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Engine parts makers must cross ‘valley of death’ to reach EV era

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KIDDERMINSTER, England, Oct 5 (Reuters) – Auto engine parts makers eyeing the promising electric-vehicle market are dealing with a severe case of delayed gratification.

Until EVs truly take off, engine parts makers face a perilous few years where they must invest heavily in new machinery, while struggling with falling sales of fossil-fuel cars.

Evtec Aluminium, a small supplier with two plants in England, is a case in point. It barely survived.

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Within the last decade in the European Union – when Britain was still a member – diesel was the green fuel of the future. Carmakers, including Evtec’s main customer Tata Motors (TAMO.NS)-owned Jaguar Land Rover (JLR), invested tens of billions of dollars in new diesel models and production capacity.

Suppliers followed suit. Evtec, then known as Liberty Aluminium, invested tens of millions of pounds in new machines, some of which sit idle but are still being paid off.

Then the EU, spurred on in part by Volkswagen’s (VOWG_p.DE) “Dieselgate” emissions cheating scandal, swiftly abandoned diesel in favour of EVs and now plans to effectively ban combustion-engine car sales by 2035.

“We went in thinking diesel is the future,” said Evtec’s business director, Brett Parker, on a tour of the company’s half-empty foundry in Kidderminster in England’s Midlands, the historical heart of Britain’s car industry. “We backed the wrong horse, unfortunately.”

Evtec was saved last year when a group led by investor David Roberts bought it. Roberts says Evtec’s foundry in Kidderminster is Britain’s most modern – vast machines here pump molten aluminium heated to around 660 degrees Celsius (1,220°F) into castings to make complex shapes – and stands to benefit as UK carmakers look to build EVs that need aluminium parts.

“For me it was a no-brainer to invest in that business,” Roberts said.

As recently as 2015, diesel made up nearly 52% of EU car sales. After Dieselgate and the shift in favor of EVs, diesel fell to 19.6% of EU sales in 2021 and has fallen further this year. In Britain, diesel car sales halved to just 8.2% in 2021.

Petrol car sales in the EU declined to around 40% in 2021 from over 45% in 2015 and will fall further as Europe goes electric.

Major engine parts suppliers like Vitesco Technologies Group AG (VTSCn.DE) and Schaeffler (SHA_p.DE) are already investing in transitioning to electric, but smaller players like Evtec – for which tracking data is not widely available – must adapt or die.

“Engine parts makers are ground zero for the most amount of pain in this transition because they have the least amount of portability into EV world,” said Mark Wakefield, global co-leader of consultancy AlixPartners’ automotive and industrial practice.

Some major carmakers have warned of huge job losses, as EV motors have only a third of the parts of a combustion engine and require less labour.

Fewer parts also mean fewer suppliers.

Engine parts suppliers must either transform into an EV-focused business, or diversify into other industries making parts for anything from heavy equipment to hair dryers.

Or go out of business.

“People have to realize this transition comes at a cost,” Evtec investor Roberts said. “We all have our own valley of death to get to EVs, but for some suppliers it will be so much harder.”

‘CAN’T GROW WITHOUT MONEY’

Declining combustion-engine car sales have already cost jobs.

World No. 4 carmaker Stellantis NV (STLA.MI), for instance, is shifting its plant in Tremery, France – long the world’s largest diesel engine plant – over to EV motors.

Tremery employs 2,400 people now, down from 3,000 in 2019. Many others will not be replaced when they retire.

German supplier Bosch (ROBG.UL) is transforming its plant in Rodez in southern France away from diesel injectors to new products including hydrogen fuel cells, cutting 750 of 1,250 jobs.

Auto industry consultant Bernd Bohr said larger, deep-pocketed suppliers will likely be the “last man standing” for delivering a particular part.

“A lot of companies are fighting for a piece of a smaller and smaller cake and the question is, who’s getting that volume?” he said.

Powertrain supplier Vitesco is focused on combustion engines, but by 2030 the company expects EVs will account for 70% of sales.

