Ambitious electrical vehicle (EV) production looks more and more like an industrial revolution in the making
Progressive tightening of regulatory emission targets in Europe, and around the world, was holding promise of a managed transition
However, environmental anxieties and governmental policies heighten expectations with little thought for industrial complexities and geopolitical dependencies
With those anxieties building up as the dangers of climate change become more tangible, electrical vehicles are marketed as wise – and inevitable – options to prepare for a benign future
Advertised reassuringly as the latest symbol of progress, thriving on technological wonder, electrification of transportation seems to be a 'free' ride, without social or economic cost, with a guarantee of shining new job creations to boot
If only…
An overview of CO2 transportation emissions spreading around the world paints a sobering picture of an unrelenting upward march, where European commitments of a Green Nirvana are at best well-intentioned, or maybe just naïve (and politically convenient)
By vaunting the technological miracle of electrical power, committed Green party politicians and brilliant marketers such as Elon Musk of Tesla
Waving the magical wand of EV world conquest, Green activists and main-stream politicians are confidently sharing the vision of a better world with the consumer, and its inevitability with the trade unions themselves
The thing is...getting down to the nuts-and-bolts...
Potential job losses, retraining programs, actual CO2 emissions (accounting for electricity production), battery expertise and competition by new global manufacturers all raise issues which are still (mostly) unanswered
The intricacies of the "to-do" list, thrashing more than half a century of automotive manufacturing expertise and capital investments, and the height of expectations entertained by the general public, seem to be a recipe for social upheaval, back-breaking transformation and swift emergence of new supply chain stakeholders
The supply chain
The supply chain – from car-parts suppliers to car assembly lines, down to the service sector – is left with the thankless task of turning the grand vision into happy reality
Putting established and trusting business relations through the wringer, electrification will decimate industry segments (foremost in the production of powertrain parts) and give a free hand to technological outsiders, who happen to be deep-pocketed behemoths, keen to dominate automotive software, as well as battery research and manufacturing, at any cost...
According to a report by CLEPA, the European Association of Automotive Suppliers , 70 percent of the value creation related to electric powertrains will be connected to the processing of battery , from raw materials to cells to pack assembly to recycling
Requiring very different skillsets for academically schooled employees, operating factories at distance from carmakers' hubs, there is little reason to assume that battery manufacturing will be retained by the carmakers themselves or involve ICE component suppliers in significant numbers
It may become hard to explain the share run-up of car makers who will relinquish value creation to strong technological specialists such as China's battery giant CATL, Japan's Panasonic Invalid tag asset or South Korea's LG Chem ...
To make real-world issues likely to surface in the transition worse, the automotive chain involves an infinite variety of operators, from well-capitalized car assemblers backed by trusted brands to thousands of powertrain parts manufacturers and, in the after-market services, small-time garages
Unable to sum these diverse interests with a single voice, the hope of a prudent transition is further fractured by conflicted relationships between the major automakers themselves and upended by the entry of new competitors who dominate the expertise in software, semiconductors or battery R&D
And finally, perennial outsider Tesla
Automotive job numbers are familiar
The industry employs 14.6 million people, or about 6.7% of Europe’s workforce, directly and indirectly, according to the European Automobile Manufacturers’ Association
The figure includes jobs at car rentals, petrol stations, road construction, truck drivers, only some of which will be affected by electrification over time
Based on data from Europe's statistics office Eurostat, 2.7 million people are directly employed in manufacturing in the automotive industry (8.5% of total EU manufacturing employment)
However, the car manufacturing jobs vary greatly between Germany (882 000 people) and its closest competitors - France and Poland (both over 200 000 jobs) - followed by Romania, the Czech Republic, Italy, the UK and Spain all below 200 000 jobs
