Deep Dive: Electric vs. ICE Vehicles

The transition from Internal Combustion Engine (ICE) vehicles to Electric Vehicles (EVs) is not just a change in powertrain; it's a fundamental shift in vehicle architecture, supply chains, cost structure, and business models. This deep dive explores the key credit-relevant differences.

📊 Comparative Financials & Cost Structure

Bill of Materials (BOM) & Margins

  • ICE Vehicles: Mature and highly optimized supply chains. The engine, transmission, and exhaust systems are major cost centers. Gross margins are well-understood and can be strong, especially on large trucks and SUVs which are highly profitable for US-based OEMs.
  • EVs: The battery pack is the single largest cost component, often accounting for 25-40% of the total vehicle cost. This significantly pressures gross margins. Achieving margin parity with ICE vehicles is a primary goal for all OEMs and is heavily dependent on falling battery prices (e.g., from cheaper LFP chemistries), manufacturing scale, and software-enabled features.

Capital Expenditures (Capex)

  • ICE-related Capex: Primarily maintenance and minor upgrades for existing plants. Investment in all-new ICE platforms is rapidly declining ("peak ICE").
  • EV-related Capex: Massive investment required for all-new dedicated EV platforms ("skateboard" architectures), battery pack assembly plants (gigafactories), and retooling existing assembly plants to handle EV production. This creates a huge capital burden during the transition.
❗ Supply Chain & Manufacturing Differences

Supply Chain

  • ICE Supply Chain: Extremely complex, with thousands of specialized parts. Relies on a long-established global network of suppliers for components like pistons, fuel injectors, and catalytic converters.
  • EV Supply Chain: Simpler in terms of part count, but creates new, critical dependencies.
    • Battery Raw Materials: Relies on the mining and processing of lithium, cobalt, nickel, and manganese. These supply chains are geographically concentrated and have volatile pricing. Securing long-term supply is a key strategic challenge.
    • Semiconductors & Software: EVs are "computers on wheels" and use significantly more semiconductors than ICE vehicles to manage the battery, motors, and advanced software. This creates a dependency on chip foundries.
    • Vertical Integration: Many OEMs (like Tesla and GM with its Ultium platform) are vertically integrating into battery and motor production to control cost and supply, a reversal of the decades-long trend of outsourcing.
🔄 Aftermarket & Residual Value Implications

Aftermarket & Maintenance

  • ICE Vehicles: Provide a steady, high-margin stream of parts and service revenue for dealers and suppliers (oil changes, spark plugs, exhaust systems, transmission service). This is a critical profit center for dealers.
  • EVs: Have far fewer moving parts and require significantly less routine maintenance. This poses a long-term structural threat to the traditional dealer service model. The main service items are tires, brakes, and potential battery health checks and software updates.

Residual Value (RV)

  • ICE Vehicles: RVs are well understood and relatively predictable.
  • EVs: RVs are a major uncertainty and credit risk. Rapid technological improvements (e.g., new battery chemistries, longer range, faster charging) could make older EVs obsolete faster, leading to lower-than-expected resale values. This is a significant risk for OEM captive finance arms that write leases on EVs.