The automotive industry is experiencing the biggest disruption in its history. The car will undergo more changes in the next 10 years than it has over the last 10 decades put together. Several trends are pushing forward this massive transformation, accompanied by the emergence of new companies and competitors. Europe’s automotive industry urgently needs to address these challenges if it wants to stay successful. Greens are in a strong position to be a key partner in this transformation.
Europe is the cradle of the car industry. The first automobile, invented in Europe around 130 years ago, was a niche product. Few understood its broader implications. As Germany’s last Kaiser Wilhelm II infamously quipped, “The automobile is only a temporary phenomenon. I believe in the horse”.
Since then, Europe has put the world on wheels. Its cars and automotive technologies are sold and used all over the globe. Europe’s automotive industry has grown and flourished, becoming an essential part of the continent’s industrial fabric, providing millions of jobs, contributing substantially to GDP, creating value and moving people and goods. Overall, it’s an economic success story.
But as founder of tech giant Intel Andy Grove noted, success breeds complacency and complacency breeds failure.
And failure is looming. Emissions-cheating scandals have seriously damaged the industry’s reputation and finances. What’s more, they have highlighted a smug disregard when it comes to eco-innovation. Cheating rather than beating environmental standards is not a sustainable strategy. This lack of innovation and future-oriented approach is endangering Europe’s car industry.
A perfect storm is brewing in the automotive world. The car is practically being reinvented. And Europe’s automotive industry is failing to keep pace.
Trends rocking the automotive world
The car of the future is sustainable, smart and shared, and each of these characteristics brings both new challenges and new challengers.
The first is climate change. The automotive sector is a major contributor to greenhouse gas emissions. The transport sector is responsible for roughly 22 per cent of overall emissions in the European Union. And while the EU was able to cut its emissions by 23 per cent since 1990, the emissions in the transport sector actually grew by 20 per cent during this timeframe. If the EU wants to achieve its climate targets, every sector must play its role, including the car industry. This is a matter of climate stability, but it is also an economic matter.
Sustainability is becoming a market factor. An increasing number of countries are introducing new regulations and frameworks limiting fossil fuel powered combustion engines and promoting electric cars. France and the UK have put forward a ban on combustion engines by 2040, Norway has plans to have all new cars be zero-emission by 2025, Austria, Denmark, Ireland, the Netherlands, Portugal and Spain all have set official targets for electric car sales and even the world’s largest car market, China, has put in place quotas for electric vehicles and is considering a similar end date to France and the UK. In addition a number of cities such as Paris and Copenhagen are planning to ban diesel cars from entering the city centre.
But the market is irreversibly changing in favour of more environmentally friendly cars. If Europe’s automotive industry doesn’t adapt to these changes quickly enough, it will lose out. Those who come too late will be punished by the market. This particular trend towards greater sustainability is also accompanied by advances in battery storage technology. The mileage of electric cars is increasing and the costs are coming down. Questions around the sustainability of their supply chains notwithstanding, electric cars are in the midst of a break-out moment.
“Cheating rather than beating environmental standards is not a sustainable strategy.”
The second trend is autonomous driving. Artificial intelligence is giving the car a brain. The car of the future is not only sustainable, it’s also smart. Fitted with sensors, cameras and high-tech electronics, the car is becoming a computer on wheels. Rather than relying on a human driver, cars will drive themselves, reducing traffic deaths, avoiding congestion and freeing up their passengers’ time for other things. In the future, prospective car buyers might be more interested in on-board entertainment systems and other similar features than any other aspect.
And last but not least, the car of the future is becoming connected and shared. Rather than being an isolated, personal transport solution, it is becoming part of a mixed mobility network together with public transport and bicycles. New mobility platforms and business models are emerging, with numerous ride-hailing and car-sharing apps conquering the world of mobility. Instead of selling cars, these new players are selling kilometres. This, too, could be a great challenge to traditional car manufacturers, with the competition only one smartphone-click away.
Cultural and demographic changes are also fuelling this trend. Young people and urban dwellers no longer have a strong desire to own a car, and worry about the availability of parking spaces, insurance, and other inconveniences associated with car ownership. They want instant, on-demand access to mobility solutions. Car-sharing and ride-hailing could therefore also displace car ownership in certain areas, particularly in big cities. It is also a more efficient mobility system, given that the average car is parked 95 per cent of the time and therefore is only in use for the remaining 5 per cent.
Facing new competition
In the context of these three transformative developments, international competition in the automotive world is heating up, challenging Europe’s traditionally strong position. Many new competitors have emerged. US-based Tesla, for one, has become a leader in the luxury electric vehicle market, and is now entering the mass market for electric vehicles with the new, more affordable Model 3. Simultaneously, a whole new type of competitor is joining the fray. Traditional car companies may find themselves increasingly side-lined in a ‘parasitic’ relationship with tech titans such as Google, Apple and Baidu: the former provide the basic car structures, while the latter kit them out with the latest design, technology (such as automated driving, voice-assistants like Siri, cloud-based solutions, cyber-protection, etc.) and infotainment systems, therefore getting a greater share of the value-added. Besides the data protection issues that arise when data monopolists enter the car industry, a crucial question actually is whether car companies can manage to diversify their offer into the technology sector rather than vice versa. And last but not least, a whole range of start-ups and service providers with new business models, such as Uber, Lyft and Didi Chuxing, have penetrated the automotive world. These forces could spell veritable ‘carmaggedon’ for some of Europe’s car manufacturers.
“There’s a veritable race for low-emissions vehicles and Europe is being forced to play catch up.”
