I recently attended the EMO exhibition in Hannover, Germany, and during this event I went along to a number of presentations and meetings where global machine tool production and consumption were discussed. The advent of e-mobility and the expected acceleration in electric vehicle (EV) sales has certainly raised questions about the impact that will have on traditional automotive suppliers.
According to Oxford Economics, which has just released a report on this subject, current estimates of electric vehicle market penetration over the next decade is expected to have a negative impact on machine tool demand, but not catastrophic. Those countries that have made a significant push towards e-mobility impacted the most.
The importance of the automotive industry to machine tool manufacturers is highlighted by the fact that the automotive and automotive supplier industries made up 48.2% of German machine tool demand in 2015. The remaining demand is made up from a range of industries, such as metal products, precision & optical instruments and aerospace. In the US, although only 4% of machine tool demand comes directly from the automotive sector, 14% of demand comes from machine shops and nuts & bolts manufacturers with considerable secondary demand likely from sectors such as metal products, which in turn service the automotive industry. Anecdotal evidence suggests that machine tool demand from the automotive industry is just as important in many other countries. This is, in large part, because the components of a powertrain, such as valves, pistons and cylinders require a considerable amount of machining. In contrast, EVs generally require many fewer machined parts than vehicles with conventional internal combustion engines.
According to data from LMC Automotive, 98% of cars sold in 2018 had an internal combustion engine (ICE), of which 4% were hybrids. However, the share of hybrid sales is predicted to rise considerably over the forecast period to 31% by 2030, partially offsetting the fall in sales of vehicles that contain only ICEs. In fact, the share of hybrid vehicle sales is expected to be larger than pure EVs, which is predicted to be 15% of the automotive market by 2030. Furthermore, the rise in hybrids will likely lead to manufacturers investing in ways to make their models more efficient, for example, by developing more wear-resistant components when switching between the electric drive and ICE at higher speeds, which will require new types of machine tools. Overall, rising demand for hybrid vehicles will help to soften the impact for machine tool producers as they lose out from declines in sales of conventional ICE vehicles.
Although the transition to EVs is expected to be negative for machine tool producers, the pick-up in EV demand is expected to be slow as a number of constraints need to be addressed. This is the core reason why vehicles with ICEs are likely to keep a considerable share of the automotive market by 2030. This is corroborated by other studies. The IEA’s Global EV Outlook 2019 predicts that EVs will make up approximately 15% of global car sales by 2030, based on announced policy decisions. The IEA study also suggests considerable divergence between countries, with China leading the way. Research by JP Morgan predicts that the share of vehicles with only ICEs will fall to 41% in 2030 as the share of hybrids and pure EVs increases to 41% and 18%, respectively.
One of the largest barriers is related to ‘range anxiety’, the fear that an EV has insufficient range to meet its destination. Even though the past couple of years has seen improvements in battery technology and an associated increase in driving range, a degree of concern remains, given the lack of charging infrastructure across countries, which creates logistical problems for longer journeys.
Oxford Economics analysed the impact of rising EV penetration across 26 countries by comparing machine tool consumption in our baseline against a scenario that assumes zero penetration of EVs and, hence, zero impact of EVs on the machine tool demand. At a global level, the reduction in demand for machined parts, due to the rise in EVs, means that machine tool demand in our baseline is 2.1% below 2023 levels in which zero penetration of EVs is assumed. This gap is expected to continue rising into the second half of the decade as EV penetration accelerates.
So overall, the negative sentiment I experienced in Germany recently has some merit, with most countries expecting differing levels of impact on machine tool sales from the automotive and automotive supplier sectors. I will watch this space with interest.
Shane Infanti
Chief Executive Officer, AMTIL