The Magneti Marelli crisis is the symptom of a failing electric car strategy

Last October 3rd the workers of Magneti Marelli's Crevalcore plant went on strike against the intention, declared by the managers, to close the plant.After the mobilization of both the unions and local and national politicians, the company decided to suspend the closure procedure.

Although Magneti Marelli mainly deals with batteries, the Crevalcore plant still works on internal combustion engine components.For this reason, the managers claim, there has been a decline in turnover in recent years which has made the closure of the plant essential.

The crisis of Crevalcore's Magneti Marelli, in fact, cannot be seen as an isolated case, but as a failure of our country's strategy in keeping up with electric mobility.This while the rest of the world has decided to take the challenge seriously, even if more for geopolitical rivalries and electoral opportunities.

China's leap and America's response

The elephant in the room and what is pushing the Western world towards greater investments in electric vehicles is China's dominance over the sector and therefore over the future of the automotive sector.

According to the data of the Chinese Ministry of Public Security, in 2022 there was a strong growth compared to the previous year in electric cars, reaching over 10 million vehicles.Industry giants such as BYD, Ayon, SAIC-GM-Wuling, Chang'an Motors have now started and can compete with foreign brands, moving towards satisfying 50% of domestic demand.

Obviously the Chinese state is certainly not holding back.To reach the so-called Dual carbon targets (peak emissions in 2030 e carbon neutrality for 2060) the public sector is massively financing the sector, especially on the consumer side.Seeing the end of incentives for the purchase of electric cars at a time of great confusion for the global economy, and the Chinese one in particular, the government has renovated an incentive plan for the purchase of electric cars or NEVs worth 73 billion dollars, the highest ever.

There is also no lack of attention to exports.Only Japan would be ahead of the country governed by Xi Jinping in terms of car exports, especially electric cars.And Japan is seeing a sharp slowdown in the sector.

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China's leading position on the global market is not a coincidence and is not just thanks to industrial policies.On the electric car front, China has important advantages in the supply chain, especially when it comes to batteries and microchips.In 2022 China he produced  75% of batteries for electric cars, with the two businesses CATL and BYD reaching almost 50%.

To be built these batteries require so-called "critical and strategic raw materials" such as lithium, cobalt, nickel.These types of elements are crucial to achieving a net-zero emissions economy.In this respect, China holds almost a monopoly:just to mention a fact, Europe imports 96% of its magnesium, one of the elements, from China.China often does not have substantial reserves of these materials, but compensates thanks to agreements and investments large numbers in countries such as Mali and Nigeria, also specializing in their processing:Compared to 6% of lithium reserves, 60% of lithium is refined in China.There is no lack of economic advantage:in fact, these batteries make up 40% of the total cost of an electric car.

Another battlefield is that of semiconductors.These are those materials that make up the transistors, resistors, diodes and crucial components of electronics, on which the functioning of the electric machine, but also of smartphones and computers, for example, depends.As pointed out from an article in New York Times, a new generation car can require up to 100 different semiconductors.

Over the last few years we have witnessed a real Chip wars, with the Western world and China gradually introducing more stringent conditions for semiconductor trade.In this case the undisputed leader is the Republic of China, i.e. Taiwan which holds 63% of the microchip market share, followed by South Korea with 18% and China with 6%.But over the years China has pressed on the accelerator, so much so that over the last 20 years much of the academic research on semiconductors and microchips, quote a report by the academic publishing house Elsevier, is in the hands of China.

The USA, Biden and the electric car as a symbol of reshoring

Things are changing in the United States too.If Bill Clinton once celebrated China's entry into the World Trade Organization, now that decision perhaps appears to have been taken lightly.On the other hand, things had already changed with Donald Trump and his tariff war to China.Then came the pandemic which acted as a catalyst, accelerating trends that had been underway for some time.Not only did it highlight inequalities and serious discomfort on the part of the working class, but it also highlighted how such a long supply chain exposed low-cost products to greater risks for consumers.

