Changed competencies of European automotive companies in the transition to electric mobility – as a starting point for a survey on the effects on employment and occupational qualifications
Publication Type:Conference Paper
Source:Gerpisa colloquium, Paris (2012)
The aim of this paper is to investigate what competencies are changing in the transition to electric mobility. We attempt to estimate the expected changes in competencies in the European automotive industry in the transition to electric mobility by means of a forecast of the changes in the level and structure of factor-related value added. This forecast shows very clearly and robustly that value added can only be retained in Europe if new competencies are developed here. We then show how the competencies can be changed.
In economics, the term (gross) value added is understood to mean the turnover of a producing unit less inputs and depreciation (cf. Stobbe 1984, p. 385). In management science, the term has no uniform definition (cf. Schierenbeck 2003, p. 622). However, here, too, the total turnover less inputs and depreciation is taken as the basis, and the value added calculated in this way is assigned to types of use: outgoings to employees (wages and salaries, social insurance contributions, pensions), capital providers (interest) and the company itself (retained income).
In economic terms, an industry’s value added results from the degree of division of labour at given transport costs. In markets with high competitive intensity, companies constantly strive to reduce their in-house value added in order to tap suppliers’ specialisation advantages of scale and scope which they themselves cannot achieve. When value added is relocated abroad, additional comparative cost advantages (particularly payroll costs) can be utilised (cf. Grossman, Helpman 2002, 2003 and 2005 and Grossman et al. 2006). The option of international value added is limited by that value added which is regarded as a core competence and produced in house and by the degree of modularisability of the products (cf. Proff 2011).
With the technological change in the transition to electric mobility, the modularisability of cars will increase further, because an electric vehicle - similarly to a computer and unlike a vehicle with an internal combustion engine – will consist of isolatable modules, which will increase the pressure on value adding activities in Europe (e.g. Brusoni et al. 2001 or Sako 2005). At the same time, the competence base will change in the transition to electric mobility. For European automotive companies, this means a threat even to those value added components which they have so far produced themselves because they offer no comparative cost advantage compared to other companies and – because of the required coordination in product development – no specialisation advantages either. Since the automotive industry cannot compete with competences in battery production and high-performance electronics, there is a tendency towards outsourcing.
Technological change favours the suppliers, who can offer fabricated products for electric cars even today, and are most likely to offer scale advantages through their development lead (cf. Milgrom, Roberts 1990). Cost reduction is urgently needed for the introduction of the new technology. Since batteries, high-performance electronics and other important parts of the electric vehicles are mostly manufactured in Asia at the moment, a huge shift of value added from Europe to Asia will commence unless countermeasures are taken. European premium players, in particular, wish to prevent that (cf. Kagermann 2011). Their customers, however, are still only prepared to pay for a premium product if they can perceive superior value. If the necessary (technical) competencies are missing, only the brand remains as the image anchor, which will not be sufficient in the long term for a consumer durable like a car.
We have developed a detailed model that describes the current structure of the value chain of the EU automotive industry. Based on assumptions derived from initial discussions with industry experts, we made a first attempt to estimate the development of the value chain structure in Europe up to 2020 and 2030. European production of electric vehicles will increase from 900,000 in the year 2015 to 4.5 million units in the year 2030. Their share of production will thus increase from five percent (2015) to 22 percent (2030). Value added will decline slightly. Automotive manufacturers and suppliers will reduce their vertical integration for traditional vehicles with internal combustion engines; manufacturers, for example, will go down from currently around 30 percent to less than 20 percent in 2030. Outsourced value added will shift increasingly to the new growth markets. If 2011 value added is taken as 100, it will fall to 90 by 2030.
Behind the changes in vertical integration lie changes in the structure of the value added. When the most important components of value added are considered (labour, capital and profit), a heterogeneous picture emerges, with a significant drop in total wages of around a quarter of the value added.
Value added can only remain in Europe if competencies are built up here (cf. Kagermann 2011). In that case, there would have to be a clear shift from traditional competencies and R&D resources in mechanical engineering and mechatronics to competencies in chemicals and battery technology. These competence changes result from the decrease in value added in the traditional internal combustion engine technology and the increasing share of electric vehicles from European production. As the importance of internal combustion engine technology declines, the share of mechanical engineering and mechatronic will fall while the share of electrical engineering and electronics will rise steeply. While in 2011 just under 90 percent of competencies in production and development focus on mechanical and mechatronic components and just over 10 percent on electricals and electronic components and chemicals, the share of mechanical engineering and mechatronics is likely to be reduced to 60 percent by 2025. Enormous growth of 900 percent is expected in chemicals, the share of electrics/electronics will double. Both fields of competence together will account for around 40 percent in the year 2025.
According to the explanations of competence building (see e.g. Proff 2005), organizational competencies can be created through “refinement” of individual capabilities as well as organizational assets. “Refinement” or competence building (cf. Rasche 1994) means that a benefit has to be created in the market for the consumer. Company-specific linkages to routines have to ensure that competences are untradeable and unimitable and that they correspond to the dynamics of the particular environment. In the largely stable environment (cf. Basil, Cook 1974 and Sanchez 1997) of the traditional internal combustion engine technology with few and relatively minor changes, single- and double-loop learning (Argyris, Schön 1978) are sufficient to scrutinize management processes and organizational goals. In contrast, in the dynamic environment of electric mobility with frequent and severe changes, deutero-learning in terms of process learning is needed to scrutinize repeatedly existing contexts.
As competencies lose value in the lapse of time (cf. McGrath et al. 1996), e.g. by unintended diffusion of knowledge, they have to be enhanced by a consistent progression of improving existing competencies and renewing competencies. Due to the assumption that most automotive companies have to close a competence gap in the transition to electric vehicles, the renewal of competencies is more important in relative terms than the improvement of existing competencies (see Volberda, Baden-Fuller 1998, Proff 2005).
Within the transition to electric mobility many companies lose their competencies in an extraordinary way (e.g. in the development of engines for vehicles with combustion engines) or do not have the necessary competencies so that it is impossible for them to improve them (e.g. battery technology). They need to jump (“leap-frog”) to a new s-shaped technology curve, either by co-operations or by acquisitions (see e.g. Brezis et al 1991).
Building on the findings produced by this paper on value added and competence changes in the transition to electric mobility, the subproject "new competencies of automotive companies in transition to electric mobility – effects on employment and occupational qualifications" is proposed for Theme 7 of the new GERPISA International Research Programme (A new international division of labour and changes in employment relationships). The subproject will focus on competence development and the influences on employment and occupational qualifications, as well as on ways to secure value added in Europe and to develop new competencies in the European automotive industry.
We will examine how automotive companies can build up required competencies in the transition to electric vehicles. In doing so, we will consider assumptions on the effects of competence development concerning the demands on occupational qualifications at locations in Germany as well as at the locations of the foreign subsidiaries. Our model will be further detailed, presenting the changes in value added in the transition to electric mobility as well as changes in assignments, resources, taxes and profits. The model will be tested on (8 to 10) different technical scopes (e. g. battery and power electronics) and on total vehicles. The subproject will analyse in depth four scopes of electrical vehicles which represent 80 percent of value added.
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