Value chain transitions towards automotive industry electrification: impacts in Portugal

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Abstract:

The transition towards electrification is likely to have significant impacts in the automotive value chain. Changes in the power train and the introduction of batteries are likely to lead to new platforms in the short to mid-term. OEMs will aim to relocate plants to avoid geo-political instabilities and bottlenecks in their supply chains resulting from deglobalisation pressures, industrial protectionism, pandemic-related hazards, etc. Given the increasing labour shortages in the sector, further automation is expected, particularly in new production lines that will undercut the comparative advantages of cheap labour.
The Portuguese automotive sector is marked by dependence on ICE technologies and a large share of foreign-owned firms specialized in vehicle assembly, along with multinational suppliers of parts and components. The majority of the value-added of the sector is concentrated in Other parts and accessories NACE group, a peripheral and powerless bargaining part of the value chain. Thus, the Portuguese automotive industry faces the risk of remaining locked in a declining carbonized trajectory, implying exclusion from the transition of supply chains of future decarbonized production lines (ILO 2022).
However, there are segments of component production that are less likely to be negatively impacted by the transition of Electric Vehicles (e.g. chassis), and others that may adapt to the EV (or hydrogen) production of components and continue to supply OEMs located in the core and using peripheral countries (avoiding vertical integration). Nevertheless, we concluded that new lines of EV (or hydrogen) are more likely to be planned with higher levels of vertical integration and automation, given increasing difficulties with labour supply (some shifts are almost entirely with migrants) and higher availability of automation solutions, particularly with new press casting techniques (e.g. resulting from competition with Tesla that installed giant single-piece rear body of its Model Y, reducing the number of components that go into the car and simplifing the build process) to reduce costs and increase profitability.
A recente report for ILO on the Portuguese sector stated that, "marked by dependence on ICE technologies and a large share of foreign-owned firms specialized in vehicles assembly, along with multinational suppliers of parts and components, the Portuguese automotive industry faces a risk of remaining locked in a declining carbonized trajectory, implying exclusion from the transition to automotive decarbonization" (ILO, 2022: 108).
We also argue that the labour presently used in the industry will slowly decrease as the transition to electrification (and hydrogen) happens. On one hand, existing or new carbonized production lines will continue to be based on low levels of automation and cheap labour. On the other hand, new electric (or hydrogen) lines or platforms that might in the future be located in Portugal, will be more vertically integrated and automated requiring lower levels of labour and the relocation and reskilling of workers requiring new qualifications to deal with electrification requirements. Last, the recent activities of industry’s works councils may help to promote the relocation and reskilling of workers and carefully implement automation solutions.
The analysis we propose to present is based on a series of interviews with workers councils leaders and with leaders from employers associations, and labour market experts. We have are based on recent literature review and secondary analysis of data on technology investments for the electrification transition in the sector.