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End of the road for petrol and diesel vehicles with electrification to the fore

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% improvement.  

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 manufacturers.  

“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 happen.”  

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.”