In January, the German supplier will split its business into two main divisions, one focused on EV components and the other on higher-value technology that can also be used in combustion engines to bring in cash as that business winds down.

Some parts of the business no longer considered to be core will be shut down or sold off.

“We have to generate the necessary funds so we can invest in the future,” Vitesco CEO Andreas Wolf said. “I can’t grow without money.”

Parts supplier Schaeffler expects its future EV business will be smaller than today’s combustion-engine sales, so the German company is focused on diversifying its customer base.

For instance, the ball bearings Schaeffler sells to carmakers could be sold to other industries.

‘OTHERS WILL DROP OUT’

Smaller suppliers are already struggling with soaring raw material and energy costs, plus the need to invest in greener products to meet carmakers’ climate goals.

Funding new equipment for EV parts could be tough.

Evtec’s investor Roberts said the company has around 330 million pounds’ worth ($363.8 million) of business lined up for EV parts for JLR over a seven-year contract, plus around another 250 million pounds with other carmakers.

But because of long auto industry lead times, the models in those contracts will not start production for two to three years.

Evtec must spend up to 70 million pounds for new tools and machines for those contracts, of which Roberts will pay half, long before any revenue comes in.

Evtec also has support from JLR, which considers it a strategic supplier.

“Our suppliers play a pivotal role in our transformation,” a JLR spokesperson said. “We are working closely with them during the automotive industry’s transition … to electrification.”

AlixPartners estimates carmakers have committed $526 billion to go electric and if they do not proactively address supplier problems they could end up spending another $70 billion to fix them.

Suppliers making key components could get rescued, but carmakers cannot afford too many bailouts, Wakefield said.

Evtec’s Parker said with an investor backing its transition, in the short term the company is looking to “plug the gaps” in revenue.

Earlier this year, when an Israeli supplier folded, Evtec took over some of its business. As suppliers struggle after two years of pandemic, supply shocks and inflation, Parker expects more such opportunities.

“If you can hang on long enough, others will potentially drop out,” Parker said. “Then you’ve got more chance of picking up business.”

($1 = 0.9070 pound)

(This story has been corrected to fix paragraph 27 and 28 to remove reference to third division )

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Reporting by Nick Carey in Kidderminster, England, and Christina Amann in Berlin
Additional reporting by Gilles Guillaume in Paris
Editing by Ben Klayman and Matthew Lewis

Our Standards: The Thomson Reuters Trust Principles.

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U.K. Leader Liz Truss Vows Energy Relief, Rules Out Windfall Tax

By Associated Press
September 7, 2022

Truss rebuffed opposition calls for a new windfall tax, but refrained from explaining how she’d fund a plan meant to help the public pay energy bills.

Newly installed U.K. Prime Minister Liz Truss told Parliament on Wednesday that she would tackle Britain’s “very serious” energy crisis while still slashing taxes, ruling out imposing a windfall levy on oil companies to pay for her plans to offset the soaring cost of heating and electricity.

Truss rebuffed opposition calls for a new windfall tax, even as she refrained from explaining how she would fund a plan meant to help the public pay energy bills skyrocketing because of Russia’s invasion of Ukraine and the economic aftershocks of COVID-19 and Brexit.

She said during her first session of prime minister’s questions that she would set out a plan on Thursday to help with the immediate prices crisis so that people “are able to get through this winter,” as well as measures to bolster Britain’s long-term energy security.

But she added: “I am against a windfall tax. I believe it is the wrong thing to be putting companies off investing in the United Kingdom just when we need to be growing the economy.

“This country will not be able to tax its way to growth,” she said, to thunderous cheers from Conservative lawmakers in a packed House of Commons.

Truss’s spokesman said she wouldn’t cancel a windfall tax imposed in May by former Treasury chief Rishi Sunak, her defeated Conservative leadership rival, but wouldn’t bring in a new one. She is also scrapping a previously announced increase in corporation tax from 19% to 25%.

