Politicians are mandating the world out of combustion engines, and it’s coming with a fair bit of collateral damage. According to Reuters, until EVs truly take off, engine part makers face a perilous few years where they must invest heavily in new machinery while struggling with falling sales of current automobiles due to supply chain entanglements.
Before a major shift in favor of EVs, diesel was expected to be a green fuel of the future. As a result, suppliers invested millions in new machinery to manufacture parts for new diesel models. As recently as 2015, diesel made up nearly 52% of EU car sales. But after Volkswagen’s “Dieselgate” emissions cheating scandal, diesel fell to 19.6% of EU sales in 2021 and has continued to fall further this year. Volkswagen was then ordered to pay billions in fines, while largely assisting in the EV charging infrastructure program known as “Electrify America”.
With government forces behind the growth of electric vehicles, we can see the downstream effects happening in real time.
Engine Parts Suppliers: Adapt To Survive
While major engine parts suppliers like Vitesco Technologies Group AG and Schaeffler are already investing in transitioning to electric, smaller players like Evtec, formerly Liberty Aluminum, must adapt or die. Some major carmakers have warned of substantial job losses, as EV motors have only a third of the parts of a combustion engine and require less labor. Fewer parts also mean fewer suppliers. As a result, suppliers must either transform into an EV-focused business or diversify into other industries. Or go out of business.
Declining combustion-engine car sales have already cost jobs, with Stellantis shifting its plant in Tremery, France – the world’s largest diesel engine plant – over to EV motors. That shift decreased Tremory from 3,000 employees in 2019 to 2,400 people. Many of which won’t be replaced when they retire. German supplier Bosch is tranforming its plant in Rodez, France, away from diesel injectors to new products, including hydrogen fuel cells, cutting 750 of 1,250 jobs.
Smaller suppliers are already struggling with soaring raw material and energy costs due to policymakers mandating market demand, plus the need to invest in “greener” products that are needed to meet the CAFE and MAFE regulations, and similar policies outside the USA, that automakers have to comply with. As such, business that have to budget for new equipment to make EV parts are stretched thin, according to the report. Suppliers that make key components could get rescued, but carmakers can’t afford multiple bailouts.