End of the road for petrol and diesel vehicles with electrification to the fore
The end of the internal combustion engine is a reality in
the wake of Volvo’s recent decision that all new models would be electric or
hybrid within two years and the French government’s decision to ban the sale of
petrol and diesel vehicles from 2040.
In a new report global business advisory firm AlixPartners
warns that the impact of electrification is starting to bite forcing motor
manufacturers to act quickly to ensure they are best positioned to benefit.
Last year was an almost record year for vehicle
manufacturers globally, in terms of volumes, revenues and profit - and the most
profitable for more than a decade. OEMs have continued to work hard to reduce
costs especially with labour efficiency.
Over the last five years manufacturers have reduced the
number of employees it takes to build 1,000 vehicles per year to 45, a 6%
Such efficiency savings have allowed manufacturers to
fund more than €180 billion in capital expenditure and research and development
last year alone, equating to €2,000-€2,500 per volume vehicle and €4,500-€5,000
per premium vehicle.
Commenting on the decisions by Volvo and the French
government, Andrew Bergbaum, managing director for automotive at AlixPartners,
said: “Both these developments come on the back of a very strong year for
“However, whilst a number have been able to make
considerable efficiency savings which have helped fund short-term capital
expenditure and research and development, this is not a sustainable position
over the longer-term without fundamental changes to production and the amount
of investment required is going to continue to increase. Efficiency
savings are only putting off the inevitable consolidation that will need to
Merger and acquisition transactions in the automotive industry
continue to be dominated by Asian investors, but targets in the United States
were becoming less attractive to investors, while European targets remained
attractive, it is claimed.
Mr Bergbaum continued: “We expect the automotive industry
to remain attractive to investors.”
The electrification agenda continued to drive disruption
as traditional powertrains lost share, said the organisation highlighting that
by 2030 the steady progression of hybrid and battery powered electric vehicles
would represent more than 65% of all new vehicles sold.
As a result, in the short term opportunities and
challenges for the motor industry were becoming much clearer.
Whilst battery electrification required the least amount
of manufacturing labour, hybrids on average require around nine human hours per
vehicle to assemble the powertrain, 50% more than traditional engines.
As a result, AlixPartners predicted a large increase in
powertrain assembly man hours with the creation of 25,000 new jobs by 2030 to
meet the medium term shift to hybridisation, a growth of 22%.
From 2030, as battery electrification became mainstream
AlixPartners predicted those newly created jobs would begin to
disappear. Without European localisation of electric vehicle components,
job losses would be drastic - potentially well below the 110,000 people
currently employed in motor manufacturer powertrain assembly.
Globally electric vehicles and plug-in electric vehicle sales
now made up more than 1% of the total number of vehicles sold, up from 0.4% two
years ago. Furthermore, the electric vehicle market has seen a 7%
increase in the average range driving under pure electric power from 105 miles
to 1112 km over the same period.
Mr Bergbaum concluded: “Last year we predicted the ‘death
of diesel’, but the medium term prospects for the sector are far from
bleak. Sharing the burden of investments in CASE (connectivity,
autonomous, shared and electrification)
remains a critical action, as does a flexible manufacturing strategy
which allows the investment in powertrain to bridge the hybridisation era, but
that can be quickly dismantled once battery electric vehicles take over.”