The Manufacturer's editorial director, Nick Peters, reports on the multi-faceted problems assailing the car industry.
There is a lovely story about what happened in the aftermath of Jaguar’s i-Pace being voted Car of the Year 2019 by a jury of European motoring journalists, and it really illustrates the changing world in which the automotive sector finds itself.
The problem, as reported by Car magazine, is that the electric i-Pace isn’t a car, because according to the Oxford English Dictionary, the current definition of a car is ‘A road vehicle, typically with four wheels, powered by an internal combustion engine and able to carry a small number of people.’
Of course, an outdated definition wasn’t going to alter the result, as it hadn’t for the two electric vehicles (EVs) that won this prize in previous years, the Nissan Leaf and the Vauxhall Ampera, but JLR put in a request to the OED for the definition ‘car’ to be changed to reflect the emergence of new fuel systems and powertrains.
This article first appeared in the October issue of The Manufacturer magazine. Click here to subscribe
For The Manufacturer’s latest podcast, Nick Peters spoke to Mike Hawes, CEO of the Society of Motor Manufacturers and Traders (SMMT), about the storm clouds gathering over the UK motor industry.
It’s tempting to suggest it is simply the fusty old OED that is struggling to keep up with the times, but UK car manufacturers have not exactly been kicking down the doors of the future themselves, principally because the vast bulk of the OEM industry here is in the hands of foreign owners, so big strategic decisions are taken everywhere but here.
And the truth is the established global automotive sector, having built huge fortunes and provided millions of people with jobs for decades, has found it difficult to change gear from its understandable reliance on the internal combustion engine (ICE), which provides well over 90% of its revenues, to battery and hydrogen power.
One might ask why, if non-ICE vehicles represent such a small percentage of business, the carmakers should break a sweat. They actually have no choice.
Within two decades, national governments will have outlawed the production of ICE-powered cars. All those manufacturing plants, and all those supply chains, will be forced to switch to zero-carbon vehicles.
On its own, that might not seem too challenging, but their markets are already under assault from feisty new entrants, unbending regulators with the power to levy massive penalties and the biggest disruptor of all, China. Oh, and Brexit too.
Carmakers face challenges across the board, coming at them like an electric juggernaut. This is the Tesla Semi, an electric lorry.
The most obvious assault on the ramparts of the ICE-fixated industry came from Elon Musk’s Tesla, which wowed consumers with cars of astonishing performance and digital versatility.
It wasn’t so much a product innovation seeking some attention as an unashamed assault on the arguably complacent automotive establishment.
Never mind the fact the cars were quite poorly finished, they had style and chutzpah, both drawn from the enigmatic wunderkind. Everything he did and said underscored the contention that as far as he was concerned, the future was here, now, and it looked like Tesla.
I got this message loud and clear some years ago from a story in Forbes, which reported that when a product safety upgrade was required – Teslas were bottoming out on rough roads – instead of incurring the vast expense ICE-based manufacturers would have to undergo in a mass product recall, Tesla simply sent out a firmware upgrade that altered the cars’ suspensions over the internet.
To demonstrate that little has been learned in the years since then, just last month VW and Porsche recalled 227,000 cars for a software upgrade to remediate a fault with airbags and seatbelt tensioners.
The old centralised model still obtains, no matter how good the product. Decision-making has also been clouded by internal resistance to change, and in terms of CO2 reduction, the fact that customers stubbornly wanted to buy ICE cars, the bigger and thirstier the better.
The UK automotive sector by numbers:
As carmakers hesitated between building the future and making money out of the present, three separate pressures started to exert themselves, making their position even more perilous.
Brexit and toxic gas
Brexit is a body blow to the British automotive industry unless, as seems increasingly unlikely at the time of writing, a deal that preserves frictionless trade between the UK and EU is reached.
Quite simply, failure to do so will be disastrous, for reasons that are well aired in the daily news. Speculating on various scenarios is pointless. We will know what’s going to happen very soon.
The other two pressures are no less existentially threatening. The first has been known about for some time.
In 2014, the EU passed legislation that would encourage the construction of cars that produced less CO2. It said that by 2020, 95% of cars sold in Europe should emit 95g CO2 per kilometre travelled or less, and that in 2021, all cars must meet that standard.
The 95g/km target is an average. Individual carmakers will be assigned a single target averaged out across their range. The goal was to sway carmakers away from ICEs to EVs, and at first it all looked to be going so well.
In 2014, the downward trend towards that 95g/km CO2 target was consistent. But then, as the effects of the 2008 financial crisis faded, consumers started falling in love with bigger gas-guzzling SUVs, which pushed the downward trajectory of emissions back up again.
To make matters worse, VW’s ‘Dieselgate’ scandal showed that part of the downward trend might have been, in any case, fraudulent.
So, those carmakers who deliver cars producing more than their CO2 emissions target will start to suffer hefty fines calculated per gram of CO2 emitted above that 95g mark – fines which, for those who opt to do nothing to change their emissions, are eyewatering (accounting for roughly half of their net profits).
Some, like PSA, which owns Peugeot, have already pledged to clean up their act to the extent that they will suffer zero penalties. Others, like BMW, are bringing forward their EV production schedule to minimise the projected hit. JLR says it is on course to reach its target in time to avoid fines.
The fact that so many carmarkers are scrabbling, understandably, to make their targets underlines what an effective policy this has been. But a company like Tesla will have to pay precisely nothing, because they are already fully EV.
This at a time when the Tesla 3 has leaped into the European sales rankings at number three (appropriately), based on pre-orders. The future is unfolding before the market’s eyes and there is a significant risk that it will not be European.
And then there is China, the largest car market in the world, and already moving aggressively into EVs. The reception Elon Musk received from the Chinese government on his official visit this summer very much indicates the direction of travel.
He is building a Tesla factory there and the Chinese government said Teslas would be exempt from a 10% purchase tax levied on EVs, the only foreign-owned company to win that concession.
Add to that the fact that a Chinese real estate conglomerate, the Evergrande Health Industry Group, is aiming to become the world’s biggest producer of EVs within five years. It bought a majority share in the Swedish NEVS company, the successor to Saab, which in turn bought the British company Protean Electric.
Protean is only 11 years old but is already recognised as a world-leader in in-wheel motors for EVs, with 160 patents already registered and another 150 pending. Thus, a British company behind the technology that will drive a substantial part of the automotive future of the world has been bought by China.
With events moving at such a pace, it is little wonder the European automotive sector’s collective head is spinning.
*All unattributed images courtesy of Depositphotos.