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The global transition from internal combustion engines (ICE) to battery electric vehicles (BEV) will be transformative and disruptive, if not existential, for many segments of the automotive industry. Driven by worldwide climate concerns and stimulated by over $200 billion in new investment, all direct and indirect participants in the automotive supply chain will be affected to some degree. As the OEMs transition to EV powered vehicles, the viability of segments of the supply chain without the ability to invest in the required new technology, or whose product offering is not compatible with EV production, will be in jeopardy as new business opportunities materially decline, volumes decrease, early termination of programs increase, profits erode, financing becomes problematic, and prospective acquirers at fair value become scarce.
As the transition progresses, all constituencies in the supply chain would likely be affected, including:
• The customer (whose supply chain will be degraded);
• Segments of the Tier 1, 2, and 3 supply chains (whose profit margins, going concern value, and ability to obtain working capital and capital financing will deteriorate);
• Lenders (which, given the risks, may radically reduce their exposure to the automotive sector, particularly to suppliers who will not make the transition to BEV;
• Acquirers (gradual withdrawal of strategic buyers from the market, leaving private equity as the dominant potential acquirers, which would be problematic to most customers).
• In addition, there will be new technically driven entrants into the supply chain (foreign and domestic-based) who are unaccustomed to the customer terms and conditions and, in general, the customs and practices in the auto industry who will require legal guidance.
Although there may be some delay from current projections in the timing of the transition, all segments of the supply chain need to proceed today to adjust their business model to anticipate and take advantage of this shift. The challenge of maintaining ICE vehicle production while transitioning to BEVs, given the many uncertainties regarding timing, competition, adequate charging infrastructure, government policies (incentives and regulations), and consumer acceptance, will result in significant risks and opportunities.
Dickinson Wright has established a cross-disciplinary team representing multiple practice specialties to advise clients as they address the many and variable aspects of this transition. This shift will literally transform the industry and will create great challenges and opportunities for clients and prospective clients involved in all aspects of the automotive sector, including all tiers of suppliers (especially those producing powertrain related products), OEMs, battery manufacturers, technology companies newly entering this space, lenders, private equity, and beyond.
The Dickinson Wright team is positioned to address these challenges:
• Protecting the intellectual property and competitive innovations of existing companies in the industry and new entrants, including ITC and 337 matters.
• Advising on multiple aspects of the global supply chain including, sourcing strategies, supplier terms and conditions, and troubled suppliers.
• Providing strategies for sourcing capital, including negotiations with various public and private financing sources.
• Implementing M&A strategies, joint ventures, acquisition and dispositions of business units, and other transactional issues, special-purpose acquisition companies (SPACs).
• Resolving cross-border transactions and disputes, as well as regulatory concerns and trade issues.
• Counseling on cross-border issues, including matters involving national security reviews – Committee on Foreign Investment in the United States (CFIUS), International Traffic in Arms Regulations, (ITAR), and U.S. Customs and Border Patrol (CBP).