After the electoral victory, the Biden administration knew that relations with China would not return to normal, also due to internal political dynamics:according to a study, Chinese penetration has had a notable impact on the outcome of the 2016 presidential election.Once the international and internal situation changed (let's also think of the Russian invasion of Ukraine), the administration identified in a document various fronts on which to act to improve the supply chain.

The first front is represented by semiconductors, vital for the modern technological world.The United States was once the leader in the sector, so much so that the transistor, which gave rise to the modern world and is based precisely on the physical phenomena permitted by semiconductors, was invented in Bell laboratories in 1947.Then a sharp decline:the share of semiconductor production has dropped by 25% since 1990.Without direct intervention from the federal government, esteem another cited SIA report (Semiconductors industry association), this shows no signs of stopping.

Then there are rare earths and minerals, starting with lithium and graphite.According to the report, as the world moves towards carbon neutrality, the need for these two elements will grow exponentially.China holds 55% of rare earth reserves and 85% of refinery.This, the report underlines, requires on the one hand the need for the United States to find safer sources of supply, and on the other to use these for a manufacturing revival driven by American values, those of environmentalism and the creation of jobs of work.

Finally, there is the battery front.Precisely because the demand for electric vehicles will grow, it is necessary to increase their capacity.Without state intervention, even in this case, supply would not be sufficient to satisfy demand.

For this reason, the transformation of the automotive industry represents not only a challenge, but also an opportunity for the Biden administration.The attempt to create a more resilient supply chain would guarantee greater employment and greater internal investments in the United States, therefore the creation of excellent jobs which, as we have seen, also play a crucial role from an electoral point of view.The investments themselves in electric cars and in the necessary infrastructure (think for example of columns) will once again increase employment.

Most of all it is theInflation reduction act the measure of the Biden administration which moves in this direction, with huge incentives and subsidies for both consumers and companies regarding clean energy and electric cars.There is no shortage of protectionist content here too:the constraints to access the clean vehicle credit, one points out reports from Credit Suisse, would not apply to cars with Chinese-style batteries.Also worth mentioning is theAdvanced manufacturing production credit, which guarantees a 10% tax credit which, again according to the Credit Suisse report, could be vital for the supply chain of the components necessary for the construction of electric batteries.

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Biden's plan also seems to be working when it comes to reviving employment:according to a reports of the Department of Energy, the investments made led to an increase of 114 thousand jobs.But perhaps the most exciting result is the growth of the electricity sector:in 2022, while not everything can be attributed to IRAs, the US market is increased by 55% reaching 8% on a global scale behind China and Europe.

The electric car must therefore be seen as a paradigmatic symbol of an administration that aims to be a leader in the ecological transition, but at the same time to excel against foreign competitors such as China.So far, thanks to industrial policy of Biden, it seems that the first steps are promising.

The role of Europe

The European situation, therefore, is delicate:caught between an ally that increasingly looks to itself as the United States of America and China which, to resolve the competition between the various brands in the internal market, is now aiming for the European market, which is more contestable than the American one.

The good news is that Europe is not backwards regarding the electric car, at least as far as today is concerned.In 2022 there was strong growth compared to the previous year, making score a +22% according to the automotive research institute Jato Dynamics.But the future may be bumpy.

The first problem concerns the attitude one wants to have towards China.As  explains in fact on ISPI the researcher Guido Alberto Casanova, behind it there is the different position on the market between Germany and France.In fact, the former has always stood out for its car range premium, which therefore is not affected by the Chinese attempt to place its brands on the market to cope with the saturation of the domestic market.Despite this, German automakers such as Volkswagen are collaborating with Chinese industries such as Xpeng precisely to exploit the technologies developed by China over the years.Even BMW has it intensified his contacts with Chinese companies coincidentally especially on batteries.