Opposition Labour Party leader Keir Starmer said that amounted to handing billions to energy firms that have pocketed hefty profits because of high energy prices. Instead, the cost of price relief will have to be paid by British taxpayers, he said, branding Truss’s economic plans a “Tory fantasy.”

British news media have reported that Truss plans to cap energy bills. The cost to taxpayers of that step could reach 100 billion pounds ($116 billion).

“The prime minister knows she has now choice but to back an energy price freeze, but it won’t be cheap and the real choice, the political choice is who is going to pay,” Starmer said. “Is she really telling us that she is going to leave (energy companies’) vast excess profits on the table and make working people foot the bill for decades to come?”

In her energy plan Truss also is likely to greenlight more oil and gas exploration in the North Sea and could lift a ban on fracking — both ideas that have been condemned by environmentalists.

Earlier Wednesday, Truss led the first meeting for her new Cabinet — a government diverse in race and gender and united in its support for the new leader’s staunchly free-market views.

Truss, 47, was appointed prime minister by Queen Elizabeth II on Tuesday after winning an internal Conservative Party election to lead the Tories. The former foreign secretary is Britain’s third female prime minister after Margaret Thatcher and Theresa May. All three have been Conservatives.

She immediately put her stamp on the government, clearing out many ministers from the administration of former Prime Minister Boris Johnson — notably those who had backed Sunak in the Conservative leadership contest.

She made Kwasi Kwarteng her Treasury chief, a key role for a Cabinet whose inbox is dominated by the energy crisis triggered by Russia’s invasion of Ukraine, which threatens to push energy bills to unaffordable levels, shuttering businesses and leaving the nation’s poorest people shivering at home this winter. Kwarteng is the first Black holder of the job whose formal title is Chancellor of the Exchequer.

Truss ally Therese Coffey becomes Britain’s first female deputy prime minister and also leads the health ministry as the state-funded National Health Service grapples with soaring demand and depleted resources in the wake of COVID-19.

For the first time, none of the U.K.’s “great offices of state” – prime minister, chancellor, foreign secretary and home secretary – is held by a white man. James Cleverly, whose mother is from Sierra Leone, is foreign secretary and Suella Braverman, who has Indian heritage, has been named home secretary, responsible for immigration and law and order.

In her first speech as prime minister on Tuesday, Truss said she would cut taxes to spur economic growth, bolster the NHS and “deal hands on” with the energy crisis.

“We shouldn’t be daunted by the challenges we face,” Truss said in her speech. “As strong as the storm may be, I know the British people are stronger.”

Additional reporting by The Associated Press.

Source: newsy.com

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U.K. Energy Price Cap to Rise 80%, Regulator Says

Energy prices paid by most British households are set to rise 80 percent this fall, putting further pressure on consumers squeezed by higher prices and posing a daunting challenge for the next prime minister.

A big jump in energy bills had been forecast for weeks, but the specific numbers released Friday morning by Britain’s energy regulator — a typical British household would pay 3,549 pounds (about $4,200) over a year for electricity and natural gas, from the current £1,971 — hit like a thunderclap in a country already reeling from double-digit inflation.

It is the latest economic blow to European consumers and businesses as the war in Ukraine stretches already tight markets for energy.

54 percent rise in April.

The news of the price increases came during a moment of deep political drift in Britain, with Prime Minister Boris Johnson preparing to leave office and his Conservative Party preoccupied by a contest to replace him. Mr. Johnson has left it for his successor to craft a response to the skyrocketing energy costs.

The front-runner to replace Mr. Johnson, Liz Truss, has promised targeted aid to help those hardest hit by higher bills, though she has steadfastly refused to detail her plans. She and her opponent, Rishi Sunak, both reject more sweeping measures, like using state subsidies to freeze the energy price cap for two years.

Consumer prices in Britain rose 10.1 percent last month from a year earlier, the fastest pace in 40 years, squeezing household budgets. The Bank of England has predicted that inflation would peak at 13 percent in October as the new energy prices turn up in household bills. Other estimates are higher; analysts at Citi have said the rate could reach as high as 18 percent next year.

