[Auto] Electric Car Turmoil Will Make Brexit A Comparative Breeze For Auto Makers

[_Happy boy]

Automakers are having hysterics about the impact on their sales and profits if the European Union (EU) and Britain fail to agree a free trade deal, but the ramifications of that look minor compared with the long-term existential threat to the automotive world from electrification and the demise of the internal combustion engine (ICE).

If Britain is forced after Brexit to switch from tariff-free auto trade with the EU to World Trade Organization (WTO) terms, that will soon sort itself out even if it leaves some competitors a bit bruised. After all, getting on for half of Britain’s auto production is already sold through WTO tariffs.

But according to Peter Wells, Professor of Business and Sustainability at Cardiff Business School, there are more massive threats looming and only the strongest will survive. The U.K industry faces Brexit upheavals, but the global industry will have to handle a decade of disruption as electric cars and maybe computer driven ones gradually replace conventional vehicles. The whole idea of individual car ownership is being questioned

“There’s a huge watershed moment building up for the global industry. The pace of change is frighteningly fast because of pressure to cut carbon (dioxide CO2) emissions and fight climate change. There will soon be a huge demand for low (CO2) emissions vehicles and those companies able to act quickly, like Volkswagen, will be in a position to benefit,” Wells said in an interview.

Volkswagen plans to spend about $86 billion developing electric cars and the latest technology over the next 5 years. VW, which sold about 11 million vehicles world-wide in 2019, has already launched its ID.3 battery electric, the first iteration of a new generation of electric vehicles. VW hopes this will allow it to overtake Tesla Inc TSLA +4.1% as the world’s leading maker of electric cars and SUVs.

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The coming turmoil will force companies which lag in the race to seek safety with more partnerships and mergers or they will be swallowed up by successful ones, according to Wells.

The push for electric cars is being led in Europe by politicians, and therein lies a concern because currently, the only way to sell an electric car is to either persuade waverers with big taxpayer subsidies, or by making ICE cars unattractive with onerous environmental demands like allowing electric cars access to cities and denying that right to the rest. Oil rich, socialist Norway has already shown the way.

Britain has said it won’t allow the sale of new ICE vehicles after 2030. The European Commission, the policy making arm of the EU, wants at least 30 million electric vehicles on its roads by 2030, up from about 1.4 million electric and plug-in hybrid vehicles now. That has forced the automakers’ union, the European Automobile Manufacturers Association known by its French acronym ACEA, to make a plea for what it considers to be sanity.

“The Commission paper lays out a bold ambition to have at least 30 million zero-emission cars on the road across the European Union by 2030. Unfortunately, this vision is far removed from today’s reality,” ACEA Director General, Eric-Mark Huitema said in a statement.

“To meet the Commission’s objective, we would need to see an almost 50-fold increase in zero-emission cars in circulation on our roads in just 10 years,” Huitema said.

Whatever the result of this power play, Wells said Britain in particular and the European industry in general has to change its strategy from producing high-volume low profit margin vehicles to more niche and lower output ones with much bigger margins.

“By 2030 or possibly 2025, Britain’s production will be smaller, maybe 1 million or maybe even less, but it will be more diverse than now,” Wells said.

Auto production in Britain peaked at just over 1.7 million in 2016 and slipped to about 1.3 million in 2019, according to the Society of Motor Manufacturers and Traders (SMMT). The much lower number for 2020 will be a temporary coronavirus aberration. The biggest auto makers in Britain are now Toyota, Nissan, Honda, Jaguar Land Rover, Groupe PSA’s Vauxhall  and BMW’s Mini. The long-term future of the two Japanese manufacturers is now considered questionable, not least because Japan and the EU have now agreed a free-trade deal. Honda already plans to close its British factory for good in 2021. PSA has said the future of its Vauxhall plant depends on a favorable Brexit deal, hinting that if in fact talks failed resulting in WTO terms it might well pull out.

“The market is now moving much faster than the industry wanted, faster than regulators and politicians anticipated,” Wells said.

As 2030 approaches it will get harder and harder to sell ICE vehicles. By mid-decade, mass carmakers, as opposed to small manufacturers like Aston Martin, Ferrari and McLaren, will be forced to shut down research and development into fossil fuel power. Residual values of ICE vehicles will plummet.

The move to all electric motoring looks set in stone, with perhaps only one way to thwart it. Unless the price of electric cars falls drastically, Europeans on average salaries are unlikely to be able to afford new cars, although they might be persuaded to embrace little mini-electric cars like the Citroen Ami. If European voters find themselves forced on to crowded trains and buses, there could well be a voter backlash along the lines of France’s Gilets Jaunes movement. Rioting there still continues a couple of years after France decided it was time to raise the price of diesel, an essential component of the French transport economy outside the big cities.

As for Britain’s prospects, its automotive industry might be feeling under unfair pressure from Brexit turmoil, but in fact it will be forced to address issues the rest of the industry will have to face.

“In Britain, we are the canary in the mine. The industry here will be hit a bit sooner and perhaps more drastically than other countries. The U.K. industry has a long history of innovation that’s kept us up to speed with Formula 1 and I’m optimistic because of this it will be able to perform well when it has to handle lower volume, higher value. In that sense I’m optimistic. Manufacturers like Jaguar Land Rover need to be able to handle the transition to electric and electricmobility and different business case challenges,” Wells said.

Some harsh decisions will have to be taken in Britain and Europe won’t be immune.

“Things were always going to be difficult, but now the pandemic and Brexit have made it much worse for everyone. We’ve had overcapacity across Europe for some time. With this huge competitive pressure, more capacity will have to go,” Wells said.