Europe is finding itself in a two-front war. In the West, it is facing companies such as Tesla, Google and Uber, which together represent the three trends that are defining the car of the future. Tesla is electrifying the car fleet, Google is working on autonomous cars and Uber, Lyft and others are providing new mobility concepts.
The situation in the East is no different. Chinese tech titans such as Baidu and Alibaba are developing driverless cars. Ride-hailing players such as Didi Chuxing – China’s Uber – are expanding abroad. And China is a market and industry leader in electric mobility. It has witnessed a rapid increase in electric vehicle production capacity, as well as sales. According to McKinsey research, Chinese manufacturers produced 43 per cent of the 873 000 electric vehicles built worldwide in 2016, and the country is home to the largest fleet of electric vehicles. In addition, China is a booming place for start-ups in the automotive sector.
Furthermore, China, South Korea and Japan are leaders in battery technologies and dominate the battery market. China in particular is building up its battery production capacity in order to gain a strategic stranglehold over this key sector. Not having a single battery production plant itself, Europe might come to regret relying on countries such as China for electric car batteries, given that China will increasingly require those batteries for its own electric car production.
Europe is lagging behind
It is an open secret that Europe has been asleep at the wheel when it comes to these technological developments. Electric cars have been belittled for too long, and by too many of Europe’s major car companies. According to the European Commission, the Chinese market already features 400 different types of electric vehicles, compared to Europe’s six. There’s a veritable race for low-emissions vehicles and Europe is being forced to play catch-up.
Europe’s policymakers have long been too lax towards the automotive industry. EU emissions targets have been watered down, and regulators have kept regulatory loopholes open and their eyes closed when it comes to emissions cheating, while providing subsidies to the car industry. Thinking that this would protect the car industry and strengthen it against the global competition, in fact the opposite has been the case. Keeping the status quo and lowering ambitions in the midst of a great transformation is never a successful strategy. It is reminiscent of the iPhone moment when Apple’s new smartphone quickly destroyed Nokia’s leadership of the mobile phone market.
“Keeping the status quo and lowering ambitions in the midst of a great transformation is never a successful strategy.”
Europe’s car companies have incredible know-how, expertise, R&D, and formidable skilled workers. But they need to change gear. And governments need to push them too. The European Commission, for instance, is now energetically working towards a European battery alliance with the aim of building a European battery supply chain for electric vehicles. It should be commended for that. However, more scepticism is warranted when it comes to its newly proposed CO2-emission targets for cars. Under the Commission proposal, which is still to be negotiated with the European Council and European Parliament, new cars would have to reduce their CO2 emissions by 15 per cent on average by 2025, and 30 per cent by 2030 (compared to 2021). These reduction targets are flanked by a crediting system for zero- (electric vehicles or fuel cell vehicles) and low-emissions vehicles (less than 50g CO2 per km, mostly plug-in hybrids). Manufacturers that have a share of zero- and low-emission vehicles that is higher than 15 per cent in 2025 and 30 per cent in 2030 will be rewarded with a less strict CO2 target.
While the car industry has complained that the targets are overly ambitious, a variety of NGOs have criticised them for not being ambitious enough.
The crediting system, which would allow companies to underperform the emissions target depending on the number of their zero-emissions cars, also seems somewhat misplaced. Such a system should act as an incentive for companies to be even more ambitious. But a whole range of European car manufacturers have already announced that they will boost the sale of electric cars. Volvo will electrify its entire vehicle line by 2019, Aston Martin will go completely hybrid by 2025, and BMW too has said that it aims to have 25 per cent EV sales by 2025.
What was supposed to be a reward for ambition is looking more like an emissions target loophole. Where’s the drive in this crediting system? Given these circumstances, and the fact that a number of EU Member States has already announced an end date for fossil fuel-powered cars (France, Netherlands), it is possible that some Member States might want to move ahead of the pack and put forward more ambitious national plans, knowing that ambition is needed to drive this great transformation in the automotive world.
Greens as a partner in this transformation
Greens have a lot to gain from the fundamental trends reshaping the car industry. They are recognised as being one of the only political parties with strong credibility on mobility and transport issues. And unlike other political parties, the Greens have not been tainted by the emissions-cheating scandal.
The Greens could make use of this situation to strengthen their position as a credible, respected actor on transport and mobility issues. This does not mean finger wagging in the direction of the car industry, but rather an earnest, pragmatic dialogue. Unlike the socialists and the conservatives, with their strong focuses on jobs and competitiveness respectively, the Greens are in a good position to take a comprehensive view of the issues facing the car industry and their likely impacts, and to engage with the different stakeholders in this industry. The fact that the Greens hold the chair of the European Parliament’s Transport Committee is also helpful in this context.
There has traditionally been some bad blood between the car industry and the Greens. There is, however, little point in continually looking back into the rear-view mirror. Now is the time to discuss the future, and to make the European car industry fit for it. Indeed, this is the approach taken by Germany’s only Green Minister-President – in the state of Baden-Württemberg, home to Daimler, Porsche and Audi – who has launched a strategic dialogue with the automobile industry to discuss the multitude of challenges it faces, and to come up with proposals on how Baden-Württemberg can retain its leadership position in the sector. Participants include car manufacturers and original-equipment manufacturers, energy companies, public transport entities, city representatives and policymakers, academics, trade unions and environmental NGOs.
Europe was the birthplace of the car, but the car isn’t what it used to be. It is being reinvented, and the birth pangs are shaking the European car industry to the core. Greens can play an important role in ensuring the ongoing success of the European car industry by mixing ambition with pragmatism, and idealism with governing experience. They are in the perfect position to integrate emerging models and best practices, to make new alliances, and to strike the right balance to make the car industry more sustainable and simultaneously more competitive for the future.