion loan to build a Li-ion battery plant on the auto maker’s 780-acre (316-ha) Smyrna, TN, production site. The money also will be used to modify the existing main assembly plant to produce the Leaf EV on the Altima Hybrid line.

Similar government financial support is being extended across European Union countries, such as France and Spain, although the emphasis there is more on infrastructure than manufacturing.

Time will tell whether these investments pay dividends in creating a dedicated supplier industry for the emerging segment. Success or failure will depend on how many consumers want to drive electric cars and hybrids, whether U.S. gasoline prices stay at current $3-per-gallon levels and how long financially strapped governments are able and willing to offer sales incentives.

Related document: Ward's U.S. Light Vehicle Hybrid Sales

Kohei Takahashi, senior analyst at J.P. Morgan Securities Japan Co., predicts by 2020 hybrids and EVs will account for upwards of 40% of light-vehicle demand in the U.S. That means 6 million vehicles annually if total industry demand recovers to 16 million sales as some analysts expect.

And unlike today, most of these models will be produced in North America. Last year, more than 70% of hybrids sold in the U.S. were exported from Japan, with the Prius and Insight comprising the dominant share.

Takahashi’s European forecast is less bullish due to greater emphasis placed on “clean” diesel technology. But worldwide, he believes one in four new vehicles sold by the end of the decade will be partly or wholly battery-powered. Other forecasts put the share as low as 10%-15%.

But even if total demand grows to 100 million units and just 15% are HEVs and EVs, that still means 15 million battery packs, motor sets, DC/DC converters and electric air-conditioner compressors. Should Takahashi’s forecast prove right, the total would jump to 25 million units.

David Smith-Tilley, London-based consultant for IHS Automotive, believes much of this new business will be replacement.

For example, electric air-conditioners will replace electrohydraulic types, hybrid transmissions will supplant conventional automatic transmissions, and power electronics will supersede mechanical controls. And domestically made components will replace imports.

Ford Motor Co., which for its first five HEVs – including the new Lincoln MKZ Hybrid due out this autumn – used a hybrid transmission supplied by Aisin AW Co. Ltd.

The auto maker will bring this system in-house in 2012 and switch to U.S.-made drive motors from Toshiba Corp.

Top 10 Hybrid Car & Light Truck
Sales in U.S. for 2009
Cars 2009
Toyota Prius 139,682
Toyota Camry 22,887
Honda Insight 20,572
Ford Fusion 15,554
Honda Civic 15,119
Trucks 2009
Ford Escape 14,787
Lexus RX400/450 14,464
Toyota Highlander 11,086
Chevrolet Tahoe 3,301
Saturn Vue 2,656
Source: Ward’s Data

Toshiba, which currently delivers motors to Aisin AW from a subsidiary plant in Japan, announced in June plans to invest ¥4 billion ($46 million) in a drive-motor assembly line at its Houston, TX, plant, which at startup will have monthly capacity of 100,000 units.

General Motors Co. will turn to LG Chem’s Michigan operation for Li-ion batteries for the Chevrolet Volt, due to launch in December. The auto maker currently sources nickel-metal-hydride batteries for its conventional hybrid lineup from Toyota subsidiary Panasonic EV Energy Co. Ltd.

GM hybrids include the Chevrolet Tahoe, GMC Sierra and a half dozen other models.

Ford and Eaton Corp. also will turn to LG Chem, in the case of Ford for the new Focus EV due next year. Eaton’s hybrid-power systems currently find use on trucks operated by FedEx Corp., United Parcel Service Inc. and The Coca-Cola Co.

Ford sources NiMH batteries for its hybrid lineup from Osaka-based Sanyo Electric Co. Ltd., a subsidiary of Panasonic since December.

Neither Japan-based Panasonic nor Sanyo, whose batteries are fitted in more than 95% of HEVs and EVs on the road today, has yet to establish an overseas manufacturing presence.

They likely won’t unless assured sales of more than 200,000 units, considered the minimum production threshold to justify such an investment – sans receiving a U.S. Energy Dept. grant.

Prior to Toyota’s 2008 decision to shelve plans to build the Prius at its Blue Springs, MS, plant, now scheduled to open in fall 2011, a senior Panasonic executive advised the company would not build a U.S. battery plant to supply the operation.

Instead, it would source from Japan, where, through Panasonic EV Energy (Panasonic still holds 20% equity), it operates three large plants with combined annual capacity of 1 million units.

