Rolling thunder

Rolling thunder

by Pininvest Analysis

Car Manufacturers & Sub-Contractors on

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The efforts to improve the environmental footprint have started to put considerably pressure on the entire car industry supply chain, to prepare for a shift away from internal combustion engines and to scale the production of electrical vehicles

Since early 2019, car manufacturers have announced job losses of 10% on average, spread over 2-3 years and less publicized layoffs down the supply chain may be even more critical

The shift towards the new technologies, driven by legitimate environmental considerations and by the attraction of true innovation, exposes the entire industrial sector, and the governments themselves, to a great degree of uncertainty and risk

While the revolution of transportation is a fact, many roadblocks still need to be overcome along the way

Pressing ahead in 2019 with the most constraining targets ever, the EU would be wise to monitor the consequences on industrial jobs across Europe closely and to show flexibility




Are European car manufacturers really itching for external growth ?

Merger talk  in the mid-sized car industry is doing the rounds in Europe, pushing to the fore Peugeot and Fiat’s FCA for a tie-up while Renault, anxious not to tumble down the rankings, is casting about

Nothing much may come of this, but M&A considerations are a coded warning for deeper issues bewitching the European car industry

First and foremost, the production capacity in Europe must come down, hitting the mid-range volume manufacturers hard and exposing Peugeot (16% market share), Renault (10.5%) and Fiat (6.5%)

With the strong symbolism of national car brands in France, Italy as well as in Germany, a combination involving assembly plant restructuring of these companies still remains improbable

It is not by chance that the external growth of all three companies has targeted non-European firms, Opel, Nissan and Chrysler respectively


It may not be enough

credit -

The efforts to improve the environmental footprint and the shift away from the combustion engine have started to put considerably more pressure on the entire industry supply chain, requiring unrelenting cost cutting to free necessary cash, forging sometimes unlikely alliances and anticipating much more hardship in the decade to come...


Rolling thunder

Amidst growing concerns about R&D and factory-floor investments to bring motorization in line with environmental regulations, radical restructuring, implemented at Groupe PSA following the Opel takeover, as discussed in ‘Peugeot puzzles’, is becoming the rule, not a special case

  • streamlining production around standardized platforms, smaller line-ups of core models and less customized options
  • axing R&D departments focused on mechanical engineering, as powertrain motorization fades into irrelevance 
  • contracting out research in chemical engineering (batteries), electrical and software engineering (electronic propulsion systems)

The announcements made over the past few months by Ford, Jaguar, BMW, Volkswagen and Honda attest of growing concern and haste to put the industry in order, before the transition away from internal combustion really starts to bite

credit SailNet

Preparing to sail in heavy weather under storm jib

In January ’19, Ford, which employs 53 000 persons in Europe, announced 5 000 job cuts in Germany and a reduction in the UK workforce estimated at 1 150 (990 of which at the Bridgend Wales engine factory by 2021), as part of a turnaround plan to restore profitability. Presumably, the announcement does not account for the shift towards electrification but prepares the company for the challenge

Jaguar (JLR) also announced a fairly similar program in January, cutting 4 500 jobs (10% of total workforce) to put the company in order for the transition

Volkswagen doubles down on its previous 2020 savings program with additional targets, aiming at lower operating costs of €5.9billion per year and eliminating 7 000 jobs, through early retirement plans by 2023 from a domestic workforce of 120 000

March ’19 announcements at BMW of a €12 billion savings and efficiency plan by 2022 to offset higher technology investments and to anticipate fundamental transformations of car production in the future

  • Initially, by following the now familiar road of streamlined production lines and cutting the number of options, such available drive train combinations
  • Over the next decade, by shrinking the work force (currently at 133 000 at BMW) to prepare the shift towards electrical vehicles - by retirements and early retirements of 5 000 employees

In February ’19, Honda has confirmed its intention to close its Swindon (UK) plant with a 3 500 job loss by 2022, because of fast declining demand for diesel vehicles in an overcrowded European car market, with Brexit uncertainties an aggravating factor. A further 3,500 jobs could be affected within the direct supply chain, according to the company



Preparing for a decade of turmoil as the industry adapts to the most profound transformation since the invention of the combustion engine...

