What future for the European automotive industry in the face of electrification?

Notes:

Tommaso Pardi, Gerpisa, CNRS, IDHES

Full Text:

In this seminar session, Tommaso Pardi presents his ongoing work on the challenges of electrification of the automotive supply in Europe. Due to the regulatory changes of the last year, the issue of electrification and emission targets in the European Union has to be followed on an almost daily basis.

Today, regulations are causing the share of electric vehicles (EVs) to increase. Manufacturers have no choice, in the EU there is an acceleration of electrification. We can therefore ask ourselves whether from 2030 onwards only electric vehicles will be sold in Europe. While the EU was lagging behind, in five years the situation has changed in comparison with the United States and China, where the state is investing massively in electromobility.

Few analysts consider the reasons for this acceleration of electrification. There is also a risk that it will create new contradictions, hence the emergence of the "just transition" theme. Indeed, electrification risks impacting on household mobility and reducing jobs in industry.

As regards access to mobility, the data show that EVs are more expensive and are mainly purchased by wealthy households in Western and Northern Europe: 88% of EVs sold in 2020 were sold in Northern Europe. This is linked to a dynamic of increasing car prices. So, those who cannot afford these vehicles may be penalised by this transition because at the same time the taxation of carbon, and therefore also of fuels, is becoming stricter.

As far as the impact on employment is concerned, the switch from an internal combustion engine to an electric motor implies a drop in employment: between 20 and 40% of jobs would be threatened (67,000 jobs affected in the production of internal combustion engines in France today). The electric motor has six times fewer parts, so would require between 80 and 90% fewer jobs. Other questions arise: what volume of production and where will the vehicles and batteries be produced? Batteries are largely imported today from China and other Asian countries.
It is estimated that employment in the automotive sector in Europe will fall by 35% by 2030, taking into account the jobs created in the battery gigafactories that have been announced so far.

Electrification remains an unknown as regards the impact on national industries. The dynamics of car production are different in Europe and its periphery. France, Belgium and Italy lost 48% of their production volume between 2000 and 2020. The only winners are the CEEC countries, Turkey and Morocco. Can electrification be a tool for the reindustrialisation of France? If not, France could be out of the world's major automotive industries within a decade.

The decisive factor behind the tightening of European regulations on CO2 was dieselgate. But a question not often asked is why dieselgate? Why did the manufacturers cheat? A common explanation would be the "cunning", "dishonesty" and "greed" of the manufacturers. Is this explanation sufficient? Already in the 2000s, car manufacturers had committed themselves to reducing their emissions. But most of them failed to do so, especially the premium manufacturers, and German manufacturers in general, including Volkswagen. But the regulation is aligned with the strategy of the premium manufacturers, especially the Germans. To be 'greener', they have to produce heavier vehicles because the CO2 targets are weighted according to the weight of the cars sold, preventing any greening strategy based on a reduction in the weight of the car and the power of the engine, which are the two most important factors for fuel consumption.

But it is not only the CO2 regulation that is responsible for the current situation. There have been a hundred or so regulations introduced since 2000 that have affected the weight of vehicles (particularly in the area of active and passive safety), which has also made them more expensive. Then, the single market was also structured to develop top-of-the-range vehicles for export, particularly to the United States and China. The main country to benefit from this strategy is clearly Germany. There is a growing gap between the premium manufacturers and VW on the one hand, and the other generalist manufacturers on the other. Heavier, more powerful, more expensive and therefore more polluting vehicles have been favoured by European regulations.

By 2020, the share of EVs has increased fourfold. Electrification is in line with the regulatory framework, as it is a technology that is much more easily soluble in premium vehicles (at an extra cost of around €10,000 - €15,000 depending on the size of the battery).

This is not without its problems. In France, EVs have developed thanks to government support. In Southern and Eastern Europe, however, EVs are still more or less inaccessible. As a result, consumers are increasingly turning to second-hand vehicles. In Eastern Europe, old imported second-hand vehicles occupy most of the market. As a result, the countries of Central and Eastern Europe have become the main contributors to the increase in greenhouse gas emissions.

Some conclusions:

Upgrading was the cause of dieselgate. Regulation is also at the root of forced electrification. This regulation is unfavourable to French manufacturers and problematic in terms of "just transition".

