One way or another, there will be blood.
Jobs are certainly being created in the transition from “conventional” cars to electric vehicles (EVs), but it remains to be seen whether there will be enough of them to compensate for the jobs that will be lost, at least in the auto sector’s traditional heartlands. Somehow, I doubt it, especially, for now, in Europe.
A fresh wave of job cuts is sweeping across Germany’s car suppliers with companies including Bosch and ZF Friedrichshafen racing to reduce costs as they struggle with an expensive transition to battery-run vehicles.
Bosch, the world’s largest automotive supplier, on Thursday said that up to 1,200 employees in its software and electronics division would be let go by the end of 2026, citing high inflation as well as increased raw material and energy costs.
These trends were “increasing the necessary expenditure” and slowing the transition towards EVs, the Stuttgart-based company said. Nearly 80 per cent of the expected job cuts are set to take place in Germany.
Bosch’s announcement comes amid rising tensions between ZF’s management and its employee representatives, as the maker of transmissions, chassis components and shock absorption systems considers job cuts by 2030 as part of a restructuring programme.
ZF, which employs about 165,000 people globally, said 12,000 jobs could be lost in a “worst-case scenario” . . .
“We want to maintain jobs, but we know that the transformation to e-mobility alone will cost jobs,” ZF said, adding that some electric vehicle components required half the labour to make compared with the combustion engine equivalent. The transition to EVs has required large investments by Germany’s network of automotive suppliers.
However, the companies are seeing margins being hit as the slow uptake of battery-run vehicles has dragged out the transition phase while overall car sales remain historically low.
And now imagine what will happen to those margins once profits from conventional car businesses are squeezed by rules designed to force European automakers to increase EV sales as a percentage of their overall car business.
In 2024, carmakers’ in Britain’s sales will have to include at least 22% pure electric vehicles. A slightly more complicated emissions regime takes hold in the EU to the same effect in 2024, both ending in about 80% of sales in 2030 being pure EV.
This means carmakers will be forced to sell electric cars probably at a loss, while curbing sales of internal combustion engine vehicles which carry fat profit margins.
It is hard, at least within what are nominally market economies, to find a purer example of the folly of central planning.
Winton:
The European industry association ACEA is concerned about its manufacturers falling behind China, which poses an existential threat with its alleged 30% EV cost advantage. ACEA quoted a report from France’s Ecole Polytechnique University, which talked about an “immense scale of challenges” for the EU industry.
“Unlike China and the U.S., the EU lacks a robust industrial strategy to shore up electric vehicle manufacturing,” said ACEA director general Sigrid De Vries.
Where “robust industrial strategy” means a massive subsidy regime.
Winton:
Meanwhile investment researcher Jefferies cut its forecast for European EV sales in 2025 and 2030 to 4.1 million and 8.9 million from 4.8 million and 9.3 million. 8.9 million would be about 65% of sales in 2030, 15 percentage points below the target. That would imply huge, crippling fines for auto manufacturers and might persuade EU authorities to dilute the rules.
Fitch Ratings said in a report earlier this month that governments might step in if these targets become too onerous for manufacturers. Fitch said range anxiety and a lack of investment in the charging infrastructure had slowed EV sales growth. “Regulators, particularly in Europe, also appear to be reconsidering longer-term EV policies,” Fitch said, without elaborating.
Let’s see.
Carlos Tavares, the CEO of Stellantis (which includes Chrysler), has been sounding the alarm about the coerced transition to EVs for some time now. In June 2022, I mentioned how, some six months before, Tavares had described electrification as “a technology chosen by politicians, not by industry.” That’s typically not something that works out too well.
That same June, Stellantis’s chief manufacturing officer had said that the company was aiming to cut the cost of making EVs by 40 percent by 2030. If EVs didn’t get cheaper, the market for them would, he warned, “collapse.” Since then, EVs have gotten quite a bit cheaper, but . . .
The Financial Times (January 19):
Stellantis boss Carlos Tavares has warned carmakers cutting electric vehicle prices too fast risked a “bloodbath” in the industry, hours after Ford said it was reducing production of its battery-powered F-150 Lightning pick-up truck because of weaker sales.
Ford said on Friday it wanted to bring the vehicle’s production in line with customer demand, expecting “continued growth in global EV sales in 2024, though less than anticipated” . . .
Ford has scaled back plans for an EV battery plant, while General Motors and Tesla have paused some of their EV expansion efforts . . .
Tavares, whose company owns the Jeep and Ram brands that compete directly with Ford and GM, said that slowing EV demand globally was due to high prices, but warned companies against cutting them on vehicles where they already make very little money.
“If you go and cut pricing disregarding the reality of cost, it’s a race to the bottom and that will end up with a bloodbath,” he said. “That is exactly what I am trying to avoid.”
But in Europe anyway (the U.S. is heading in the same direction, but a little more slowly), will the combination of (1) regulations designed to compel manufacturers to sell EVs and (2) growing competition from low-priced Chinese EVs (tariffs on imported Chinese EVs are much lower in Europe than the U.S.) allow manufacturers such as Stellantis to avoid that race to the bottom — and the bloodbath that will follow?
Best guess: One way or another, there will be blood.