“The pressure on stretched households will only intensify, and the calls for support will get ever louder,” wrote Martin Young, a utility analyst at Investec, a financial services firm, in a recent note to clients. Mr. Young expects another jump, to £4,210, in January.

The price hikes and how to deal with them have become a hot subject of political discourse in Britain and across Europe. While the British government has offered a package that includes £400 per household to help residents with soaring bills, a wide range of politicians, consumer advocates and energy executives now say that more forceful intervention is needed to cushion households from the surge in energy costs.

Recently, Britain’s opposition Labour Party said that it would freeze energy tariffs where they are now, paying part of the £29 billion cost by increasing the so-called windfall taxes that the Conservative government imposed earlier this year on oil and gas giants operating in the North Sea.

Summary
Companies

Cabinet ministers resigned en masse, telling Johnson to go
‘Them’s the breaks’, Johnson says, blaming ‘herd instinct’
Aims to stay until successor named, many want him out now
Combative, chaotic approach to governing alienated many
Britain’s economy slumping in cost-of-living crisis

LONDON, July 7 (Reuters) – Scandal-ridden Boris Johnson announced on Thursday he would quit as British prime minister after he dramatically lost the support of his ministers and most Conservative lawmakers, but said he would stay on until his successor was chosen.

Bowing to the inevitable as more than 50 government ministers and aides quit and lawmakers said he must go, an isolated and powerless Johnson said it was clear his party wanted someone else in charge, but that his forced departure was “eccentric” and the result of “herd instinct” in parliament.

“Today I have appointed a cabinet to serve, as I will, until a new leader is in place,” Johnson said outside his Downing Street office where his speech was watched by close allies and his wife Carrie.

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“I know that there will be many people who are relieved and perhaps quite a few who will also be disappointed. And I want you to know how sad I am to be giving up the best job in the world. But them’s the breaks,” he added, making no apology for the events that forced his announcement.

His term in office was ended by scandals that included breaches of COVID-19 pandemic lockdown rules, a luxury renovation of his official residence and the appointment of a minister who had been accused of sexual misconduct.

There were cheers and applause as he began his speech, while boos rang out from some outside the gates of Downing Street.

After days of battling for his job, Johnson had been deserted by all but a handful of his closest allies after the latest in a series of scandals sapped their willingness to support him.

“It was a short and bizarre resignation speech which didn’t mention the word resign or resignation once. There was no apology, no contrition,” Conservative lawmaker Andrew Bridgen said. “There was no apology for the crisis his actions have put our government, our democracy, through.”

The Conservatives will now have to elect a new leader, a process which could take weeks or months, with details to be announced next week. read more

POTENTIAL SUCCESSORS

A snap YouGov poll found that defence minister Ben Wallace was the favourite among Conservative Party members to replace Johnson, followed by junior trade minister Penny Mordaunt and former finance minister Rishi Sunak.

Conservative lawmaker Tom Tugendhat, chairman of parliament’s Foreign Affairs Select Committee, said on Thursday he planned to run in the leadership contest. read more

While Johnson said he would stay on, opponents and many in his own party said he should leave immediately and hand over to his deputy, Dominic Raab. Former Conservative Prime Minister John Major said it was “unwise and maybe unsustainable” for him to remain in office when he could still exert its powers.

Johnson’s office said he made clear at a meeting of his new cabinet on Thursday that the government would not seek to implement new policies or make major changes of direction, and major fiscal decisions should be left for the next leader.

The Financial Times, citing lawmakers with knowledge of the plans, said the party intended to have a new prime minister in place by the time parliament returns from its summer break in early September.

Keir Starmer, leader of the main opposition Labour Party, said he would call a parliamentary confidence vote if the Conservatives did not remove Johnson at once. read more

COST-OF-LIVING CRISIS

Johnson is leaving behind an economy in crisis. Britons are facing the tightest squeeze on their finances in decades in the wake of the pandemic, with soaring inflation. The economy is forecast to be the weakest among major nations in 2023 apart from Russia.

