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EV shift puts engine jobs on chopping block in Japan and Germany

Japanese industry faces loss of 84,000 positions in 'collapse of pyramid'

A Toyota Motor engine plant in West Virginia, U.S. The rise of EVs threatens to eliminate thousands of jobs related to the combustion engine. (Photo courtesy of Toyota)

TOKYO -- For decades, the internal combustion engine has powered cars and household incomes worldwide. Now, the future of jobs making thousands of engine components looks as murky as that of the technology itself.

Driven in part by government policy, the global shift to electric vehicles will affect hundreds of thousands of automotive jobs in the coming decades, according to estimates. In Japan alone, the rise of EVs threatens the loss of employment for 84,000 people by 2050, or more than 10% of the 686,000 jobs in auto parts production, says Arthur D. Little Japan, a consulting group.

The change has already been felt at some Japanese carmakers. Honda Motor said on June 4 that its powertrain factory in Moka, a city north of Tokyo, will shut down in 2025 as part of the company's pivot to EVs. Roughly 900 employees will be relocated to other sites.

Honda said in April that gasoline-powered vehicles will disappear from its lineup by 2040. All new autos will be EVs and hydrogen-powered fuel cell vehicles, reducing the need for engine parts.

The company offered early retirement to employees 55 and over this spring. Reading the writing on the wall, over 2,000 people accepted the offer. This number represents roughly 5% of full-time employees.

While gasoline vehicles need 30,000 components, EVs require about half as many, industry player say. Much of this difference owes to the complexity of the internal combustion engine, a mechanical beating heart of pistons, springs, sensors and gaskets crafted to exacting standards of precision.

Global automakers have kept a tight grip on every aspect of engines, from development to assembly. The big car companies have maintained their competitive advantage and profit margins by sitting atop industrial pyramids with suppliers forming the lower layers.

In Japan, there are 7,500 first-tier auto suppliers, according to Tokyo Shoko Research. Second-tier suppliers span 15,000 companies. Like companies in Germany's Mittelstand, many are niche players with small payrolls. The auto parts sector accounts for a fifth of the shipments by value in Japan's whole manufacturing industry.

Electric vehicles are driven by e-axels, which consist of motors, inverters and other components. Because e-axles are less stuffed with parts than engines are, the rise of EVs will minimize the importance of the auto industry pyramids and lower the barrier to entry by newcomers from other sectors.

Instead, automakers, including new entrants, will be able to focus on design and software while delegating production to contractors. This horizontal division is poised to become the new business model for the auto industry.

Hon Hai Precision Industry, the Taiwanese Apple assembler known as Foxconn, plans to become one such contract EV manufacturer. Such services offer up-and-coming EV brands a way to reach customers without building their own factories.

With the progression of horizontal division, "the existing industrial pyramid will collapse," warned Osamu Suzuki, the former chairman of Suzuki Motor and a longtime advocate of the role cars play in sustaining small and midsize manufacturers in Japan.

Job attrition has already begun in Germany, another automotive power, which has been a leader in the transition to EVs. By 2030, at least 215,000 jobs will be affected, according to a survey by the Ifo Institute for Economic Research, headquartered in Munich. There were 613,000 jobs tied to internal combustion engines in 2019, the institute says, meaning nearly 40% of the workers would be affected.

While it takes 10 people to make a fuel-injection unit for an engine, it takes a single person to produce a motor, said Volkmar Denner, CEO of German auto supplier Robert Bosch. Volkswagen and Daimler will cut factory staff as part of their embrace of EVs.

The shift to EVs could hit household budgets in another way -- through higher prices of industrial materials.

The price of lithium carbonate, the source of battery lithium, hit a 30-month high in China in April. Copper, essential for EV motors, hit an all-time high for the first time in a decade this May on the London Metal Exchange.

The international price for neodymium, a rare-earth element used in motor magnets, has shot up as well. The demand for EV neodymium will be six times higher in 2040 compared with last year, according to an International Energy Agency outlook.

Since lithium and copper are used in a broad range of consumer electronics, the shift to EVs could drive up the prices of those products as well.

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