![Electrification](https://mycountryeurope.com/wp-content/uploads/2019/04/Electromobility_Summit_Berlin_2013_-_Angela_Merkel-780x405.jpg)
All over the world, the electrification of the automotive industry seems irresistible. Carmakers are now fully engaged in the transition to electric mobility, with plans for new car models multiplying by the year. While U.S. carmaker Tesla has made headlines with its attempt at making its last Model 3 more affordable, an increasing number of manufacturers has joined the fray. Volkswagen, BMW, Nissan-Renault, Jaguar and Hyundai have all launched new electric models in 2018, with Volvo, Audi, Mercedes and FIAT expected to join in 2019.
This momentous transition presents different opportunities and challenges for the European automotive industry, which invested significant energy and capital into developing clean diesel combustion engines. This choice has backfired catastrophically, leaving the EU auto sector searching for a new way to remain competitive worldwide.
A Limited Transition
The quickening pace of transformation shouldn’t give the impression that the automotive industry is fully converting to electric mobility. In fact, the transition remains fairly limited. In 2017, registrations of electric vehicles (EV) represented a mere 2% of all new vehicle registrations in the EU. The number was only slightly higher in China (2.5%) and in the U.S.A. (3%). Unsurprisingly, given its size, Beijing has surged to the top in absolute numbers: in 2017, China was home to 48% of all registrations of electric vehicles worldwide, with the United States trailing a distant second at 16%, and the EU third at 15%.
![Volkswagen Electrification](https://upload.wikimedia.org/wikipedia/commons/thumb/3/39/Volkswagen_I.D._electric_vehicle.jpg/1200px-Volkswagen_I.D._electric_vehicle.jpg)
The true ramifications of this disparity become apparent once we consider Dieselgate’s impact on the European automotive sector. Following the shocking revelations of the emissions scandal, diesel bans have been introduced in many European cities and regions. As a consequence, diesel registrations have fallen dramatically all over Europe. ‘Clean’ diesel has represented the crown jewel of the German automotive industry for years, and the wider European industry has invested heavily diesel as well. Now, one thing is apparent: European carmakers have bet on the wrong horse, and now they’re paying the price.
The World After Dieselgate
Dieselgate has dealt a devastating blow to the European automotive industry, crippling its credibility with the public and fully exposing the limitations of the technology in terms of carbon emissions. While the USA, Japan, and China moved into the lead on electrification, European carmakers sank money and effort into a technology that is increasingly out of step with the times.
The issuing of patents is a telling indicator of the resulting decline. In the early 2000s, EU producers accounted for over 70% of patents on internal combustion engines, and 50% of patents on electric power trains. In 2010, that number fell to just above 40% share of all patents regarding all power train technologies (electric, hybrid, hydrogen, internal combustion). The European automotive industry still remains dominant in the field of internal combustion cars, but finds itself lagging behind on electrification.
The ambivalence of electrification – a threat and an opportunity at the same time – is reflected in industry attitudes. While European carmakers are eager to embrace and promote a “green” image, sceptical comments still get their time in the sun. Recently, Italian industry moghul Alberto Bombassei warned Italian consumers against electric vehicles, arguing that the EU should take a stance in defending its traditional automotive industry. Even though Bombassei’s protectionist and neo-luddite arguments might sound outdated and counterproductive, what makes his statement appealing to the general public is that it promises to safeguard jobs.
![Emissions Electrification](https://upload.wikimedia.org/wikipedia/commons/thumb/7/7e/VW_NOx_emissions_WVU.svg/1280px-VW_NOx_emissions_WVU.svg.png)
The switch towards electric, or electric hybrid plug-in vehicles, does imply far-reaching changes to the labour market. Electrification would lead to reduced demand for mechanical engineers, while demand for electronic engineers and IT experts would grow. Similarly, the supply chain would undergo its own dramatic transformation, with workers needing to specialise more and more on electricity, circuits, and IT. Additionally, the manufacturing of electric vehicles requires fewer workers compared to traditional internal combustion vehicles, but the complexity of the product might open the door to more jobs in customer assistance. It is likely that these shifts will lead to intensified lobbying for and against electric cars in the future.
Playing Catch Up On Electrification
The EU, a world leader in different areas of the automotive industry, now finds itself chasing the pack on electrification. The cars themselves show signs of promise, with the new models proving popular with customers. The European industry, however still crucially lags behind in battery production, and it’s Chinese brands that dominate in the field of battery patenting and manufacturing. Batteries are currently the most expensive component of electric vehicles, and in effect this means that China enjoys a de facto monopoly in what is currently the most expensive segment of the electric transportation supply chain. Only recently has Daimler started challenging this position, by investing nearly twenty-three billion Euros in developing new battery cells.
Stimulating demand might give the EU auto industry the jump start it requires to make up for lost time, but an even better option would be stimulating supply. The industry needs to invest approximately fifty billion annually to claw back the current gap. European battery-makers are feverishly at work to increase production and meet Europe’s growing demand for batteries, but it will take years before their efforts come to fruition. Public R&D support could help develop the next generation of clean technologies (e.g. solid-state batteries), and conversion from pre-existing technologies could also be encouraged in a similar fashion. Brussels-based think tank Bruegel has recently proposed the creation of an “EU Clean Transport Fund”. This would provide funding to countries and cities willing to deploy the infrastructure required for electrification. A non-exhaustive list includes urban planning, public transport, and charging stations.
![Plug-in electrification](https://upload.wikimedia.org/wikipedia/commons/thumb/9/91/Ride_and_Drive_EVs_Plug%27n_Drive_Ontario.jpg/1200px-Ride_and_Drive_EVs_Plug%27n_Drive_Ontario.jpg)
Additionally, the global dimension of electrification means that free trade and trade deals can bring considerable benefit to the electric transition. Even though Chinese, U.S. and European car industries are in competition, together they can service a formidable market of nearly two and a half billion customers. As the respective industries grow and interact, a new global supply chain is developing around them. Lowering supply costs and other similar factors have the potential to dramatically boost electrification all around the globe.
Electrification represents a true game-changer for the automotive industry, and brings with it the prospect of dramatic changes to the labour market, to global supply chain, and technological development. Much like at the dawn of the history of the automotive industry, in the late 19th century, the early models of electric cars are extremely expensive (with the cheapest models currently costing like a mid-high range combustion-powered car), and the designs still need time to reach maturity, and break out into the mass market.
The EU automotive industry entered the race late, in no small part due to its ill-advised investment in diesel technology, but it’s not too late for it to assert itself. In order to be a world leader, and not just a spectator in this momentous transformation, the EU needs to act immediately, recovering the time lost chasing diesel technology. Only time will tell whether it will have the energy and political will to abtain this goal.