BMW April 2022

The endless panic about pandemics has been wearing for most, and seriously bad for a few. It is difficult to see what the self-appointed ‘great’ politicians are up to, but for once South Africa is on the right side of so many things.

The internal combustion engine.  I do apologise, I have used an incorrect label. Diesel – oh my word, automotive Tourette’s, perhaps. Four stroke cycle – the ‘F’ word. Really!

Now for the ‘correct’ version. Burning organic fuel will kill us all, and cause terrible things to happen, based on a view of the climate stretching all the way back into the 1800s. Yes, not 1800 BC but 1800 AD. Climate science indeed. 

On the back of almost nothing of any substantial note, ignoring the efforts of the automotive industry to mobilise the planet in ways that have not been surpassed yet, the lobbyists push for ever more extreme solutions. Typically, this view is set in well healed bars and cafes across the ‘developed nations’ followed by some sort of guilt trip to apologise for both the real and imagined atrocities. Most of these vox-pop merchants see no irony in multiple private aircraft flights per week, since everything is on someone else’s tab. Always.

Words are cheap, actions are not 

USA, Canada, Europe (including the UK, Norway and more), Japan and select other countries have moved policy so fast that emission regulations intended for reduction of tail pipe emissions are now overtaken by the desire to concentrate ‘fuel’ pollution in electricity generation only, which means exclusively battery electric vehicle (BEV) power. 

This takes no account that the rest of the planet has no choice but to continue to use hydrocarbon fuelled internal combustion engines because electricity power generation can’t keep up with either industrial or domestic demand. It also takes no account that many of the countries posturing to do this have also neglected their electric power generation systems. 

Investors, buoyed by the promise of making a killing in a new ‘forced’ market have ridden the narrative that BEV is the only show in town, and everything is worthless ‘legacy’. For this reason, we have start-ups such as Rivian appear to be worth more than the entire Volkswagen Group having by that stage assembled less than 100 vehicles – and been less than clear if any have been sold for cash. Less than 100 vehicles, compared to 9.2 million new Volkswagen Group vehicles sold in 2020, the worst trading conditions for decades – down from 11 million in 2019. 

A ‘disruptor’ is Silicon Valley Bank speak for share price inflation opportunity.  

Quite simply the ‘narrative’ – investor speak for the tale of the day – is ensuring established business in almost every sector is penalised with little or no cash, unless they join in with the same story. The executives in the Board Room, looking over their shoulders and needing large bonuses, are happy more often than not to do ‘what is necessary’.

There are two compound effects:

  1. Manufacture of key components for internal combustion engines long ago resided with suppliers to vehicle manufacturers, and along with that came expertise. Ensuring a valve spring, for example, works for 200 000 plus miles took a long, long time to develop. In the age of the ‘legacy’ narrative, this has limited ‘shareholder value’. 
  2. Investments to develop new vehicles through to new components requires investment, and if the return on investment is less than 20% per year, then the cost of accessing those loans increases, so further reducing commercial opportunity for the vehicle manufacturer as well as their suppliers.

Lift and shift

The solution is to move manufacturing along with engineering from established centres of excellence into countries still undergoing immense economic growth. Frequently there is a vast pool of highly qualified talent available at far lower pay rates than in ‘established’ markets, except the academic ability needs extensive guidance. 

There are clear examples of the automotive sector operating in countries where running a manufacturing plant is possible, but understanding what happens in the whole process from creation to mass production is difficult. BMW Group, Toyota, Mercedes-Benz and Volkswagen Group and more have come to terms with this, often with deep scars. Knowledge is not cheap.

Tellingly, the bit most satellite production gets to do last is the engine and transmission manufacture. Remarkably in an age where so much engineering, tool making and production layout can be achieved with off-the-peg programmes, most technology development requires the application of pre-existing knowledge to drive the whole process forward. That’s South Africa!

There is a bright, bright future

The automotive sector has understood the internal combustion development which runs up to five years ahead of new legislation – especially for tail pipe emissions – has already been stopped in Europe and North America because the direction of travel means companies are forced to go ‘green’ to survive, and off-load internal combustion engines to places that still want them. Those places include the entire planet apart from Europe, North America and selected Far East markets. In those regions the result of moving too fast will be:

Incomplete BEV roll out due to costs, lack of power generation and difficulties around the power distribution network.

Effectively this incentivises those unable to buy a BEV to hang on to their ‘legacy’ vehicle.

Who is going to support this huge global fleet of internal combustion engine vehicles with a robust supply of quality parts? That’s South Africa, again!

 Accelerating into the unknown

The message is clear. Established component and assembly suppliers in Europe have stopped internal combustion engine development right across Europe, which leaves established players like South Africa in a strong position – both for manufacturing new engines and components. One small request – how about revising the oil refineries? 

The internal combustion engine has been politically terminated in select regions, before the replacement system is ready. Capitalism has not delivered this half-baked cake – mainstream politics and earnest lobbyists have. 

Auto Industry Consulting is an independent provider of technical information to the global collision repair industry via EziMethods, our online collision repair methods system. For more information please visit the website: www.ezimethods.com

 

By Andrew Marsh