His departure also follows years of internal division sparked by the narrow 2016 vote to leave the European Union, and threats to the make-up of the United Kingdom itself with demands for another Scottish independence referendum, the second in a decade.

British Prime Minister Boris Johnson makes a statement at Downing Street in London, Britain, July 7, 2022. REUTERS/Peter Nicholls

Support for Johnson had evaporated during one of the most turbulent 24 hours in recent British political history, epitomised by finance minister, Nadhim Zahawi, who was only appointed to his post on Tuesday, calling on his boss to resign.

Zahawi and other cabinet ministers went to Downing Street on Wednesday evening, along with a senior representative of those lawmakers not in government, to tell Johnson the game was up.

Initially, Johnson refused to go and seemed set to dig in, sacking Michael Gove – a member of his top ministerial team who was one of the first to tell him he needed to resign – in a bid to reassert his authority.

But by Thursday morning as a slew of resignations poured in – including that of Michelle Donelan who he’d only appointed education secretary on Tuesday night – it became clear his position was untenable.

“You must do the right thing and go now,” Zahawi tweeted.

Some of those that remained, including Wallace, had said they were only doing so because they had an obligation to keep the country safe.

Once it was clear he was standing down, Johnson began appointing ministers to vacant posts.

“It is our duty now to make sure the people of this country have a functioning government,” Michael Ellis, a minister in the Cabinet Office department which oversees the running of government, told parliament.

FROM POPULAR TO DESERTED

The ebullient Johnson came to power nearly three years ago, promising to deliver Brexit and rescue it from the bitter wrangling that followed the 2016 referendum. He shrugged off concerns from some that his narcissism, failure to deal with details, and a reputation for deceit meant he was unsuitable.

Some Conservatives enthusiastically backed the former journalist and London mayor, while others, despite reservations, supported him because he was able to appeal to parts of the electorate that usually rejected their party.

That was borne out in the December 2019 election. But his administration’s combative and often chaotic approach to governing and the scandals exhausted the goodwill of many of his lawmakers while opinion polls show he is no longer popular with the public at large.

The most recent crisis erupted after lawmaker Chris Pincher, who held a government role involved in pastoral care, quit over accusations he groped men in a private club.

Johnson had to apologise after it emerged that he was briefed that Pincher had been the subject of previous sexual misconduct complaints before he appointed him. The prime minister said he had forgotten.

This followed months of missteps, including a damning report into boozy parties at his Downing Street residence and office that broke COVID-19 lockdown rules and saw him fined by police over a gathering for his 56th birthday.

There have also been policy U-turns, an ill-fated defence of a lawmaker who broke lobbying rules, and criticism that he has not done enough to tackle the cost-of-living crisis.

In his resignation speech, Johnson highlighted his successes – from completing Brexit to overseeing the fastest COVID-19 vaccine rollout in Europe. But he said his attempts to persuade colleagues that changing leader while there was war in Ukraine and the government was delivering on its agenda had failed.

“I regret not to have been successful in those arguments. And of course, it’s painful not to be able to see through so many ideas and projects myself,” he said.

“But as we’ve seen at Westminster, the herd instinct is powerful – when the herd moves, it moves and, my friends, in politics no one is remotely indispensable.”

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Reporting by Kate Holton, Elizabeth Piper and Alistair Smout; Additional reporting by William James, Kylie MacLellan, Andrew MacAskill, William Schomberg, Muvija M, Farouq Suleiman and Sachin Ravikumar; Writing by Michael Holden; Editing by Frank Jack Daniel, Toby Chopra, Mark Heinrich and Grant McCool

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Labour

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‘CAN’T GROW WITHOUT MONEY’

‘OTHERS WILL DROP OUT’

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ARGENTINA

UKRAINE

TUNISIA

GHANA

EGYPT

KENYA

ETHIOPIA

EL SALVADOR

PAKISTAN

BELARUS

ECUADOR

NIGERIA

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POTENTIAL SUCCESSORS

COST-OF-LIVING CRISIS

FROM POPULAR TO DESERTED

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‘GO MEANS GO’

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