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CLEPA | The success of the Green Deal is directly linked to European competitiveness

The mild October temperatures provided some relief in Europe to cope with the energy crisis, but the predictions for the coming winter and next year leave little room for optimism: continued supply chain distortions, rising energy and raw materials cost, overall inflation, as well as the weakening demand for vehicles form a perfect storm.

in CLEPA, by Benjamin Krieger, 02-11-2022


The CLEPA Pulse Check, a biannual survey of automotive suppliers conducted together with McKinsey, shows that despite optimisation of production costs and other short-term measures, 23% of suppliers expect to record losses this year. For 2023, the outlook is gloomier still with 27% expecting a loss. The Pulse Check clearly documents the pressure that automotive suppliers are facing, which is likely to be exacerbated this winter. With nearly 70% of the suppliers operating far below EBIT margins of 5%, the financing of the green and digital transition is becoming increasingly challenging.

Suppliers hold strong to their commitment to R&I spending, but without access to affordable energy in the EU and fair sharing of the cost burden from inflation along the supply chain, competitiveness and the speed of innovation in the sector will diminish.

This is an unprecedented situation that requires urgent political action, as the global competitiveness of the European automotive ecosystem is at stake.

Unprecedented regulatory pressure

At the same time, the EU has now confirmed to phase-out the internal combustion engine (ICE) by 2035. The 100% CO2 reduction target at the tailpipe, is in fact, an implicit ban on the ICE technology and the most ambitious target worldwide. Automotive suppliers support the objective of climate-neutral mobility and have the technologies to make this a reality. However, the most ambitious electrification target will not succeed, if it is not accompanied by policies to ensure charging and refuelling infrastructure, green energy, access to raw materials and a just transition. Environmental targets must take into account the social and economic dimensions.

The negotiations on the rules for renewable energy, charging infrastructure, energy taxation and other pieces of the puzzle have yet to be concluded or will only start later, such as the planned policy for critical raw materials. These key files need to result in a coherent framework that can be implemented successfully.

The CO2 regulation foresees a review in the year 2026, which will cover not only the deployment of zero-emission vehicles but also of charging infrastructure, availability of green energy and fuels, affordability of vehicles and the impact on the industry. This review must be an opportunity to correct course where needed.

CLEPA strongly supports technology diversity to ensure that the most efficient and effective approach to cutting emissions prevails and to ensure a manageable transition that leaves no one behind. Technology diversity includes full electrification, hybrid drivetrains and vehicles running on hydrogen, either in gas engines or fuel cells. All of these technologies are climate neutral if running on renewable energy, in the form of green electricity or renewable hydrogen and fuels.

The CO2 regulation for cars and vans, in principle, contains a role for sustainable renewable fuels also in new vehicles. For this clause to have a real world impact, it is up to the Commission to make a proposal for its implementation into law.

Even more than for cars, a technology-open approach is necessary to decarbonise heavy-duty vehicles, which travel long distances typically across borders, are made up of fleets, and have specific use-cases. Hydrogen or carbon-neutral fuels, for example, can effectively reduce emissions to net-zero, alongside electrification, especially for the existing parc of nearly 7 million vehicles. The debate on technology diversity must continue once the proposal for the revision of CO2 targets for trucks starts, and the new Euro7 pollutant emission standards are adopted later this year.

#JustTransition – no easy feat

Meanwhile, the transition is at full pace and requires political support, as CLEPA points out, together with a coalition of unions, trade associations and environment NGOs. A series of publications have quantified potential job losses, gains and expected changes in the automotive sector. BCG concluded that the transformation in the passenger car segment alone would require the upskilling and retraining of 2.4 million workers. The European Battery Alliance argues that 800,000 skilled workers are needed for EU e-mobility ambitions. And CLEPA’s recent study indicates that 501,000 jobs in the ICE-supply chain, or 84% of the current ICE powertrain employment, will become obsolete.

Whilst new jobs will be created in the electromobility ecosystem, jobs will not be easily interchangeable as they are often located in different places, along different timelines and require different skill sets. Policy support is vital in addressing this challenge, with targeted funding for training, reskilling and upskilling of workers in the automotive sector.

Given the number of jobs at stake and the magnitude of the ongoing transformation, social disruption due to a badly managed transition might severely undermine the ability of the European Green Deal to succeed in a sector which has so far defended its position as a global export champion.

 

Benjamin Krieger

CLEPA Secretary General

 

 

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