· 5 min read
Using Bosch as a case study and drawing on data from illuminem’s Data Hub™, this article introduces a seven-indicator dashboard to help boards navigate the “valley of death” of short-term value loss toward long-term sustainable returns.
The global automotive industry is experiencing its most disruptive transformation since Henry Ford’s assembly line. By 2035, the European Union will ban sales of new internal combustion engine (ICE) vehicles, forcing manufacturers and suppliers to pivot to electric vehicles (EVs) at unprecedented speed.
For Bosch, long the backbone of ICE powertrains, this is nothing short of existential. In 2020, the company earned €4.5 billion in operating profit from ICE systems. Yet just two years later, its Economic Value Added (EVA) plunged from +€2.5 billion (2019) to –€1.4 billion. To the casual observer, this looks like failure. But in reality, Bosch was navigating what every transitioning company must endure: the “valley of death” — temporary value destruction that precedes long-term gains.
The central question for boards and investors is simple: how do we know if the transition is on track?
Why profit alone misleads
Executives often rely on Net Operating Profit After Tax (NOPAT), the profit left after operating costs and taxes. It measures current profitability, but it does not tell you if the business is creating value once the cost of capital is considered.
That is where Economic Value Added (EVA) comes in:
EVA = NOPAT – (Invested Capital × WACC)
EVA reveals whether returns actually exceed the cost of the money tied up in the business.
Consider a division that posts €400 million in NOPAT. If €6 billion is invested and the weighted average cost of capital (WACC) is 8% (€480 million), EVA is negative €80 million. The unit looks profitable, but destroys shareholder value.
Bosch’s ICE operations fell into this trap: steady NOPAT but declining EVA as assets stranded. Meanwhile, EV investments pulled down NOPAT but created patents, partnerships, and skills that underpin future value.
Monitoring lesson: NOPAT shows today’s profit; EVA shows tomorrow’s viability. Boards need both.
The “valley of death” is investment, not failure
Bosch’s EVA path illustrates the pattern every transition follows:
• 2019: EVA +€2.5B (ICE profitable; EV investment minimal)
• 2022: EVA –€1.4B (ICE declining; EV costs high; restructuring underway) • 2027: EVA projected +€2.0B (EV division profitable; ICE streamlined)
• 2032: EVA projected +€4.9B (66% above pre-transition baseline)
The dip is not mismanagement. It is the unavoidable cost of building future capability. Firms that misinterpret it as failure often pull back at precisely the wrong moment.
Seven dials boards should watch
So what should directors, investors, and regulators monitor to know if a company like Bosch is truly making the transition? Bosch’s case points to seven dials on the dashboard.
1. EVA trajectory: Track EVA and through-cycle Return on Invested Capital (ROIC). Ignore quarterly noise. The question: does average ROIC beat WACC across the transition?
2. Peer benchmarking: Context matters. Bosch’s EVA valley was deeper than Tata-JLR’s, which cushioned losses with hybrids. Geely-Volvo recovered faster, supported by China’s integrated supply chain. Comparing trajectories shows whether a firm is moving faster or slower than rivals.
3. Technology readiness: EV competitiveness rests on batteries, motors, power electronics, charging, and software. Bosch leads in 800V SiC inverters and battery management but trails Tesla in software and China in battery scale. A radar chart scoring these domains makes readiness visible.
4. Supply-chain exposure: Lithium, cobalt, nickel, rare earths, and graphite supply is highly concentrated. The Democratic Republic of Congo produces 70% of cobalt; China processes 85% of rare earths. This concentration creates supply, cost, and reputational risks. Boards must monitor sourcing diversification and recycling capacity.
5. Workforce transition: Bosch invested €2 billion retraining 75,000 employees. The alternative — severance, rehiring, onboarding — would have cost €3.2 billion. Retraining preserved institutional knowledge and morale. Metrics such as retraining success rates and retention reveal whether a company treats its people as costs to cut or assets to grow.
6. Value pool migration: ICE profits relied on engines, transmissions, and after-sales service. EVs shift profit pools to batteries, power electronics, and software. By 2030, Bosch expects €800 million in profit from connected services alone. Boards should monitor the revenue mix, not just sales volumes.
7. Regulatory alignment: Regulation defines the transition pace. EU fleet standards tighten to 55g/km by 2030 and zero by 2035. The US Inflation Reduction Act accelerates adoption through subsidies. China drives the fastest transformation through industrial policy. Bosch aligns EV breakeven (2025), EVA positive (2027), and one-third EV sales (2030) with these milestones.
Why this matters beyond automotive
These seven dials matter not just for Bosch, or even the auto industry. The same framework applies to other systemic shifts:
• Energy companies moving from fossil fuels to renewables
• Retailers shifting from physical to digital platforms
• Manufacturers adapting to automation and AI
In each case, profit snapshots mislead. EVA, technology readiness, supply-chain resilience, workforce capacity, and regulatory alignment determine whether a firm emerges stronger or stranded.
A dashboard for disruption
The lesson from Bosch is simple but profound:
• Accept temporary EVA collapse as the cost of transformation.
• Measure value creation across the cycle, not just this quarter.
• Monitor the non-financial dials — technology, supply chain, workforce, regulation — that underpin financial outcomes.
Transition is not merely something to survive. For boards and executives willing to measure the right things, it is a chance to build lasting advantage.
Further reading
This op-ed is based on my full-length study, Managing the ICE→EV Transition: A Bosch Case Study, which includes data-backed charts, references, and a structured monitoring dashboard. Readers can access the complete analysis here.
illuminem Voices is a democratic space presenting the thoughts and opinions of leading Sustainability & Energy writers, their opinions do not necessarily represent those of illuminem.
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