“It is no surprise auto executives worldwide have announced nearly 75,000 layoffs this past year,” writes The Wall Street Journal (Dec.7-8, 2019). This downsizing isn’t driven by market-share wars or oil shocks or economic crisis but by the belief that electric cars will soon boom. (Just 2 days ago, our blog spoke of the shortage of EV batteries worldwide).
Stop me if you’ve heard this before. Auto executives say they really, really mean it this time, though, as they point to technological advances, looming regulation and pent-up demand. The trouble is that EVs cost more than their gasoline counterparts, are cumbersome to charge and sell fewer in the U.S. than the Toyota Camry. For every 8 pickups sold there is one pure-plug-in vehicle sold.
Still, companies are preparing for the electric age by cutting workers. This is partly to save money needed for development, but it is primarily to prepare for a vehicle design-and-production process that will be, as they say in Silicon Valley, “asset light.” EVs are less complex than gasoline or diesel rivals, requiring fewer parts, people and suppliers. Ford says 30% fewer hours of labor and 50% less factory space will be needed for EVs.
But even the smartest auto exec doesn’t have a clue when the EV revolution will happen. Could be 2025, or it could be 2050. To date, the customer’s appetite for big trucks and SUVs running on cheap gasoline has ruled the market. Hype for EVs persists even as car makers lose money on them. For instance, amid $4-a-gallon gasoline earlier in the decade, GM predicted it would have 500,000 electric cars on the road by 2017. It missed badly. The U.S. market needed until mid-2018 to hit the 1-million-EV mark, with each sale bolstered by at least $7,500 in tax incentives (that are now ending).
Car makers, at the same time, have raised fuel-economy numbers on conventional cars, trucks and SUVs by using turbochargers, lighter materials, and smaller engines. This has gone a long way toward pleasing regulators and customers demanding better efficiency.
Classroom discussion questions:
- What is your forecast for when EV sales will exceed traditional gas rivals.
- How is this an operations issue? (Refer to the OM decisions in Chapters 5, 7, 8, 9,10, and 11 in your Heizer/Render/Munson text).