The impact of electrification on the Italian automotive supply chain

Abstract:

The EU's decision to phase out the sale of Internal Combustion Engines (ICE) from 2035 overlaps with a general picture of the European automotive industry characterized by two trends, one long-term, one contingent. As for the first, it is substantiated by the contraction of demand for cars in Europe. This decrease is driven by a reduction in the use of private mobility in urban centers and is generally known as the 'peak car' phenomenon (Bastian, Börjesson 2015; Metz 2013; Wittwer et al. 2019). Corresponding to it are changed needs for car use, especially by young people, and attitudes to replace car ownership with long-term and short-term rental. The second trend concerns European car production which, following the COVID-19 crisis and the unavailability of components (e.g. microchips or wiring harnesses), from 2019 onwards began a sharp decline.

On this latter point, we know that Italy has already suffered a reduction of production before the aforementioned crises, with an overall drop from around 2 million of cars and commercial vehicles produced in 1990, to 1.7 million in 2000, to almost 850 thousand in 2010 to around 800 thousand in 2022 (about 500 thousands cars in 2022). On the other hand, we know very little about the implications of the electrification of the drivetrain for the competitiveness of firms operating in the Italian automotive supply chain and the related opportunities for growth or decline of employment.

This work reports the first results of the Observatory on the transformations of the Italian automotive ecosystem. Our analysis is based on a new dataset comprising 2,400 companies, employing 280,000 people, mainly distributed in the North-West regions (over 60%) with a majority of small businesses (over one-third have a turnover of less than €5 million). We categorized Italian suppliers to identify companies offering parts for Internal Combustion Engine (ICE) vehicles, identifying the type of impact they would be exposed to in terms of High Technological Impact (HTI) - companies producing only components for ICE - and Low Technological Impact (LTI) - companies whose product portfolio includes components that are invariant or dedicated to EVs. Our results show that less than 200 firms (employing about 43.000 employees) are exposed to a certain risk due to the technological transition, ranging between negligible and high risk risk levels (whose employees are about 14.000). However, at the same time, more than 100 firms (employing about 22.000 employees) already started operating in the EVs sector, showing a proactive attitude towards the transition. In the study we present a detailed description of the characteristics of the supply chain in terms of firms’ size and product portfolio, and a scenario concerning the impact of electrification on the characteristics of the workforce and employment in Italy in 2030.