The Czech auto industry is already “in the blood” or at a loss. And it will get worse, warns Robert Kiml, vice president of manufacturing for Toyota in the Czech Republic, and vice president of the Association of the Automotive Industry. “The Euro 7 emissions standard, energy prices and the plummeting demand for cars will have a huge impact on employment,” says Kiml. Production in the Czech Republic becomes so expensive that it is often more profitable to produce and import from Asia. While Europe shifts its energy dependence from Russia to the Arabian Peninsula, Chinese automakers will gradually conquer European markets with high-quality and affordable electric vehicles, Kiml said.
Businessmen in the Czech automotive industry have warned that this year will be a turning point for automakers and suppliers and the associated shift to more expensive energy. It happens?
Some may be confused by the currently lower price of energy in the spot market. But the reality is that wholesale buyers had to provide capacity. So they bought energy last year when it was expensive. These cylinders are filled with gas not for the current 70 euros, but for up to 400 euros. Suppliers – typically CEZ or RWE, for example – bought gas at various times in the past year at various high prices. Customers now pay an average of that price. So it’s not true that now we produce cheaply. I can’t buy gas for a spot of 50 euros in Kazakhstan, they say that it will be delivered to me tomorrow. It takes six months or more. The Czech industry currently pays about five times more for gas than last year.
How much has the price of energy carriers been increased specifically for the Cologne plant?
Our expenses have risen from five percent to twenty. All profitability and margins fall. This is an economic disaster and, ultimately, the definition of uncompetitiveness. Hope it doesn’t take too long. We had fixed energies until the end of 2022. Since this year, no one will fix anything for you, or only at very high prices. So now we are buying in the spot market.
How long does this state last?
In the short term, we’ll survive somehow. But the car business is built on five to seven year contracts. During them, we conclude contracts for the next period. We are in a situation where manufacturers from the USA, Asia and Africa offer the same parts as Czech or European companies at a much lower price, because their energy resources are several times cheaper. For car companies building cars in Europe, it is often cheaper to take and transport parts from Asia than to produce them in the Czech Republic. As a rule, these are energy-intensive components, such as aluminum, iron or plastic.
Are Czech suppliers facing bankruptcy? Are some of them already limiting or stopping production?
We have a long-term relationship with them, and we constantly solve their fincial situation. We are constantly updating contracts. The economic liquidation of Czech suppliers would also mean our liquidation. But the typical Czech supplier serves five or more car companies. Unfortutely, not all of them agree with the price increase. They require suppliers and end users to pay additiol costs. Many suppliers will not be able to sustain this in the long run. Most of the auto industry is already running on “blood” or at a loss. What keeps us alive is the huge shortage of cars. We still have a lot of orders over the past two years, although the demand for cars is currently falling sharply. The problem is that the price of gas in Europe will rise.
Why do you think?
The costs of building infrastructure – “pipes” – between Russia and Europe have long been paid. Again, however, we will transport gas from Qatar, America or Africa at a higher price. In addition to 70 euros for gas, x euros for transportation and another x euros will be added, which will reflect the huge investments in the completion of “pipes” from the Netherlands, Italy and so on. In total, we will be twice as expensive as in the past.
Do you see a solution?
We need to find resources and start shipping in bulk.
Europe must be energy independent and rely on its own resources. Feel free to so-called clean. As for gas, we need to create new supply routes and stabilize them. There is enough gas in the world. But ships, storage facilities and, of course, pipelines need to be built. It takes years.
A number of states make a choice in favor of deepening cooperation with the countries of the Arabian Peninsula…
I would be careful here. We are trying to get out of energy dependence on undemocratic Russia, partially replacing it with another dependence on the same undemocratic territories. Europe is changing dependence on Russia to dependence on the Arabian Peninsula and Chi. What’s more, this is all happening at a time when the automotive industry is facing a huge push towards electrification. This requires a huge amount of precious metals, which we do not have in Europe and we will have to import them in large quantities from these countries. This will further increase our dependence.
More expensive energy caused high inflation. Will you raise your salary?
People feel the decline in the standard of living. As a company, we must understand this, we are responsible. We have already reached an agreement with the unions and have reflected the increase in inflation in a 17% wage increase. We have shifted part of the costs to the end user.
Not every company can afford wage increases in the current economic climate. Are layoffs dangerous?
We are not planning to retire yet. However, many of our suppliers will significantly reduce inventory to the minimum required. Not right now. The deciding factor will be how they handle the first half of the year. There are several key variables: the Euro 7 standard will greatly affect employment, energy prices and car demand, which is falling sharply. If it doesn’t stop falling, our employees will start to linger. Therefore, most companies have already stopped investing.
Did the Japanese magement of Toyota somehow limit your investment budget in Cologne?
Yes, Toyota Czech Republic also stops large and small investments. The amount of funds that we can allocate to investments in the coming years will be significantly reduced compared to the past. This year alone, our investment budget is 30 percent smaller, and significant restrictions can be expected next year as well. We are talking about a reduction in the order of hundreds of millions of kroons. Our suppliers must do the same, they are now only focused on their core business in order to survive.
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