Europe has been pushing for tighter rules since the introduction of mandatory CO2 standards for passenger cars in 2009 (voluntary commitment by the auto industry to reduce emissions had failed previously)

European Union - a regulatory front runner- credit ICCT (Jan. '19 Policy Update - page 9)

The initial set of regulations issued in 2009 - 130 gr/km for passenger cars by 2015 - was reached ahead of schedule by the car manufacturers

Probably with the smug feeling of having been right all along, the EU issued a second set of rules in 2014, tightening the target at 95gr/km by 2021 and the average CO2 emission value as of 2017 has already dropped to 119gr/km for new cars.  All the majors are on track with, as of the latest figures of 2017, but the share of hybrid plug-ins and electrical vehicles in each manufacturer group still remained quite small (European average 1.4%, with Renault topping the ranking at 2.5% of total registrations)

We suggest that, with significant line-ups of EVs prepared for launch in 20/21, the car makers were confident to reach their 2021 targets in a product mix of more efficient combustion engines - a key factor prioritized in the aftermath of the 'dieselgate' scandal - and of a moderately growing proportion of EVs, fine-tuned to comply with the regulation (and avoid paying excess emission premiums)

The calculation may have been upended by the latest set of regulations for 2021-2030, pushed through by the European Parlement against strong opposition of Germany and Eastern countries, where the high-end, heavier cars are produced. The new target of 59 gr/km lowers the 2021 emission target from 2015 by 37.5%  (with an intermediate target of 81 gr/km by 2025)

Branded as unrealistic pandering to political supporters by the car manufacturers in the luxury (German) segment, the new targets are undisputably upturning the smooth gliding path envisioned by the industry and catching the manufacturers in a vise

  • Improvements in internal combustion engines are likely to be at best incremental, hardly contributing to the new target
  • The new regulation shares this assumption by setting sales targets of 15% for 2025 and 35% for 2030 for zero- and low-emission vehicles (ZLEVs - refering to EVs and hybrids) - in effect mandating an overhaul of the entire manufacturing supply chain 

From 2021 on, this framework will be profoundly challenging for the industry

  • Manufacturing a third of its cars in a process which is the most radical transformation the industry ever experienced - and to do so within a 10-year span - is not for the faint-hearted
  • The sales of EVs in large numbers assumes public acceptance in the mass market (and not only in the luxury segment) - with much uncertainty regarding market price, new co-ownership options and transportation models)


A public challenge as well

The commitment to make this revolution happen is also a public challenge in terms of power infrastructure and production capacity of battery cells


Battery cells production in Europe - today entirely controlled by Asian manufacturers - has been much talked about at EU and at national level and remains on the drawing board, with a lot of waffle and little conclusive action (to our knowledge ...)

The roll-out of the network of battery charger stations in Europe deserves separate discussion as key elements of the regulatory provisions are settled

  • the number of service points required for coverage (in line with the 15% target in EV registration in 2025)
  • the mix of slow- and fast-charging stations 
  • the likely upgrade of the electricity grid as EVs gain traction
  • and of course the cost to the end-user

A Febuary 16, 2019 article by Andy Miles of CleanTechnica presents the regulatory framework , set out by the EU in the 2014 Alternative Fuels Directive, requiring standards for the connectors and for the payment methods. Implementation across the Union and effective coverage beyond the high-density concentrations of population remains to be seen ....


We expect the car manufacturers to launch the new EV line-up as planned, to explore new marketing and sales approaches, to diversify their product mix prudently, and, most critically, to evaluate the impact on their supply chains

But, at each stage, the major car makers will call out the industrial policies and the planning of infrastructure investments in line with targets set by the regulator

The car makers will also confront the governments with the profound consequences on industrial jobs of a revolution in manufacturing

In fact, awareness is gaining fast as we plan to discuss in Chasm, the futuristic industrial landscape after the EV revolution ...