Larry Nitz, GM executive director-hybrid and electric powertrain engineering, says no decisions have been made about future batteries for the auto maker’s lineup of conventional hybrids, all of which like Toyota, Honda and Ford HEVs use NiMH for their supplemental power source.

“Future decisions will depend on generational improvements in technology and production volume,” he says. “Not one, not the other, but both. It’s a moving target and will also depend on whether gas is $3 per gallon or $8.”

For the Volt extended-range EV and GM’s new mild hybrid series, the auto maker will switch to Li-ion batteries.

In the case of GM’s mild hybrid series – due out in 2011 and scheduled to replace the Saturn Vue Green Line and Aura Hybrid – Hitachi Vehicle Energy Ltd., which lost out to NEC Corp. for Nissan’s EV business, will be the supplier.

Short of a major breakthrough in Li-ion-battery technology, hybrids are expected to account for the dominant share of new demand in the coming 10 years.

Ford, Detroit’s leader in introducing hybrids, expects conventional HEVs to account for 70% of future sales in the emerging segment, with EVs and plug-in hybrids dividing the rest.

Ford currently has four hybrids in its lineup: the Escape, Mariner, Fusion and Milan. With discontinuation of the Mercury brand this autumn, the auto maker will phase out the Mariner and Milan HEVs. The Lincoln MKZ Hybrid will be produced alongside the Fusion Hybrid in Hermosillo, Mexico.

Also this year, Ford will launch its first EV, the Transit Connect electric van, followed by the Focus Electric in 2011.

Last year, Ford sold 40,400 HEVs, including 33,500 in the U.S. Through June, it was on track to increase that number to more than 42,000 in 2010.

Toyota's Global Hybrid Sales
Model Jan-June 2010 2009 2008
Prius 270,200 404,200 285,700
RX400h/RX450h(1) 19,800 36,700 31,400
Highlander Hybrid 4,500 12,200 21,000
GS450h 1,500 3,200 5,100
LS600h 3,000 2,300 8,400
HS250h(2) 19,600 15,500 N/A
Camry Hybrid 15,300 30,000 52,500
Total 333,900 504,100 404,100
Source: Toyota Motor Corp. (1) Toyota launched the RX450h in May 2009; replacing the RX400h. (2) Toyota launched the HS250h in July 2009.

GM already has announced plans to expand capacity at its Hamtramck, MI, plant to 45,000 units, from 30,000 initially planned to accommodate the Volt, which joins a fleet of seven Chevrolet and GMC hybrids. The auto maker sold 16,142 HEVs in the U.S. market in 2009. But through July, sales were down 50% from year-ago’s pace, signaling a shift in focus to the Volt.

Nissan is scheduled to begin production of the Leaf EV in Smyrna in 2012, two years after the car’s Japanese launch. The auto maker has set aggressive sales targets that at the outset will require extensive incentives to reach.

IHS Automotive’s Smith-Tilley warns it’s too soon to draw conclusions about Li-ion batteries and other EV and plug-in hybrid components.

“We still don’t have sufficient field data to determine if all operational problems have been resolved,” he says. “Nor do we know what sort of system integration can be realized and when or how much drain future HVAC systems will place on vehicle range and comfort.”

IHS Automotive projects EVs will account for 3% of global vehicle sales in 2020, while plug-in hybrids will claim 2.6% of the market.

Tom de Vleeschawer, another senior IHS Automotive consultant, says Europe offers the most promise for electric vehicles.

EVs will find a natural home in urban environments, initially in Europe, while plug-in hybrids will play a transitional role in the city-focused markets of Europe and Asia but a more long-term role in the U.S., he says.

China is a wild card and, depending on government policy coupled with enormous growth prospects in the domestic market, could raise global forecasts by several percentage points.

Since Toyota launched the Prius in December 1997, cumulative hybrid and EV global sales have grown to nearly 3 million units, with more than 90% Toyota and Honda models.

Thus, more than 90% of components have been produced in Japan, including some by the auto makers, themselves, such as motors and power-control units.

For Japanese suppliers, growth of an overseas supply base is not necessarily a bad thing.

Global HEV and EV demand is projected to grow at least 10 times over the next decade and, if J.P. Morgan’s forecast proves correct, as much as 25 times. That means a potential win-win situation for all suppliers and auto makers, such as Nissan, which hopes to sell batteries in addition to electric cars.

Based on January-June delivery totals, global hybrid and EV demand is on track to reach 900,000 units this year.

Japan’s leading auto makers all have aggressive plans to expand sales in the segment.

Toyota, for instance, estimates hybrids will account for 30% of its global sales volume by 2020. Honda’s target is 20%, while Nissan and Mitsubishi Motors Corp. both have made major commitments to electrification and formed alliances with European auto makers.

