international analysis and commentary

The auto industry in a changing economy


A few days after Mary Barra had been appointed Chairman and Chief Executive Officer of General Motors, she said that she expected to see more change in the auto industry in the next five years than in the last fifty.[1] That was in 2014. Today, the pace of structural change and transformation in the auto industry is accelerating, in particular for electric vehicles, which are progressing at an incredible rate.

Battery electric vehicles (BEVs) do not consume gasoline or produce tailpipe carbon emissions, thus holding the promise of an environmentally sustainable driving experience within reach of the average consumer – though not in the very short term. However, the question remains whether the environmental advantage outweighs the economic impact, for instance in employment. The shift to electric vehicles and away from internal combustion engines is likely to have significant consequences for the automobile assembly and parts manufacturing industries, especially in the European Union where the automotive industry is crucial for the prosperity of its member states.

The Wolfsburg Volkswagen plant in 1960


According to the European Commission, the automotive sector provides direct and indirect employment to 13.8 million Europeans, representing 6.1% of total EU employment. Of this, there are 3.5 million direct and indirect jobs in manufacturing, 4.5 million in sales and maintenance, and 5.1 million in transport. More specifically, 2.6 million people work in the direct manufacturing of motor vehicles, representing 8.5% of the EU’s employment in manufacturing, and it is exactly on this portion of employment that the concerns of policy makers must focus.[2]

In a study conducted by the Friedrich Ebert Stiftung, a German political foundation that promotes democracy and political education, a comparison between conventional and battery-powered electric drive systems shows that a complex internal combustion engine with roughly 1,400 engine and transmission components involves considerably more work than an electric engine with about 200 components in its drive train.[3]

A recent study of electric-vehicle production in Europe by consultants AlixPartners found that it takes 40% fewer hours to assemble an electric motor and battery than a traditional internal combustion engine and transmission, while Ford has estimated that electric cars would require 30% fewer hours of labor per vehicle and 50% less factory floor space.[4]

Put in simpler terms, the traditional gasoline engine has carefully engineered pistons and fuel injection systems that differentiate one vehicle’s performance from another. It also needs a complex transmission to transfer power to the wheels with a series of gears. An electric motor needs none of that, and it works with a fixed, single-gear gearbox that powers the wheels. BEVs contain significantly less components than cars with engines, so some reductions in employment, particularly in the supply sector are to be expected.

In 2017, the Verband der Automobilindustrie (VDA), the German Association of the Automotive Industry that represents carmakers such as BMW, Volkswagen and Mercedes-Benz, commissioned to the IFO Institute for Economic Research, a Munich-based think-tank that analyses economic policy and is widely known for its monthly IFO Business Climate Index for Germany, an empirical study examining the effects of a ban on vehicles with combustion engines from 2030. Using official manufacturing statistics, the IFO’s scholars studied which groups of products would be affected by the ban in order to quantify potential risks for output and employment. Based on the structure of production in 2015, it emerged that at least 620,000 employees would be affected by the ban – more than 10% of total German manufacturing employment.[5]

A few months later, Bernhard Mattes, the then president of the German Association of the Automotive Industry, said, in an interview in Berlin cited by The New York Times, that “There is a transition toward more electric vehicles that have far fewer components and are easier to manufacture, therefore, we can expect less employment.”[6] In the wake of this prospect, the first signs from the German carmakers were not far to seek.

At the end of November 2019, German carmaker Audi, a subsidiary of Volkswagen, announced that it would slash 9,500 jobs by 2025 in an effort to save some €6 billion, and that the cuts would hit the company’s Ingolstadt and Neckarsulm workforces in Germany as regular workforce turnover rather than firings.[7]

Two Audi workers assemble a battery for an electric car


A week later, Daimler broadcasted that it would cut at least 10,000 jobs worldwide by 2022 to reduce costs as it rolls out electric vehicles, and that the layoffs include eliminating 10% of management positions. The company, which employs 304,000 people globally, wants to reduce vacant positions, expand opportunities for partial retirement and in Germany offer a severance package to reduce administrative positions.[8]

A few days ago, Mike Manley, the CEO of Fiat Chrysler Automobiles, joined the chorus by saying that in battery electric vehicles there are fewer components and, in some cases, assembly is simpler than with internal combustion engines, meaning that, over time, there would be a dispersion of work, and the same decline is destined to happen to the related industries as many of the components that today come from external suppliers would no longer be needed.[9]

In fact, the automotive industry has an important multiplier effect in the overall economy, as it is important for upstream industries such as steel, chemicals and textiles as well as downstream industries such as ICT, repair and mobility services. Of particular interest is the machine tools industry, which plays a vital role in enabling manufacturing companies in advanced industries, such as automotive, to deliver components and products to the highest possible precision, especially for transmission components and injection molds, an industry that can be considered strategic for cutting-edge manufacturing economies such as Germany, Japan and Italy.

In a recent announcement, the Italian machine tools, robots, automation systems and ancillary products manufacturers’ association (UCIMU), whose members account for 8.3% of the world market share,[10] said that incoming orders in 2019 were down 21% compared to the previous year. The causes are politically generated disturbances in world trade, a slump in the semiconductor market and, above all, sector structural weaknesses in its biggest customer, the automobile industry, which continues to halve its investment in plants compared to the previous years.[11]

A disquieting scenario is looming, particularly when that percentage of the German manufacturing employment is linearly projected to the 13.8 million jobs directly and indirectly operating in the European Union auto industry and its satellite activities: The study conducted by the VDA says indeed that 10% of total German manufacturing employment will be affected by the changes due to the BEV.

Building engines and powertrains has been a core part of European carmakers for more than 100 years. In a relatively short span of time, more than a century of expertise in internal combustion engines and transmissions could become irrelevant. However, the threat is also an opportunity to progress. The net effect of electrification on the European Union economy could be positive if political leaders and captains of industry understand that the extra technology in the motor vehicles sector provides high quality jobs in research and development, additional infrastructure investments, as well as higher general consumer spending because of the substantially lower running costs of electric cars over their lifetime, which more than offset their higher purchase price.

To avoid negative consequences, carmakers, auto parts manufactures, machine tools companies, as well as satellite companies, need to reshape their strategies and retrain their engineers and skilled workers to match the automotive sector’s evolving requirements.

The first step to take is that European car makers and their auto parts suppliers agree to join forces to establish centers of excellence to develop and manufacture vehicle batteries and transmission systems, the most valuable components of electric cars, in Europe rather than overseas.

As in other key sectors of EU policy, we might conclude that together we stand, divided we fall.




[1] Business Insider, 2017,

[2] European Commission, 2019,

[3] Friedrich Ebert Stiftung, 2015,

[4] Autonews, 2019,

[5] IFO Institut, 2015,

[6] The New York Times, 2019,

[7] Deutsche Welle Akademie, 2019,

[8] Deutsche Welle Akademie, 2019,

[9] Corriere della Sera, 2020,

[10] Statista, 2018,

[11] UCIMU, 2020,