What just happened?
Last week, Spain’s government injected €3.7 billion into reviving its ailing automobile industry. This followed an €8 billion pledge made by French President Emmanuel Macron to invest in green subsidies and research in hydrogen-powered vehicles and driverless cars.
What does this mean?
The onset of the coronavirus pandemic in March 2020 substantially reduced the demand for new vehicles. Sales of new cars and SUVs plummeted 80% in April in Western Europe, with France (89%) and Spain (97%) particularly badly hit.[1]
Consumer demand may recover. Macron’s scheme allows families to access up to €12,000 to buy an electric vehicle. Other countries are considering ‘scrappage schemes’ - financial incentives to trade in older vehicles for newer, cleaner models. In the UK, drivers may be offered up to £6,000 to replace their diesel or petrol cars for electric ones.[2]
However, dark times loom ahead on the supply side. For major car manufacturers such as BMW, Volkswagen, and Daimler, supply chains can run to thousands of smaller, often family-owned companies stretched across the globe.[3] Coronavirus has exposed the vulnerability built into this system. Some of the worst-hit regions, such as China, are those that produce the most parts for the automobile industry, and contingency plans (e.g. for natural disasters) tend not to account for quarantines and extensive travel restrictions.[4]
These weaknesses help explain why Spain and France have earmarked funds for simplifying logistics. Spanish leader Pedro Sanchez announced that 70% of his stimulus package would be allocated to the sector’s ‘value chain’ - and France went further still. Under Macron’s plans, Renault (in which the French government owns a 15% stake) will receive €5 billion in exchange for investing in production within France.[5] What remains to be seen is whether these incentives will push car giants to reassess their supply chains, or merely relocalise a portion of their manufacturing efforts.
How does it impact the legal industry?
In a recent report, the Economist Intelligence Unit indicated that coronavirus will reshape supply chains by accelerating regionalisation. If this is the case, and car manufacturers begin to break off contracts with some of their overseas suppliers, then commercial law firms will find themselves with an abundant source of compliance and contract work. According to LexisNexis, failure to meet the terms of a contract, or to comply with individual country’s laws and regulations, could incur legal or financial penalties.[6] Similarly, car giants will need to seek legal advice about negotiating contracts with regional suppliers.
In the longer term, law firms working within the automobile industry will advise their clients about more M&A deals with clean-energy companies. France and Spain both attached green strings to their state aid; this is part of a broader drive for countries to wean themselves off diesel and petrol vehicles. With all major car manufacturers making promises to manufacture or at least research electric vehicles (EV), we can expect to see more partnerships with companies working in the battery storage, alternative fuels, and driverless cars sectors. Tesla, an American leader in the EV space, offers an excellent example. In 2019, Tesla first acquired Maxwell Technologies, an energy storage company, then DeepScale, a tech startup pioneering solutions for automated vehicles.
Written by Tom Higgins Toon
Assessing Firms:
All international commercial law firms.
References:
[1] Neil Winton, ‘Western Europe’s Car Sales Dive 80% In April, While Negative Forecasts For 2020 Race Past 25%’, Forbes.com (6 May 2020).
[2] Gordon Rayner, and Christopher Hope, ‘Boris Johnson considers giving drivers up to £6,000 in diesel and petrol car scrappage scheme’, Daily Telegraph (7 June 2020).
[3] Joe Miller, David Keohane, Claire Bushey, and Peter Campbell, ‘Weakest link in supply chain threatens car industry revival’, Financial Times (16 April 2020).
[4] ‘Covid-19 and the automotive industry’, PwC.
[5] Victor Mallet, ‘Emmanuel Macron injects €8bn to fuel French car industry revival’, Financial Times (26 May 2020).
[6] ‘Legal Risk in Supply Chain and Third Parties Operations’, LexisNexis.
Disclaimer: This article (and any information accessed through links in this article) is provided for information purposes only and does not constitute legal advice.