Accelerated sector transformation ups pressure on policy makers – Newsletter Editorial October 2020
An overview compiled by CLEPA of announced job cuts by automotive suppliers and vehicle manufacturers since March, when the COVID-19 crisis hit Europe, indicates that some 100,000 jobs in the automotive sector will be lost in the coming year, of which 49,500 to automotive suppliers. This illustrates how the COVID crisis has accelerated the change in the automotive sector, which ups the pressure on policy makers to find the right approach to managing the green and digital transformation.
In addition to cuts to its workforce, industry is also being required to reduce investment in R&D, further impairing the ability to shape the change and achieve the climate and digital goals. This is a real problem because the global leadership of the sector role depends on innovative technologies and manufacturing excellence.
100,000 automotive jobs to be lost within the coming year
The CLEPA overview is based on public announcements made by companies across Europe. The actual numbers are likely higher, especially given that in the supply sector, many smaller announcements do not make the national press coverage. In addition, many in the sector are still benefiting from the various government programmes for temporary or ‘technical’ unemployment, indicating levels of hidden unemployment that may well become visible in official figures sooner rather than later. As an illustration, in Germany, 24% of automotive industry employees are still relying on the state’s wage support scheme, with the automotive industry ranking second after the metal industry.
Market watchers are increasingly speaking of a double dip for the European economy, as recovery continues to lose steam. The first survey and mobility data for September shows that weakness in the service sector is leading to a stagnation of the economic recovery, led by a contraction of ‘business-to-consumer’ sectors post-summer holidays. A double dip could hit suppliers hard. Recent publications by financial analyst and management consultancies suggest that some automotive suppliers may be better positioned than others, with liquidity issues highlighted as the main concern.
Automotive suppliers in Europe employ about 1.7 million people directly, in addition to the 1.2 million employed by vehicle manufacturers. Supplier jobs add up to about 5 million when taking the longer value chain into account. The steel industry, for example, delivers 18% of its output to the automotive industry.
A recent study from the Boston Consulting Group suggests that the long-term employment impact of electrification could be mitigated if Europe manages to safeguard European battery cell production, and suppliers succeed in reskilling their workforce. In the process, we may see a shift of part of the supply chain to Central and Eastern Europe. The share of component production expressed in total labour hours will fall from 54% ICE (internal combustion engine) to 47% BEV (battery electric vehicles). Suppliers may be able to capture ground from vehicle manufacturers in the field of integrated electric engine systems. A summary is available here.
High dependency on powertrain manufacturing for European automotive employment, revenues, and innovation capacity
It is worth noting however, that about 30% of the value of a car is in the powertrain, and that there is a clear dominance of suppliers in this part of the overall vehicle assembly. In other words, large shares of the employment, revenues and innovation capacity in Europe rely on powertrain manufacturing. This is why managing the transition responsibly is so crucial.
The market for electric and hybrid vehicles is growing fast, but is still low as a proportion of total manufacturing. The CLEPA overview shows that since March 2.500 jobs were created in this field, in line with the direction of travel but in stark contrast to the overall numbers that need to be managed.
The EU Green Deal strategy, designed to decarbonise the EU economy towards 2050, aims to make the EU’s economy sustainable, turn climate and environmental challenges into opportunities, and ensure a transition that is just and inclusive for all. To date, we’ve heard a lot of further talk about setting ambition levels: European Commission President Von der Leyen has proposed lifting the overall EU carbon-reduction target for 2030 to 55% instead of the current 40. The European Parliament, this week, voted for 60%. The Council of Member States is expected to make its decision later this month. The Commission´s impact assessment argues that the automotive industry would have to face a tougher vehicle target for 2030 of 50%, up from 37.5%, when compared to the 2021 targets, and that a ban on the combustion engine is to be considered.
In our view, it’s time to focus on the needed action. The key question remains not if, but how to achieve the climate objectives, as well as secure innovation, manufacturing, and employment in Europe. The challenge we face – as automotive industry and society – is to manage the transition to safe, smart and sustainable mobility in an ambitious, realistic, and inclusive way.
Automotive suppliers are providing the technology solutions that will help realise the ultimate goals. But the current legislative approach, setting tailpipe-only targets that drive all efforts towards just one type of solution, electrification, is not the fittest for purpose. Yes, the Commission is setting important directions with increased attention for a full battery supply chain in Europe, a hydrogen strategy and partnerships for R&D funding. CLEPA also welcomes the launch of a dedicated Pact for Skills for the automotive sector to support the massive re- and upskilling effort that industry is undertaking.
Scale of automotive sector transformation requires integrated and technology-open policy approach
But the scale of transformation in the automotive sector, affecting millions of livelihoods, needs a far more integrated and technology-open policy approach. The world will need the full spectrum of technologies and energy carriers to achieve this objective. This includes battery electric vehicles, various degrees of hybridisation – from mild to plug-in, and fuel cells – and correspondingly low and zero carbon fuel, hydrogen and renewable energy. Thus, not only new vehicles, but also carbon emissions from the existing fleet can be covered.
In this light, Executive Vice President Timmermans’ intervention in the Environment Committee the other week, where he said to be opposed to a ban on internal combustion engine vehicles, is positive. Let’s now work to change the regulatory approach, to make sure carbon-free combustion counts towards reaching the goals as well.
We are, to put it bluntly, worried that the transformation will turn into a disruption. That the sector’s capacity to innovate, invest, and maintain employment will be crippled. This is why we make the case for an ambitious, as well as reliable, and technology-neutral regulatory framework to achieve its objectives.
Sigrid de Vries
CLEPA Secretary General
In: CLEPA News, Emissions, Environment & Energy, Growth & Competitiveness