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Electric vehicle disrupts labour-based value chain

M Rokonuzzaman | Published: September 04, 2019 21:30:31


In 2018, around 86 million cars, predominantly gasoline-powered, were sold in the top 54 world markets. Although global car and light commercial vehicle sales in 2018 contracted by 0.5 per cent, electric car sales grew by 75 per cent.

Environmental issue has been a major limiting factor to the expansion of gasoline-powered automobiles. Gasoline burnet in the internal combustion chamber produces air pollution which includes ozone, particulate matter, and other smog-forming emissions. Polluted air caused by emissions from automobiles increases respiratory ailments like asthma and bronchitis, heightens the risk of life-threatening conditions like cancer. It burdens the health care system and causes premature deaths. Asian cities of developing countries are worst affected. It's estimated that 1.2 million premature deaths each year in India are attributed to this effect. Similarly, air pollution is killing 1 million people in China and costing the Chinese economy almost $40 billion a year.

Gasoline burning in the vehicles in clogged city streets has placed Bangladesh's capital Dhaka on top of world's cities with the worst air quality. Battery-powered electric vehicle (EV) appears to have the potential to relieve us from the deadly air pollution. But the emergence of EV poses a threat to cause disruption to gasoline-powered automobile industry, killing jobs, and reshaping the global value chain-crippling labour-intensive value addition strategy.

Gasoline-powered vehicles are subject to replacement by EVs due mainly to environmental concerns. Ironically, it was for the same reason that they were adopted as a substitute to horse wagons. By 1880, there were at least 150,000 horses in the New York City alone providing transportation for people and moving cargo from trains into and around the growing metropolis. At a rate of 22 pounds per horse per day, they added over 100,000 tons manure and around 10 million gallons of urine per year. Horseless carriage, powered by the internal combustion engine, was a sigh of relief giving birth to the automobile industry.

Due to its less harmful effect on the environment and the potential of growth, the emergence of this mechanised substitute experienced accelerated adoption causing the disruption to horse wagons and jobs associated with them.

Just after 100 years, at the dawn of the 21st century, environmental concern triggered the emergence of battery-powered electric vehicles. However, the electric vehicle is not a new concept. The invention of rechargeable batteries in 1859 that provided a viable means for storing electricity onboard a vehicle and the subsequent improvements made it suitable in 1881 for powering automobiles. In the USA by the turn of the 19th century, 40 per cent of automobiles were powered by steam, 38 per cent by electricity, and 22 per cent by gasoline. But the rapid advancement of gasoline engine led to its acceptance as a preferred power source for automobiles in the 20th century.

The development of lithium-ion battery in the later part of the 20th century gave a powerful boost to EVs. Research kept improving the performance of EV and reducing the cost. Despite the fact that it is still less preferred than gasoline-powered ones, the estimated cross over point is 2025. To leverage it, gasoline engine based automobiles have been redesigned as well. As a result, as opposed to 2000+ moving components required by gasoline cars, electric cars are going to have just 20 or so. These components also need far less labour to manufacture than their mechanical counterparts. The role of the intellectual asset appears to be far more important than labour to be competitive.

The emergence of EV is good news for city dwellers, but not so for automobile manufacturers. For example, India is compelled to have a transition to EVs to deal with rising air pollution. But such transition appears to be a cause of concern for India's auto industry.  In producing gasoline cars, India imports less than 15 per cent parts. But to produce electric cars, India is required to import 70 per cent of them, mostly from China. And the situation in the electric scooter is worse, as 90 per cent parts are being imported. 

Contrary to India, EV is a blessing for Japan, Germany, and also the USA. These countries have been suffering from a labour shortage. Due to the high wage differential, they were facing a hard time to maintain competitiveness. To offset it, they even set up plants in China, Thailand, India, and also in other low-wage countries. Such offshoring offered them labour advantage, but at the high risk of brand value and infringement of intellectual properties. Significant reduction of labour has ushered in a great opportunity for them to sustain or edge up competitiveness, even without relocating production plants.

EV has been a blessing for China. On one hand, China has been going through a shortage of manufacturing labour, primarily due to an aging workforce and one-child policy. On the other hand, China took technology discontinuity created by EV as an entry point. As opposed to focusing on labour, China focused on the acquisition of intellectual assets (IAs) to develop competitive advantage, particularly in battery and electronics. With the acquisition of TDK's battery unit and subsequent R&D activities, China has become a power house in improving the quality and reducing the cost of the lithium-ion battery. Besides, the acquisition of seven large cobalt mines has made China the largest global supplier of purified cobalt to lead in the EV race. Moreover, China's generous subsidy for being a lead user of EVs has been playing a critical role. South Korean automobile industry with lithium battery capacity is also better off in the EV race. On the other hand, India's large automobile industry creating 37 million jobs may seriously suffer from sudden erosion of labour based competitive advantage. Already, there has been an alarm bell of losing one million jobs in the near future.

It appears that EV is going to reshape the global automotive value chain. Because of the substantial reduction of labour, the offshoring trend may slow down. Due to the decreasing labour requirement and the rising role of intellectual properties, the global automobile industry in the era of EV will likely further consolidate leaving labour-intensive strategy of aspiring countries like Bangladesh in developing automobile industry at a vulnerable state.

 

M Rokonuzzaman PhD is an academic and researcher on technology, innovation ands policy. zaman.rokon.bd@gmail.com

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