Opinion: Ford’s job cuts are just the beginning of another EV earthquake

Other auto makers have indicated similar plans to cut jobs. Volkswagen
VOW3,
-1.17%
CEO Herbert Diess was fired in July 2022 in part due to conflicts with workers unions exacerbated by plans to reduce the workforce as part of the German car maker’s electrification efforts. Toyota’s
7203,
-0.36%
top executive warned that a rapid transition to EVs could cause millions of job losses in Japan.

The reason for the job risk and recent cuts is clear: Electric vehicles have far fewer moving parts in their drive trains than gas-powered vehicles. Fewer parts equate to simpler and faster assembly. EVs do have many thousands of batteries, but these are static and relatively reliable. As a result, car makers can build EVs with fewer workers on the line using more robots and automated processes.

Consultancy AlixPartners finds that EVs require roughly 40% fewer hours of assembly time than gas-powered cars. Those types of efficiencies must translate into less jobs somewhere in the assembly process, which will ripple outward.

Modular designs + fewer parts = fewer jobs

Designing EVs and manufacturing parts of those vehicles, likewise, requires fewer workers. Pistons, cylinders, engine blocks, carburetors, ignition systems and many other design-intensive parts are no longer needed in EVs.

Facing an uncertain future, some automotive parts suppliers are either considering or starting to ramp down production of parts for combustion engines. Continental
CON,
-1.28%,
one of the world’s largest automotive parts makers, announced in 2019 that it would no longer be investing in developing products for combustion engines.

According to McKinsey, 15 major automotive and light-vehicle companies have already announced intentions to stop producing ICE-powered vehicles by 2040. Those include Ford, General Motors,
GM,
+1.45%
Nissan,
7201,
+0.13%
Hyundai,
005380,
-0.53%
Volvo,
VOLV.B,
-0.47%
Honda
7267,
+0.71%
and Mercedes
MBG,
-1.94%.

All are looking at Tesla
TSLA,
+1.75%
as a guide to the electric future; Elon Musk’s dynamo has high margins and a cult-like brand following that continues to set the tone. Rumblings of Apple
AAPL,
-0.19%
entering the field is an additional spur driving EV adoption by the existing majors.

The tidal wave driving EVs has multiple facets. We are seeing huge cultural shifts in demand curves for vehicles; Ford’s electric F-150 is in such hot demand that the automaker has been able to raise prices by over $7,000 per vehicle. The F-150 is a U.S. icon and its eager embrace by a wide swathe of car lovers shows that any EV stigma lingering in the U.S. is gone.

The nature of battery packs and chassis also make it far easier to reuse elements and create modular vehicle designs. Automakers have been doing this with combustion engines, and it reduces the need for design and engineering work. That will only accelerate in the face of onrushing EV adoption. The net result of a far more efficient process will likely mean a reduction in jobs in the near term.

A study by the European Association of Automotive Suppliers found that a shift to 100% electric vehicles would result in the disappearance of half a million jobs and a net loss of 275,000 jobs within the European Union. That estimate assumes Europe adds considerable jobs in the battery sector.

The Economic Policy Institute, a U.S.-based liberal think tank, estimated a loss of 75,000 U.S. automotive jobs by 2030 if, as President Joe Biden envisions, half of all car sales are battery electric vehicles by that year — unless the U.S. subsidizes reshoring of jobs and supports industries critical to electric vehicle production.

The ripples don’t stop there, either.

Ripple effects: Dealers and mechanics

One thing drivers love about EVs is that they rarely break down and if they do, they are relatively easy to fix. Unfortunately, this threatens jobs at auto dealership and auto repair shops, which collectively employed over 2 million workers in the United States alone in 2022, according the U.S. Bureau of Labor Statistics. Oil changes, tune-ups and most other forms of maintenance that dealers charge for will go away.

Aside from the battery replacing the complicated combustion engine, EVs have a different braking system that is longer-lived and less subject to wear and tear. McKinsey estimates a 40% decline in consumer aftermarket spending for EVs compared to ICE cars. This drop will also impact those employed at auto parts, accessories and tire stores, which is roughly 560,000 people in the U.S.

Where EVs can create jobs

Not all is dark with regard to EVs and jobs. The sector will require massive outlays to create widespread charging networks for vehicles. This amounts to billions of dollars in the United States alone. Electricians are already making profits supplying and servicing in-home charging infrastructure for EVs. The U.S. government is subsidizing new EV purchases with the stipulation vehicles must be assembled in the United States to be eligible. That could indirectly drive construction of new EV production facilities in the United States, creating some new jobs to counter the reductions from ICE production and supporting industries.

Idealists believe jobs supported by EVs will replace most or all of the job losses from declining gas vehicle sales and production. In fact, there is likely to emerge a whole slew of new services and businesses driven by the rise of EVs. For example, battery recycling and refurbishment could balloon in employment and revenues as more and more electric vehicles hit the pavement.

With any major technology transition, predicting the second and third-order impacts is challenging.

Even though the Industrial Revolution displaced many workers in manual professions, during that period the average income of workers increased as more workers moved to cities and found better-paying jobs in newer or more dynamic sectors of the economy.

While the smartphone swallowed multiple standalone devices including the turn-by-turn GPS system, the Walkman and iPod, the portable radio and the camera, overall jobs in the technology sector has steadily risen due to the emergence of newer and unforeseen products and services.

That said, the near-term pain caused by the rapid transition to EVs is likely to be significant. The automotive sector and its related industries are bastions of relatively well-paying jobs for lesser-skilled workers — the type of jobs that are increasingly in short supply. EV job losses will likely hit the industrial heartlands of the U.S., which has already been battered by offshoring and economic uncertainty.

EVs will undoubtedly be good for the environment and good for our futures. The early shock waves from the EV earthquake, however, are more likely to knock down employment and create more challenges for the already struggling blue-collar class

Alex Salkever is a technology consultant and executive and the author of four books, including “The Driver in the Driverless Car.”

Hear from Carl Icahn at the Best New Ideas in Money Festival on Sept. 21 and Sept. 22 in New York. The legendary trader will reveal his view on this year’s wild market ride.

More from MarketWatch

3 reasons the Hyundai Ioniq 6 makes the Tesla Model 3 seem a bit boring

Used EVs: How to navigate the tight market for preowned electric vehicles like the Nissan Leaf and Chevy Volt

There’s real value for auto makers in the metaverse. Those who say it’s just a play world are wrong.

Barron’s on MarketWatch: The New EV Tax Credit Won’t Cover All Teslas. How It Will Work.