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GLOBALOUTLOOK AUTOMOTIVE


little reference to its existing 118 production plants scattered around the world. “Over 95% of cars sold are fossil


fuel-based [2018 data], and so virtually all production assets are optimised for internal combustion engine car production,” wrote the Stockholm Environment Institute (SEI) in a 2018 report. “To shift these lines to production of a new type of car will require the same type of investment as does every new model launch. However, the difference this time is that the changing market landscape might force the car manufacturers to invest in a new asset base before the current is outdated, leaving equipment, tools and facilities stranded. Some car manufacturers have invested in production lines that are flexible enough to handle several platforms, but many have not.” The SEI estimates that a chunk of the OEMs’ European production


base (plants and equipment) worth €65bn is exposed to “significant risk” of stranding by 2025 in a scenario where mobility models move towards EVs.


Zero-sumgame? OEMs are working to prove these estimates wrong by playing a zero- sum gamewhere they swap ICE models with EV models. Volkswagen, for example, is investing €1.2bn to repurpose its car factory in Zwickau, Germany, to switch local production to EVs. Stellantis’s production site in Tremery, France—considered one of the world’s largest diesel engines plants—has been gradually electrifying so that production of electric powertrains reaches 900,000 units by 2025, from 120,000 units in 2020. Similar transitions are taking place in dozens of other production facilities across the continent. However, EVs bring a paradigm


shift in the way vehicles are produced and assembled, which tilts the balance of this zero-sum game since not all the existing production capacity can find a use case in this transition. “There will be some stranded


assets,” says Philippe Chain, a French June/July 2021 www.fDiIntelligence.com


OURUPDATED FORECAST PREDICTS THAT BY 2026 ELECTRIFIED VEHICLES WILL ACCOUNTFORMORETHANHALF OF LIGHT VEHICLES SOLD GLOBALLY


engineer with executive-level experience in Renault, Tesla and Audi who is nowone of the leaders of Verkor, the EV battery producer he co-founded in 2020. “One reason for that is just the sheer numbers. Technically speaking, ICE manufacturing plants can be easily repurposed to build EVs. “The only thing, though, is thatEV


productionismuch lesscomplex. At themoment, ICEmanufacturing plants aremuch bigger thanEVs’. [As the industry transitions toEVs], it needssmaller plants to produce the sameamount of vehicles.Thenew capacity being built for the production of batteries will compensate for some of that, creatingnewjobs throughout the value chain.” Employees at production sites


across Europe are already feeling the chill (see page 70). The Nuremberg- based Institute forEmployment Research (IAB) estimated in 2019 that the electrification of powertrain would result in the German vehicle construction industry losing 83,000 jobs by 2035. Thesemay well be conservative estimates as they assume a share of 23% in electric cars by 2035. Following the pandemic, “our updated forecast predicts that by 2026 electrified vehicles will account for more than half of light vehicles sold globally”, the Boston Consulting Group wrote in April. Going fully electric for new cars and vans by 2035may be even feasible in all EU countries, Bloomberg NEF wrote in May.


Swimmingagainst the current However, these estimates are still contentious and themass deployment of EVs still hinges on numerous elements, including the availability of charging stations in urban areas. Plus, there are notable exceptions amongOEMs.


Toyota, which spearheaded the


development of hybrid vehicles and competes with Volkswagen for global market leadership, takes a more conservative view. Its presi- dent Akio Toyoda was quoted by the Wall Street Journal in December 2020 as saying that EVs are over- hyped. If the industry rushes to e-mobility, “the current business model of the car industry is going to collapse”, causing the loss of mil- lions of jobs, he said. He added that in countries like Japan, whose power generation matrix leans heavily on coal and natural gas, “the more EVs we build, the worse carbon dioxide gets”. In the same month, Philippe


Houchois, managing director at investment bank Jefferies, wrote in a research note: “All [OEMs] are currently planning to gradually transition from a world of ICE to a combination of EV powertrain without knowing (understandably) the speed of adoption or whether ICE is truly doomed. While it is a responsible approach, it maintains the industry in a zero sum-game which could turn negative if ICE margins fall faster than EVs improve§ or if the strategy further stretches out the run-way offered to emerging challengers.” The automotive industry is in


flux. Until a few years ago, uptake of EVs had been slow. Now, the success of Tesla, combined with the e-mobility initiatives favoured by policy-makers in the wake of the pandemic, has dramatically changed the dynamics. Add automation and new models of ownership into the mix, and the prospects for legacy OEMs and their wide production base hang in the balance. Some will get stranded, but others will ride a new wave of success. ■


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