20 April 2021
  • 14:01 The future used to look like this
  • 09:15 Why the Balkans are known in the world
  • 08:35 Cities in the Adriatic region with investment opportunities – Zenica
  • 15:26 Getting ahead of the game
  • 08:15 Existing problems and COVID-19

The automotive industry is cyclical, and it is currently in an unprecedented downturn within a major transformation of mobility. This industry is among the last key-industries remaining in the EU, a major employer for up to five million employees.

Author: Karin Kneissl, PhD, former minister of foreign affairs of Austria

Germany represents an important car-cluster, and 800,000 jobs are likely to be affected by the transformation in the automotive sector. This also holds true for the Slovak capital Bratislava, which might not be the Detroit of the 1950s but carries the risks of the Detroit of the late 1990s. And the list goes on for a range of EU countries, mostly suppliers to the remaining car producers in Germany and France. Slovenia ranks among those in the supply chain under pressure. In my recent book “Die Mobilitätswende” (Mobility in transition), published by Braumüller in Vienna in September 2020, I focus on the geopolitical and social aspects of this major shift. Who will dominate the future of this market? Will coming revolts happen in the name of mobility?

Crisis started prior to the pandemic

Like in all other areas, the pandemic only amplified an already existing reality. In the case of the car industry, the decline in demand went from bad to worse. However, driving a car remained attractive in the lockdowns, while public transport lost out. The recurrent topic is “backshoring”, in contrast to the offshoring of past decades of globalization. It is about bringing production back to Europe. Supply chains have to be rethought. The Chinese Communist Party’s particular suppression of the coronavirus has enabled China to recover its former pace of economic growth and turbocharged its transition to become the world’s largest economy. With China’s neighbours also emerging quickly from the pandemic, East Asia has become the epicentre of global economic growth.

This industry is the backbone of Germany, in case of its damage, we might see a different Berlin, not one leading the EU. The State comes back as an important shareholder, as we can see in the aviation business. Obviously, liquidity is absolutely vital to sustaining the business through the crisis. However, new /old problems might overshadow the entire endeavour: who manages whom?

The Free Trade agreement between the EU and China reflects this reality: 30% of all German car sales are done in China.

Factories becoming museums

This transformation had already had its victims during previous decades. The Fiat factory in Turin, Italy, which was the biggest and most modern in 1909, has turned into an automobile museum. Similarly, Detroit harshly hit in the past years cherishes its old grandeur in the shadow of Henry Ford who transformed the industry a century ago. Mobility is currently reinvented on many levels, from high-speed trains to autonomous driving to drone transport of goods; one trend is certain: the car of the future will neither be produced in Europe nor in the US. I have been predicting for years they might be produced on the African continent. Africa, for many car producers, is the new frontier. The iPhone reads, “designed in California, assembled in China”. A similar inscription on the car of the future might read, “designed in China, assembled in Africa”. And we might see more industrial corpses in the once major industrial areas of Europe. We are still living off the ingenuity of past generations. Approximately 8 of the 10 stock market listed Dax companies were founded before World War I. This comprises the entire automotive industry.

Carl Benz and his remarkable wife Bertha were the pioneers of the late 19th century, alongside the Agnellis in Italy, and others such as Rudolf Diesel and Siemens. They laid the basis for today’s mobility and in particular the European automotive industry. Before the pandemic turned our lives upside down, it was the climate change agenda and the EU Green deal, such as moving away from the combustion engine, that dominated the debate on the future of the car industry. While some voices in governments and science claim that this is the right moment to transform mobility completely and move into a green society of electric autonomous driving, less aviation and more highspeed trains, others are more reluctant. I am one of them. Given the tremendous rise in unemployment that has occurred, people have less to spend. Many will continue driving their old diesel cars instead of opting for carsharing, which is difficult in social distancing times, anyway.  In order to make realistic decisions about the future, it is useful to understand human nature and not get lost in statistics. Humans wish to move. The car has been a symbol of mobility and freedom for the past century; even when stuck in traffic jams. The automotive industry is indeed at a critical turning point. Prominent representatives of the industry describe 2020 as a “year of painful decisions”, which will affect the automotive industry, result in mergers (latest example: PSA Fiat- Chrysler) and considerably affect the overall automotive supply chain from steel to tyre.

