CLEPA DATA DIGEST #7 – Job growth slows to record lows since pandemic shutdown
Edition #7 – DATA DIGEST is CLEPA’s monthly publication shedding light on the health and resilience of the European automotive supply industry through latest facts and figures
Job growth slows to record lows since pandemic shutdown
Economic waning signs emerge as falling profitability, investment and trade balance deterioration threaten transformation
What you will find in this edition
The year 2022 proved to be a difficult one for the automotive supply industry, with mounting cost pressures eroding revenue gains. Therefore, suppressed profitability remains a challenge. The share of suppliers recording healthy profitability continues to be below pre-COVID levels, undermining long-term abilities to invest.
Although investment announcements in the battery supply chain suggest that the sector remains competitive and attractive, recent reports indicate that some of these investments are now being reconsidered. This, coupled with decreasing Foreign Direct Investment (FDI) in non-battery components, serves as a warning sign. A deteriorating trade balance and a slowdown in job creation highlight the need for an industrial strategy and policy framework that bolsters the competitiveness of the EU.
The automotive supply industry faced a third difficult year in 2022. Despite a strong track record of investment and innovation, activity has started to stall in the second half of the year due to falling profitability, putting EU competitiveness under increasing pressure.
CLEPA’s Deputy Head for Market Affairs
For the third consecutive year, the share of automotive suppliers with an operational profitability (EBIT margin) exceeding 5% has been eroding. In 2022, a staggering 77% of suppliers recorded profitability below 5%, as compared to 41% in 2019. Typically, a 5% profitability is necessary to cover cost of capital and maintain long-term investment capabilities. Furthermore, in 2022, 23% of suppliers reported losses, up from just 3% in 2019.
Foreign direct investment (FDI) in the automotive component industry, excluding batteries, fell for the second consecutive quarter in Q4. While FDI over the full year doubled to nearly €4 billion in 2022, the slowdown towards the end of the year underscores concerns about competitiveness.
Since the adoption of the Inflation Reduction Act, the US has attracted more than 50% of global battery investment, outperforming the EU in investment attractiveness since 2021. However, Chinese investors announced two major battery investments in the EU in the second half of 2022, worth around €8.4 billion.
It is worth noting that the FDI data below tracks investment intentions, and only a small proportion of investments announcements made since 2019 have been completed. Analysis by T&E suggests that two-thirds of the existing investments are at risk due to the IRA and high energy costs.
In 2022, automotive suppliers recorded a trade surplus of €25.7 billion, which is lower than the figures recorded in 2021 (€28.7 billion) and 2019 (€26.5 billion). The overall export of components increased by 3.4% over the year, totalling €53.9 billion. In contrast, imports in the EU rose by 20.4% over the entire year, reaching a value of €28.3 billion.
The trade relationship with China is the driving force of the deteriorating trade balance, with the EU importing 72% more components from China in 2022 than it did in 2019. Exports from the EU to China grew by a more moderate 10.3% over the same period. Over 2022, EU export of components was €4 billion higher than imports, down from €5.8 billion in 2019.
During the second half of 2023, automotive suppliers in the EU announced the creation of more than 3,600 jobs, while over 2,700 job cuts were reported. Unfortunately, job creation has slowed down significantly since the second half of 2020, which was the peak of the pandemic shutdown. Earlier research commissioned by CLEPA suggested that the period 2020-2025 would see a growth of around 100,000 jobs due to the scaling up of e-mobility component production. However, since 2020, 76,403 jobs have been lost and only 31,805 new jobs created, suggesting that the pandemic, along with the ongoing war and energy crisis, may exacerbate the social impact of the transition.
The transformation of our industry is losing momentum, while other regions are becoming more competitive. To keep up, we need a holistic industrial policy that builds on the strengths of the single market and recognises the importance of maintaining global value chains. In addition to easing regulatory burden, there needs to be a review of state aid rules to ensure support in scaling the production of innovative and sustainable technologies and production processes.
CLEPA’s Secretary General
In: CLEPA News