With close to 12% of total manufacturing jobs in the automotive industry, Germany will weigh its option on electrification carefully, making rash EU decisions improbable
Second largest automotive employers France and Poland stand for 7.4% and 5.8% of total manufacturing jobs
Car part suppliers are coming into focus
While the transition of carmakers to electrification has been much reported, it is Europe's car part suppliers who will be bearing the brunt of job losses
European automotive suppliers provide more jobs (1.4 million) than the carmakers (1.2 million) and projections of job redundancies in legacy internal combustion engines (ICE) are undisputable
Building a diesel power-train system needs 10 times more workers than manufacturing an electric one will require
Estimates for France’s 57,000-strong auto-engine workforce are indicative: employment will shrink by up to 70% by 2050 without transition measures, according to a June ’21 report (in French) by former French environment minister Nicolas Hulot’s Foundation for Nature and Mankind
A study commissioned by Volkswagen and conducted by the Fraunhofer Institute for Organization and Industrial Engineering projects similar levels of job losses in a transition
- "With respect to component manufacture, labour requirements are 70% higher for the production of a conventional powertrain than for the production of a powertrain for an electric vehicle"
Things have been heating up - as they inevitably will - at Volkswagen's 20-member supervisory board, where the workers' unions hold sway with half the seats and reliable support by the two board representatives of Lower Saxony, the western German state owning 20% of the company
Late last year (Nov. 2021), leaked plans by the car maker's CEO, Herbert Diess, of reducing headcount by 30 000 met with brutal pushback and Mr. Diess' undiplomatic performance has been under evaluation by a four-member 'mediation committee' since
Hard truths are sometimes better left unsaid ?
Cascading down the supply chain, CLEPA estimates 501,000 auto supplier jobs in Internal Combustion Engine (ICE) powertrain components production are expected to become obsolete in Europe if technology is phased-out by 2035
2035 is the target date proposed by the European Commission in the "Fit for 55" plan to eliminate all CO2 emissions from new cars, placing a de facto ban on the sale of combustion-engine powered vehicle
The same study expects 226,000 new jobs in EV powertrain production (including EU battery production plans), resulting in a net loss of 275 000 jobs
Actual impact on current ICE employees could easily worsen
- Approx. 20% of people employed in small and medium-sized power-train suppliers, lacking capital resources and expertise to seize the new opportunities, are most directly exposed
- Training prerequisites to transition into the new EV-related jobs are an additional concern, with trade union estimates of up to 4 years of education for the highest qualifications
- The skew between job losses - expected to occur early on, between 2030 and 2035 - and new job opportuniies, spread through 2040 - will make an uneasy fit for affected personnel
Carmakers are different
Publicly carmakers have not laid out detailed job redundancies, except for piecemeal announcements
This has been the case at Daimler Invalid tag asset (10 000 job redundancies globally, Nov. ’19), BMW Invalid tag asset (6 000 jobs, and vacancies not to be refilled, July ’20), Renault
Competitive concerns, industrial strategies pushing for more automation on EV assembly lines and shifts of production to less costly locations in Eastern Europe are all probable factors in withholding information deemed strategic
More broadly, the Volkswagen study concludes that "job losses from the introduction of electric mobility are likely to be substantially lower in the area of vehicle manufacturing than global studies have predicted"
The confidence on display to manage the EV transition on the fundamental strengths of the firm and its multiple brands is probably shared by its European competitors
However, the VW - Fraunhofer report comes with a warning that
- "Germany's automotive sector must establish new forms of cooperation so as not to "recklessly surrender the field of mobility to new market players."
Quite so...and the Volkswagen conglomerate, a committed front-runner in electrification, should know, as the firm's cooperation with China's battery leader CATL underscores...
As competition between EV line-ups gets going, the carmakers, caught in a vise between software providers and battery manufacturers, will only be as strong as their brands in the market place and as imprevious as their capital lay-out
There will be winners as we expect to argue in a forthcoming note 'East meets West'
Note - Additional data information is available in the Clean Enery Wire factsheet, dated July 2021