Therefore, if Germany is aiming for a collaboration to offer a product from a different category, France's position is different, with brands like Renault instead finding itself competing with Chinese models and would like a more protectionist policy.The French Economy Minister Bruno Le Maire has for example proposed to limit European investments only to products that have more than 50% of the components produced in Europe.By taking advantage of indicators on environmental impact, it is highly probable that the incentives that the Macron government will provide for the purchase of electric cars cannot be used for Chinese cars.

The problem is, simply, that Chinese cars are expensive less and the European industry is lagging behind in the production and market launch of low-cost electric cars.A strategy is therefore needed to attack the problem which also involves a common investment policy.In fact, there was no lack of amazement on the part of the Von Der Leyen commission at the Biden Administration's IRA favoring American producers over European ones.Precisely for this reason the commission proposed, in March 2023, the Net zero industry act, after having already proposed the Critical raw material act, to face the challenge of transition also on the automotive front.

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Italy brings up the rear

In Italy, as we have seen, the situation is not rosy.The Magneti Marelli affair signals the total absence of an industrial plan other than the one left to the free market, as the secretary of the CGIL Maurizio Landini pointed out, but also points the finger towards Stellantis, the holding based in the Netherlands which includes both Peugeot and Fiat.First of all on Magneti Marelli:until 2018 the company was in fact owned by Fiat Chrysler Automobiles (FCA), which then sold it to a Japanese company controlled by the American fund KKR for 6.2 billion euros.Among the agreements made by FCA was the maintenance of Magneti Marelli's production in our country, but the KKR fund has now been in loss and therefore dumped its debts on Magneti Marelli, thus delaying the necessary investments in batteries for electric cars in our country.

But if in this case Fiat's demerits are only indirect, a look at the history of the car manufacturer highlights serious responsibilities for the delays in the renewal of the automotive industry in our country.The car manufacturer had been one of the pioneers of electric with the Fiat Elettra even since the 90s.But then, how explains Andrea Malan on Tomorrow, came the crisis of 2001 at Fiat and in 2004 Marchionne, who was certainly not a fan of electrification.In fact, his statement against the electric car remains historic as "double-edged sword” (which is actually a more complex issue than we think).

In the meantime, however, other brands were testing the waters and launching the first hybrid or fully electric products.In particular, following the example of Tesla, they were launched in the more expensive range, because, for one reason or another, they sold better:let's think of brands like Alfa Romeo and Maserati which could easily have competed with both Tesla and BMW models.FIAT, on the other hand, arrives late, only in 2020, and on a model like the fully electric Fiat 500, while the others are all hybrid types like Jeeps. 

But the crisis in the automotive sector, which went from one million and 270 thousand units to 454 thousand in the space of twenty years, risks having repercussions on the rest of the supply chain too, such as that of components.Think for example of GKN which had FCA among its suppliers.Yet there is a fundamental ally of the car manufacturer and that is the government Italian.The attempt to stall in Europe too, by getting in the way of the plan to ban the registration of cars with internal combustion engines by 2030, is to buy time for FCA which, after the excellent performance of the Fiat 500e, is now about to present new electrical products.

But also on the incentive front it seems that the governments' moves have been made specifically to delay electric.According to a reports of Transport & Environment, a non-profit organization based in Brussels, Italian taxation does not follow one of the basic principles of incentive policy:those who pollute more pay more.In our country, however, the report notes, the opposite actually happens.One of the examples cited is the registration tax which in our country is completely unrelated to emissions.

Also according to Francesco Naso, secretary of the association to facilitate the development of electric mobility Motus E, one of the main problems resides in the incentive system.First of all, the chap of price to access the benefits, declares Francesco Naso, but also to extend it to companies and rentals.

Then there remains the issue of the columns:although we are in the European average, the distribution is highly asymmetrical and the PNRR tenders were only half a success, especially with regards to freeways. 

If the rest of the world has therefore decided to seriously face the challenge of the electric car, in Italy the accumulated delays are now making the transition much more painful.The firmness with which the Meloni government downplays the climate crisis certainly does not contribute to improving the situation.

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