Is an alternative possible? In the short term, we should move from a weight-based CO2 regulation to a surface-based regulation, as in the USA. This would again allow a greening strategy based on weight reduction. Furthermore, we need to think in terms of the fleet and not just in terms of electric vehicles sold, particularly because of the sale of second-hand vehicles. Finally, in the medium term, regulations should be introduced based on the carbon footprint in life cycle terms. Does it make sense to import a two-tonne vehicle from China and sell it as carbon neutral in France?

Discussion

Question: There will be a loss of jobs due to electrification. However, the volume of production is central to the amount of jobs lost, not the technology. If we return to a volume strategy, we would have a perfectly acceptable level of employment. This is a political and economic issue, not a technological one.
Dieselgate is the result of an upmarket strategy that would have favoured German manufacturers. However, Audi and Daimler are the only two manufacturers condemned. Dieselgate is linked to three contradictions. The first is the stagnation of salaries, which means that solvent demand is falling. Vehicles can no longer be sold as before. The second is that the regulations are in contradiction with each other, which is the product of European governance. Thirdly, there is an increase in competitiveness, designed to enable European industry to compete on technologies. This strategy only makes sense if there is a national market that would support these technologies.

Answer: Some studies claim that the loss of jobs due to electrification is not so important. Today we don't know what the effect will be. If there are dedicated assembly lines, the loss of jobs could be significant, because of the level of automation and productivity gains.
If we imagine repatriating B-segment vehicles to France, the loss of jobs would take place elsewhere, in the Czech Republic for example, or in Spain, but the overall European balance would be the same. There is a risk that there will be significant competition for the allocation of electric models.
European integration leaves only one margin of manoeuvre for national economies: competitiveness, i.e. lowering the cost of labour or taxation. The industrial policy of the countries is emptied of its levers, the logic that has imposed itself is that of Germany. The Eastern European countries play the role of host to industries when industrial policies are no longer sufficient. We need to rethink the whole functioning of the single market.
Moreover, moving upmarket is not just a question of going for margins, because this has not necessarily worked. French and Italian groups have come close to bankruptcy on several occasions.

Is Europe on a par with China? In China, EV sales are very localised. One million electric cars in Europe is not the same as one million electric vehicles in China.
You need a battery industry, which does not exist in Europe. The problem is that its prices are still very high. Similarly, the systemic vision of mobility in Europe is not at the same level as in China. Europe risks paying for its delay.
In terms of employment, the final assembly is almost identical for a thermal vehicle and an electric vehicle. The difference is in the forge, foundry and machining, where jobs are lost. One solution would be the creation of gigafactories near the assembly sites. One question remains: who will capture this market? ACC? Or foreign industrialists?
Finally, where there could be an increase in employment, it would be in engineering. There are things to learn from China. The subsidies are there to make China a world leader in improving the performance of vehicles, in terms of range and battery performance. The first electric vehicles put on the market are very energy-intensive. To make them move, you need powerful batteries.
We need to work on the weight of the vehicles and on their aerodynamics. But if we want a virtuous circle, we need to review the uses of vehicles.

For the moment, the gigafactories in Europe are projects. There are only three. All the batteries are imported. We need a huge investment to be able to meet the target of 70% EVs by 2030. This is not a foregone conclusion.
Battery production is capital-intensive and labour-intensive. So gigafactories will not compensate for the loss of jobs in forges, foundries, etc. In engineering, we know that jobs have been shrinking for several years. We still do not know where the engineering jobs for the electric vehicle will be.
Europe is forced to manufacture cars because of regulations, whereas China has the whole ecosystem to do so.

There is a study published on 5 June by the CFDT, the Hulot Foundation and Syndex on the "just transition". The study focuses on the upstream part, but we must also consider the question of repairs and after-sales services. This is a question of industrial policy. Aren't we putting off until later what is becoming more and more urgent?

Today, most car factories in France are fragile, apart from a few exceptions. Projections show that within ten years or so they risk disappearing. There is a declining trajectory in the French car industry. Renault's ElectriCity plan is good news because it tries to reverse this trend. But for the moment it is a project. From Stellantis' side, we have not seen any project of this type. We need more projects like ElectriCity. A regulatory framework that integrates a move downmarket would be an important asset. We know that there are jobs in electric terminals and in the activities surrounding them. But we know that industrial jobs are strategic. They are often quality jobs that generate a lot of indirect jobs, in terms of R&D, the service sector, etc.