Who gives a dime? The impact of Electric Vehicles on Jobs in Auto makers and retailers
Some pundits forecast that the car industry will undergo more change in the next twenty years than it has done in the last one hundred. If true, that transformation will be a time of great opportunity…and threat for existing global players. The financial effects will be felt beyond car manufacturers and their dealers. Individual countries, regions and political blocs, such as Germany, the USA, China, India and the EU will see greater prosperity or sharper decline too.
When you consider the number of high-quality jobs at stake, it’s no surprise that governments are developing policies and investment strategies of their own. The ‘Top 5″ producer countries – China, USA, Germany, Russia and employ almost 5MN in direct auto making alone. The EU is facilitating strategic investments in battery manufacture as well as taking a hard-headed look at how regulations can be used to protect European vehicle markets from new entrants, especially from China and Asia. China has been implementing its “Made in China 2025” (MIC2025) strategy since 2015. It focuses on ten key technology and manufacturing arenas which include electronic and autonomous vehicles. [For a complete series of articles with graphics on MIC2015 follow this link to ‘South China Morning Post’]
Surprisingly, only the USA has no industrial strategy for protecting the 3MN jobholders in its auto manufacturing and retail networks. No strategy, that is, except confronting China’s MIC2025 strategy with an escalating global trade dispute.
According to the ICEA, 2.6 MN people in 2017 were directly employed in automotive manufacturing in the European Union, over 8% of total EU
manufacturing jobs. On top of that, another 4.5MN are employed in vehicle retail, rental, leasing and after sales. Scaling those employment numbers up to the global level suggests around 8 – 10MN people building cars and another 20 – 25MN involved in sales and support. In total, 30 to 35MN jobs. Around 11% of those building cars – 1MN, mostly engine, gearbox, exhaust and other ICE specific components – and around 65% of those in support – 13MN, primarily in service and parts – could eventually be out of a job.
Those figures may be conservative. A recent KPMG survey forecast at least a 30% reduction in retail outlets due to digitalisation. That could raise the total job losses in support jobs to 15MN or more. Its instructive to note that Tesla has zero dealers and minimal after sales service points.
There is one ray of light in this for employees. EV power-trains employ more people per unit than ICE power trains
The outlook for these jobholders as the industry switches to electric vehicles and, possibly, increased digital connections, is important. So what might those employees be thinking or feeling as they anticipate the change?
Some might be thrilled by the challenges and career opportunities that could emerge during the transition from conventional cars. Many more might be cautious, concerned about their personal employment outlook. Those in Europe might well remember the shift of jobs to Eastern Europe since 2000 to take advantage of benign restrictions, lower labour costs and government incentives. Those in the USA may recall the relocation of jobs to Mexico or elsewhere in South America. Might they be right to ask if their job might be lost in the switch to electric vehicles?
The Switch to Electric Vehicles
If you take China and emerging Asia out of the global figures, new car registrations in Europe and the US have been static. In fact, over the last thirty years the EU markets, except for major financial recessions, range between 13M -15MN units pa. The NAFTA markets have fared similarly, mostly between 8Mn – 10MN units a year. China has been the only region where volumes have been steadily increasing. Growing from 4MN in 2005 up to 25MN in 2017. In truth, the profits of European and US car makers has been largely created in China since 2000. It’s these profits that have sustained the factories and jobs. Without them, the excess capacity – particularly in Europe – would have led to plant closures and job losses some years ago.
Notwithstanding environmental lobbyists, it’s unlikely that there will be a unified global shift to electric vehicles (EV’s) and away from internal combustion engine vehicles (ICE’s). Countries and regions are most likely to make policy decisions based on their economic self-interest. Those countries with access to the natural resources needed to produce batteries – such as Lithium and Cobalt – and those with limited access
to fossil fuels, are likely to switch to EV’s earliest. China, Brazil and Australia fall into that select group. According to KPMG, they produce 72% of the world’s electric battery raw materials between them and all three produce some oil. Between 25% – 30% of consumption for Australia and China in 2018 and over 80% of their needs in the case of Brazil. These favoured nations have both routes open to them: EV’s and ICE vehicles. In contrast, the USA has only 2% of the world’s electric battery raw materials but can meet 65% of its oil needs from its own resources. It’s not in its immediate economic interest to be an early adopter of EV’s.
Europe has no significant supplies of electric battery raw materials and produces only 10% of the oil it consumes – most of that is from the UK’s North Sea oilfields. Unlike the USA, the EU has no incentive to stick with ICE’s but it does have an incentive to retain the auto manufacturing jobs and profits – and a plan to do so.
Its history of regulatory leadership has demonstrated to the EU that – if they can raise the severity of regulations – there are incentives for their own car makers for switching to EV’s. Regulations, such as Euro emission standards, are not only good for the environment. They can also act as non-tariff barriers against foreign made vehicles. For a full analysis, see the “GEAR 2030 Strategy 2015-2017” report published
by the EU. It describes the competitive position of EU vehicle manufacturing in detail. It makes clear that mainstream EU car manufacturing is marginally profitable, mainly due to higher labour costs and over-capacity but that high profits can be earned on the same vehicles when they are exported beyond Europe. The report makes it clear that switching to highly regulated EV’s has the opposite effect on non-EU car makers. It reduces their global competitor’s profitability, and erodes their cost advantage, while keeping the highly profitable luxury segments in Asia open to EU car makers. Of course, back home, there are costs for EU citizens who will pay more for cars than they need to but this is offset by ‘public benefits’ such as reduced air pollution and fewer road accidents. According to the Gear report, by 2030, under stringent regulations, the EU policy makers forecast that their car makers will dominate entry level and mid market vehicle sales in the EU, and maintain an 80% share through to 2050, while still earning high margins in four key non-EU markets – China, India, South Korea and Japan
The Global Electric Car Battery Market – Simple Maths!