In Nissan’s case, with its French partner Renault SA, and in Mitsubishi’s case, with PSA Peugeot Citroen.

Japanese suppliers already have a 10-year head start on the rest of the industry. Denso, Toyota’s main group supplier, produces systems and components for all Toyota and Lexus hybrids including battery monitoring systems, hybrid ECUs, DC/DC converters, inverters, main relay systems and electric air-conditioning compressors.

The supplier shares the electric compressor and DC/DC converter contracts with Toyota Industries Corp.

For the Prius, Denso supplies the inverter; HVAC system and electric air-conditioner compressor; solar ventilating system; and body, engine and inverter ECUs. For the Lexus LS 600h, Denso provides the HVAC system, inverter, power-control unit for the car’s direct cooling device and DC/DC converter.

The supplier also produces the battery-monitoring device for the Prius PHEV’s Li-ion battery pack.

TDK Corp. supplies DC/DC converters on all Honda HEVs including the Insight, CR-Z and Civic Hybrid. In the EV segment, Nichicon Corp. provides the DC/DC converter to Mitsubishi Motors Corp’s i-MiEV and Subaru’s Stella EV. TDK also supplies Ford’s Escape, Mariner and Fusion Hybrids.

Yazaki and Sumitomo Wiring Systems Ltd. divide Toyota and Honda’s high-voltage-wiring business almost evenly. Yazaki supplies the floor harness, aluminum cable, bus-bar module, input and motor connectors for the Prius.

For the Estima Hybrid, it delivers the power-supply connection terminal holder, while for the Harrier Hybrid, sold in the U.S. as the RX 450h, the company provides the floor harness, junction box, external shield, high-voltage connectors and bus-bar module.

Yazaki also delivers both front and floor harnesses to Mitsubishi and Fuji Heavy Industries Ltd. for the i-MiEV and Stella EV and to Honda and Nissan for the FCX Clarity and X-Trail fuel-cell vehicles.

The company supplies the front harnesses to Honda for the CR-Z, Insight and Civic Hybrid and unspecified high-voltage components to Mitsubishi Fuso Truck & Bus Corp. and Allison Transmission Inc. for hybrid buses. Later this year, Yazaki is expected to provide both front and floor harnesses to Nissan for the Leaf.

Sumitomo Wiring, a subsidiary of electronics-giant Sumitomo Electric Industries Ltd., produces the high-voltage power cable between the inverter and motor for the Prius and Lexus LS 600h and GS 450h models. It also supplies floor cables to the Highlander and Estima hybrids.

In addition to electrical devices and wiring, Japan is the production center for more than 95% of batteries used in hybrids and EVs. Panasonic EV has supplied more than 2.8 million NiMH batteries, mostly for Toyota HEVs.

Sanyo Electric is the principal NiMH battery supplier of Honda and Ford. GS Yuasa Corp. provides Li-ion batteries to Mitsubishi’s i-MiEV and soon will begin joint production of Li-ion batteries with Honda.

In 2008, NEC teamed with Nissan to produce Li-ion batteries for a lineup of Nissan and Renault EVs scheduled to roll out from 2011. The supplier, named Automotive Energy Supply Corp., currently is installing capacity for nearly 500,000 battery packs annually from late 2012, including a 200,000-unit plant in Smyrna.

Regarding other powertrain components, Aisin AW produces the rear-wheel-drive motor/hybrid transmission for the Toyota Crown Hybrid, all-wheel-drive transmission for the LS 600h and front-motor hybrid system for the Fusion, Escape and Mariner hybrids. Univance Corp. delivers motor-generator gearboxes to Isuzu Motors Ltd. for its Elf Hybrid truck.

Most driver motors are produced in-house – in the case of Toyota at its Honsha and Hirose plants and Honda at its Suzuka plant. Nissan will follow Toyota and Honda’s lead and manufacture motors at its Zama plant.

Mitsubishi purchases the i-MiEV’s motor-generator from Meidensha Corp.

Other suppliers joining the ranks include:

  • ADVICS Co. – components for regenerative-braking systems for Toyota hybrids.
  • Calsonic Kansei Corp. – inverter for the Leaf.
  • Keihin Corp. – battery, engine and transmission ECUs and power-drive units for Honda hybrids.
  • Maruwa Corp. and Toshiba Corp. – IGBT module power-control units in Toyota hybrids.
  • Panasonic Electric Devices Co. Ltd. – capacitors for Toyota hybrid-braking systems.

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