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The future of the automotive industry: between innovation and transition

Milan, 07/11/2022, National Roundtable

The changes underway in the automotive sector today are almost unique to that industry, in that they originate externally. For perhaps the first time ever, an entire sector finds itself forced to make an epic transition almost exclusively as a result of political decisions rather than of market demand. Those decisions are partly the fruit of renewed environmental sensitivity, not least in the wake of episodes such as 2015’s “diesel-gate”. They are also due in part to the strategies of major nations such as China, which, in the course of efforts to end technological dependence on the West between 2011 and 2016, decided to abandon internal combustion engine technology to focus heavily on electric. Levels of competition regarding associated technologies being nearly equal, its considerable facility to access raw materials gives the Asian giant a significant advantage.

These are only a few of the challenges weighing on a European, and particularly Italian, automotive sector that has lost prominence over recent decades; it’s enough to consider that annual automobile production in Italy has gone from 1.6-1.7 million units in the 1980s and 1990s to approximately 415,000 today. Nevertheless, the approximately 220,000 companies active in the sector – factoring in rentals, commerce and repairs with industrial transformation – account for over 550,000 jobs, and report revenues of more than 200 billion euro. Although the ecological transition is having a greater impact on engine manufacturers, if the transition is not adequately administered, the social costs at the level of employment will far outweigh the environmental benefits. Indeed, the European Commission estimates that the shift to electric vehicles will generate a loss of nearly 600,000 jobs across the continent.

Naturally, as happens with every revolution, this one also introduces a host of opportunities for innovation and growth. Italian industry has proven on many occasions to be resilient in crises and to have the resources to anticipate change. The main Italian auto producer’s transfer of production outside the national borders in recent years had significant repercussions along the entire value chain. At the same time, it generated an opportunity to create new partnerships between the large-scale, medium-sized and small firms that make up that chain. These alliances can both strengthen relations with university research centers as well as give new impetus to innovation in design and processes that, in turn, are capable also of attracting major foreign investments.

Pivotal then are studies on new materials – not least in order to respond to raw materials shortages – as well as on new propulsion technologies; in some cases, necessarily in parallel with research in traditional technologies so as to get a clearer cost/benefits picture along the way to accomplishing decarbonization by 2030-2035. Moreover, in this sector as well the traditionally linear production chain must become circular, with a view to the product’s overall sustainability from its design to its final disuse and possible recycling.

At the same time, the primary “object” of the automotive industry – i.e., the automobile – is experiencing a deep shift in consumer perception and modality of use. If from a cultural standpoint obtaining a drivers’ license is no longer a watershed moment in a person’s life, neither is owning a car indispensable, especially among the younger generations and city dwellers.

The notion of the car as a status symbol has been replaced by new ways of using them, which range from car-sharing to “pay per use” on the general scenario of “mobility-as-a-service”, which is confirmed by the fact that options to buying a car outright include new financing and leasing formulas. All these options must be considered in the planning and execution of future automotive manufacturing, and the creativity typical of Italian industry will play an important role in this.

In order for this delicate phase to be completed successfully, everyone must do their part: banks, in their willingness to back the large-scale investments required; businesspeople, by boosting their companies’ size and assets through consolidations, mergers and acquisitions; and, finally, European and national institutions, by providing a more reliable regulatory framework and lucid, rational and farsighted industrial policy.