To safeguard a position as an EV maker you must have your own EV battery supply chain. That requires access to the raw materials and the know-how used in electric motor car batteries. In turn, that means setting up long-term raw materials supply from stable producers and building your own battery manufacturing base.
Everything points to these investments being worthwhile. The world builds 100MN vehicles a year and 40% are expected to be EV’s by 2040. Battery costs are expected to fall until they are on a par with conventional engines, around $6,000 each. So, the market will be worth $240BN a year
Production capacity was estimated at 313 GWH in April 2014 by Bloomberg. To achieve 40% EV penetration would require 2,650 – 3,000 GWH of production, more than eight times the existing global capacity. So any excess capacity should find ready buyers outside the EU.
The Impact on Manufacturing Jobs
The upside is that the jobs in EV component manufacture would rise; the downside is that all the jobs in existing ICE engines and ICE-specific components would disappear. However, EV batteries need many more people to manufacture them than IC engines. With present technology more than double the number of jobs are created. That sounds like good news. However, to lower costs, battery manufacture is sited close to vehicle assembly. So, the key question for existing jobholders is, where will the battery’s be made as the industry expands? Existing European EV’s buy batteries mostly from three South Korea based producers – Samsung SDI, LG Chem and SK Innovation. If the EU’s Strategic Battery Alliance is successful, these firms, who may lose both their EU and China customers at the same time, could be significant losers. Making batteries in the EU, not buying them, could be helpful to the large-scale EU vehicle manufacturing centres and boost employment. Not so for the geographically peripheral assembly locations, such as the UK, Greece, Portugal and Croatia. At the individual job-holder level, employment would depend on battery ‘Giga-factories’ being substituted in the same geographic location as existing engine, transmission and other ICE-only component plants.
Their are other possible clouds on the horizon for employees which suggest that fewer manufacturing jobs will be retained, let alone expanded. Germany’s Industry 4.0 initiative has a supplementary path concerning work (Work 4.0). Estimates suggest that the ‘smart’ factory – connected, automated and digital – may employ 60% fewer people than existing ones. Given, that operating margins in Europe are marginal, between 1 and 3% at best, according to Evercore ISI Global Automotive Research, it may be that many automakers choose instead to reduce EU manufacturing – currently 15% of global production – down to a more sustainable level. Some industry executives think that level could be 5% of global production by 2030. Taken together, these two developments may reduce employment whatever success the EU Strategic Battery Alliance and Gear 2030 achieve.
The Impact on Support Jobs
In the short term, the primary reason for optimism for the 20MN to 25MN employees in dealers, leasing and after sales jobs is their older customers limited appetite for change. Across the EU, buyers over 45 are the wealthiest in society and, as shown by PWC, they are most adapted to using dealers for vehicle acquisition and after sales. They have on average 3 times the wealth of under 45’s and, the older they get, the more money they have. While these people are still buying cars for individual ownership, the dealer will have a ‘right to win’. Electrification will reduce staff levels – especially in service and parts – but this process is likely to be gradual. Even if 40% of cars sold by 2040 are EV’s, that suggests 60% will be ICE vehicles. In a world of personal ownership rather than mobility, dealers will still lead in the ‘off-line’ experience of test-drives and demonstrators and provide the delivery points for physical services delivered to ‘connected cars’. However, the overall requirement for staff and traditional dealers is likely to fall as EV’s reduce the needs for parts and after sales. As estimated above, fewer than half the jobs may ultimately remain.
In the longer term, the current generation of 45-plus customers will be replaced by ‘digital natives’ who may have different requirements for cars and less loyalty to the traditional auto retail distribution and support structure. The expectation is that the future population of car users will be increasingly urban and may want to substitute on-demand mobility for personal vehicle ownership. This would be a significant development for retail
networks. A significant number of individual vehicle users or owners could disappear. In that event, the traditional dealer model would become financially marginal, as vehicle sales would be primarily to fleet operators serviced direct by the manufacturer.
Final words – there are stones in the road for EV’s.
First of all, the consumer still needs to be pushed into buying EV’s by a mixture of carrot and stick. The stick element is already in place – restrictions on the use of diesel cars , commitments to ban the sale of ICE’s by 2040. But, a large carrot – in the form of purchase subsidies is also needed. Norway’s Electric Vehicle Association (NEVA) – Norway is the EU leader in EV sales – reported that 72% of EV buyers are motivated by the subsidies and benefits (no road tolls, free charging, incentives and tax exemptions) and only 26% for environmental reasons. In Denmark, when incentives were phased out in 2016, EV sales collapsed. The Gear 2030 report suggests that EV’s will be more costly than ICE’s at least until 2040. Taken together, these facts suggests that expensive subsidies will be a feature of the EV switching landscape for some time to come and a political stumbling block.
Charging points are few and many are too slow. If an EV user consulted Chargemap before leaving home, few would leave Paris and drive to Beaune, unless their vehicle was already fully charged. No long-distance commuter could even charge an EV in Normandy, the UK Midlands or Poland, unless they lived very close to where they worked. The limited network of fast charging points is the EV’s biggest stumbling block. In simple terms, If your battery is fully charged and your round-trip is under 100KM, an average driver would feel confident to take a trip. Beyond 150KM, you’d need the time and access to a guaranteed fast charging point. So you’ll need to know where the charging point is located and whether it’s available for use. But the starting level level of battery charge is not the only item to check. So too is the outside temperature. A 2014 study conducted by the AAA Automotive Research Center shows electric vehicle driving range can be nearly 60 percent lower in extreme cold (20F or -6.7C) and 33 percent lower in extreme heat (95F or 35C). That too could limit the user’s journey.