In many ways, this New Year will set the tone for the global economy “post-COVID”. We are seeing significant changes as we transition away from our dependency on fossil fuels, deal with the longer term economic impacts of the pandemic and adjust business practices to improve organisational resilience. We’ve also reached a turning point on EU Green Deal objectives, evidenced by the Fit for 55 package, which will this year set the course on how we get to carbon-neutrality.
in CLEPA, by Thorsten Muschal, 26-01-2022
However, this on-going and needed transformation is not without its challenges. Supply chain bottlenecks, uncertain production volumes and increasing energy costs are dominating the start of the year. Automotive suppliers in 2022 will have to navigate an uncertain economic climate while continuing to invest in, and hopefully capturing, opportunities related to the green and digital transition.
Three market trends will shape 2022
- Doubling-down on innovation despite delayed recovery
- Continued cost pressures and stressed supply chains
- Moderate electric vehicle sales compared to 2021
These trends underscore that now, more than ever, our sector requires a regulatory framework that enables automotive suppliers to capitalise on strengths and that provides the flexibility to adapt to changing circumstances – be they technological breakthroughs, geopolitical events, or availability of resources.
Reinforcing innovation despite delayed sector recovery
European suppliers invested around 20 billion euros in R&D, despite vehicle sales being more than 12 million below 2019 levels due to shortages. T1-2 suppliers were responsible for more than 50% of R&D in electric mobility in 2021.
The past three years were marked by suppressed production volumes and revenues, but automotive suppliers across the EU have continued to invest in research & development and strengthened their innovative capabilities, nonetheless. Investments in e-mobility, battery supply chain, connected and autonomous driving and semiconductors have continued to increase, and the EU automotive supply chain plays a crucial role with its contribution. 2022 will be marked by the need for continued investment in the innovative arm of our sector.
Costs pressures and stressed supply chain
Energy prices, raw material and shipping costs more than doubled in 2021. Ongoing semiconductor shortage could delay global production of four million vehicles in first half of 2022, while energy prices are already resulting in aluminium mills shutting down.
2021 was marred by shortages as far ranging as magnesium, to aluminium, steel and polymers, but chips alone delayed the production of nine million vehicles globally. Supply chains are likely to remain a concern in the year ahead, even if chips shortages may become less acute in the course of the year. Elevated energy and raw material prices reinforced by an increasing carbon price are not only likely to pressure the full automotive ecosystem but may also shape the industrial strategy and Green Deal policy debates
Electric vehicle growth will moderate in 2022
Annual production of battery electric vehicles will for the first time surpass one million in the EU in 2022, reaching 1.5 million (against six million globally), but growth is projected to slow down to 42% in 2022, compared to 55% YOY.
Electrification gathered pace in 2021, with battery electric and plug-in hybrids reaching double digit market shares across the EU’s biggest markets. The uptake of EV’s across Europe and global markets will continue to grow, however, some industry experts suggest that EV growth in the EU could soon hit a temporary ceiling due to lack of charging infrastructure and range anxiety among non-urban consumers.
EU regulations require incomparable transition pace, coupled by supply chain and cost risks
2022 will be a crucial year for the EU’s Green Deal and its digital agenda, as policy makers will search for the majorities to turn last year’s proposals into law. The past couple of years have taught us how complex and fragile global supply chains are, and how important they are for the global economy and society. We would be wise to take note of the lesson, that huge transformations require flexibility. We should avoid single-solution dependencies. Electric vehicles will play a crucial role in reaching climate objectives, but both employment impact and the resilience of supply chains would benefit from a more holistic and open technology approach.
A CLEPA commissioned study, carried out by PwCStrategy&, found that an EV-only approach to the transformation would put over half a million EU jobs at risk. Further, the International Energy Agency warned earlier this year about shortages of crucial raw materials like lithium.
A mixed technology scenario allowing for both rapid electrification and sustainable renewable fuels would make the transition more manageable through the longer-term use of hybrid vehicles, and it would incentive the investments needed to scale up these clean fuels. This is particularly important for defossilising the existing car park of 300+ million vehicles.
I ask myself why is the EU putting all of their eggs in one technology basket? We have invested heavily over the years and are leaders in advanced combustion technology. We have a competitive advantage and would be doing ourselves a disservice not to leverage it in the future.
While there is broad support for EVs around the world, no major global car market (USA, China, Japan) is opting for technology bans – there is the realisation that transport needs are too diverse for just one solution. Technology openness gives industry the needed time to transition, while mitigating the social disruption often coupled with abrupt change, without compromising on climate
The digital transformation
Digitalisation is another key pillar of automotive suppliers’ strategy to deliver green, safe and smart mobility for society. The long-awaited proposal for an EU Data Act is expected late February and should facilitate the optimal use of data by regulating fair access to data. Currently, the data flow between a vehicle and the next point of communication is limited and does not allow a variety of market players and businesses to provide new services. The Data Act should improve automotive suppliers’ abilities to develop the technologies and monetise services for both the safety and sustainability of mobility. The expected proposal for an EU Chips Act could give EU industry the needed levers to improve resilience in the long term, but we should not forget that resilience requires openness for global trade and investment.
2021 brought a more prolonged recovery than hoped. The road ahead in 2022 continues to be covered in a cloud of supply chain disruptions, COVID uncertainty and high energy prices, but the fog in which we find ourselves is all the more reason to push ahead towards the certainty of climate neutrality. But this will require a full commitment to innovation, coupled with a flexible regulatory framework that facilitates investment, anticipates change, and allows for the full scale of technological progress.
CLEPA President and Faurecia’s Executive Vice President of Sales and Program Management