What will be the implicat ions for the oil and gas sector?

Peak in demand rather than peak in supply will probably shape the oil market, and directly impact the gas market, too. Former Saudi oil minister Zaki Yamani coined the wise phrase: “The stone age did not end for lack of stone, and the oil age will end long before the world runs out of oil.” Stepping out of the combustion engine, which has been shaping the hydrocarbon age since World War I, could result in a massive slow-down of demand for oil and eventually for gas.

The e-mobility doctrine and its geopolitical implications

The re-emergence of the electric vehicle, which was commonly seen on European roads at the beginning of 20th century, is currently dominating all political and technological agendas. Demand stems, in particular, from China. However, Beijing has been revising its mobility agenda and might gradually shift away from e-mobility. Until then, it will continue to control battery production. Chinese companies run a majority of the lithium-ion battery market, and China has better access to cobalt and copper resources from Congo to Afghanistan and beyond. While the US has focused on sourcing its raw materials domestically, China is increasingly dominating the battery market. But Europe will probably fall fruther behind because it simply lacks battery manufacturing capacity.

All forms of energy and mobility need raw materials

 There is no such thing as “commodity-free mobility”. Energy density and efficiency are the main reason for the century- -long success of the combustion engine. Demonizing oil and gas to the advantage of other rare commodities – with doubtful ecological production processes – could only harm a key European industry and lead to new waves of unemployment and a risky peak in demand for producing countries. The game-changer policy of a very rapid green deal and the complete demise of the combustion engine could, in the best-case, end up as a market failure, and, in the worst case, as a major social and geopolitical conflict in the producing countries. There is a “yellow vest” in every car.

The multifold impact of a transforming automotive industry:

  • Climate change

    currently defined as the major geopolitical risk of this century.

  • Decarbonisation above all

    This credo by EC President Ursula von der Leyen marginalizes macroeconomics. What will happen to the combustion engine? The rigid timetable imposed on the industry and the levying of high penalties for those not complying with it could do tremendous harm to the industry. Instead of free market forces, this could result in some sort of European planned economy.

  • Uncertainty

    will e-mobility dominate the energy transition, or should research be more open to other avenues, e.g. hydrogen, synthetic fuels, natural gas, etc.? Enigmatic policies make life harder for both researchers and producers. Plus, the consumer is hesitant which type of vehicle has a future.

  • Idiosyncratic factors

    Within the EU/Germany, scandals such as “dieselgate”, cartels, and rigid legislation and prohibitions could make the European automotive industry less competitive. Similarly, in the US: pending government regulations on emissions control and safety.

  • Larger trade war

    The truce brokered by EC President Juncker and US President Trump in the summer of 2018 remains under threat as an even larger trade war could emerge between the US and the EU directly affecting car tariffs up to 25%.

  • The Asian company is on the rise

    It is not only about labour costs and regulations, but also about leadership in technology. China works already on the G6 grid to advance autonomous driving.

  • Who still wants to buy and drive a car?

    Consumer trends and demographic shifts are creating additional risks to the industry.

  • Technological advances

    (Artificial Intelligence and Internet of Things) are fundamentally transforming the automotive industry.

  • Social unrest

    These major upheavals in the industry could trigger social unrest. The yellow vest movement in France stems from a tax on driving. While revolutions in the past were preceded by bread riots, today’s revolutions are about access to energy, housing and mobility. Furthermore, a decline in oil prices could heighten social tensions in oil- and gas producing countries. The geopolitical implications of an exit from combustion engines have been underestimated so far.

  • Migrant workforce in many oil and gas producing countries

    Given the migrant workforce in many oil- and gas producing countries, 2020 has caused huge lay-offs, which affect remittances sent to their home countries and result in further migration. Everything is interconnected – this commonplace is missing in the political debate in Brussels.

Adriatic Journal

RELATED ARTICLES

By continuing to use the site, you agree to the use of cookies. more information

The cookie settings on this website are set to "allow cookies" to give you the best browsing experience possible. If you continue to use this website without changing your cookie settings or you click "Accept" below then you are consenting to this.

Close