Are we facing a new global industrial crisis?
Everything seems to suggest so. Thousands of unfinished cars with only a few chips missing are piling up in auto plants, while average waiting times for new chips remain at sky-high levels of 25 weeks.
Steel mills, hit by the triple whammy of falling demand from automotive, construction and rising gas prices, are shutting down blast furnaces and slowing production across Europe.
Refineries remain at a standstill in much of the world and semiconductor plants are running at full capacity. And meanwhile, chaos continues in large capitalized industry, Stellantis announces the possible closure of 11 plants and Intel announces the layoff of thousands of workers.
Is this a new crisis of profitability?
No, these companies are not facing an existential profitability crisis. That's not what's going on under these closures and massive layoffs. But how is this possible?
The automakers are posting record profits, the petrochemicals are also posting record profits in the midst of a fuel shortage, while Intel has never been better off and with more government support and subsidies.
In fact, the industry is undergoing a state-supported reorganization to increase its ability to accumulate and attract capital. The situation in particular plants, as well as the physical output of their processes, do not directly drive industrial profits and strategies. This leads to plans that may seem counterproductive or paradoxical at first sight and that improve accumulation at the cost of worsening the general situation of the productive apparatus** and the system's capacity to satisfy the most basic human needs.
Why does accumulation, the force that organizes production, destroy the productive capacities of the system?
Not all industrial sectors and companies are equal from the point of view of capital. There are sectors where world production is controlled by a handful of large companies through intellectual property and technical mastery that are very difficult to imitate in time by competition, where margins are high, dividends are stable and there is no competition by lowering prices.
Then there are mature sectors where the main barrier to entry is the volume of initial investment and where any medium-sized national capital with sufficient accumulated capital can play against the rest. In these sectors, capitals are dedicated to produce the maximum volume at the lowest price against their opponents, pushing prices down and often leading to the bursting of industrial bubbles.
All national capitals fight to maintain or push their national champions into the top tier, whether by treaties, trade war, espionage or literal warfare against each other. The fact is that all advanced sectors eventually become mature over time, and the process of accumulation turns into a race to ensure that individual national capitals keep a larger share of the share of the results of global exploitation, which in turn is reflected in sector-by-sector trade shifts and fights.
But won't the electric car create more jobs?
Factory of the Porsche Tycan, electric car, in Germany
In the early and mid-twentieth century, car manufacturing was both a major capital sink and the monopoly of a few large national capitals. Now any large and medium-sized national capital can mobilize the technology and capital to manufacture more and cheaper than the old European and American glories. Today an array of vehicles, [from Korean conventional cars to Vietnamese and Chinese electric cars] are coming to the European and US markets (https://www.spiegel.de/auto/auto-kaufen-wie-chinas-fahrzeugindustrie-auf-neue-kunden-in-europa-zielt-a-cdd48f6e-e343-48c1-9597-d2cdd31183ea).
This is obviously bad news for the old industrial capitals, which need to secure a market or forcibly reinvent themselves to regain their differential position.
With the support of the European states and the USA, the entire industry is granted laws and immense aid that force the adoption of electric vehicles, i.e. the forced replacement of the entire fleet. All this not only provides a market in which to realize all the capital invested in battery and car technology, it also provides an opportunity to get ahead of the competition and monopolize all the intellectual property and techniques before they do. Not at the expense of national capital, obviously. But at the expense of the workers and the population in general, who provide the necessary margins for capital to make itself ever more profitable.
Part of the big conglomerates such as Stellantis are confident of this and are announcing it. The electric car will be both more expensive and a compulsory purchase from 2030. Although measures will be taken to make combustion engines unusable in most cases before that date.
No one need worry about the health of capital. Not only are electric cars nominally more expensive, but they require far fewer parts, plants and ancillary industry than the combustion car, which heralds plant closures and mass layoffs of workers.
Significantly, the fact that it is easier to manufacture does not translate into higher production volume at lower prices with a larger number of plants, but rather the opposite. Naturally, the latter leads to the second move which is to try to drive any foreign competition out of the domestic market, as Stellantis' CEO himself has been quick to call for.
Stellantis argues that the sharp rise in prices of cars that are theoretically simpler to manufacture is due to the high costs of obtaining and processing batteries and their materials. This is a bit puzzling, for two reasons:
- Their Asian rivals seem to be able to make cars that are just as electric much cheaper, and
- The main problem with battery materials is not their scarcity in their natural deposits, it is that there is no recycling process for the huge quantities of batteries that are effectively, but not necessarily, non-recyclable.
Won't we have a cleaner environment?
The metals in batteries are not like coal, they don't burn away, they don't have to be re-extracted when the battery breaks down. Battery recycling has been heralded as the big challenge of the electric car but there is no rush to take this challenge seriously, in fact there is still no established standard for batteries to enable large-scale recycling. Everything points to the fact that the business will not be profitable for many years, among other things thanks to the very strategy of making cars more expensive:
Hans Eric Melin, founder of specialist consultancy Circular Energy Storage, told BusinessGreen that there is "no chance" of a UK recycler relying solely on EV batteries before 2030, and predicted that the supply of used EV batteries would reach no more than 100,000 tonnes before the end of the decade.
"I think it will be at least 10 years before we have a substantial volume of EV batteries," he said. "But what can be done, and what should be done, is to have more companies focusing on the used car side, because that's what's really going on: that's where the value is." A large proportion of used cars in the UK are shipped to third countries, which limits the number of batteries that end their useful life in the UK, he added.
The cost-of-living crisis could further exacerbate the shortage of materials for scrap electric vehicle batteries, and he predicted that slowing car sales, due to shrinking household budgets, would eventually impact the recycling sector, as would current efforts by car companies to prioritize selling fewer, but more expensive, cars in response to the global shortage of semiconductors and rising raw material costs.
Every million electric vehicles that go unsold will account for about 16,000 tons of cells that will not be available for reuse or recycling for a period of 10 years, he noted on Twitter.
Indeed, unrestrained mining while selling used electric cars and spent batteries (traded in when down to 80% capacity, which is still an acceptable amount of margin) to poorer countries, is a more profitable - and far more damaging - business than recycling batteries.
If states were to decide to incentivize recycling, it would be at the cost of more income transfers and state aid, not at the cost of capital's profits. But for now this does not seem a top priority issue for the ruling class, because the fact that China controls 60% to 80% of global lithium refining means that, once Chinese products are hit with tariffs and sanctions, the juicy business of lithium mining and refining will be open to big capital from the U.S. bloc. Canada already opened the fray a couple of days ago by preventing the exploitation of lithium in its territory by 3 Chinese companies.
However, Stellantis - the US-French conglomerate - is not the only heavyweight in Europe. The German conglomerates and Renault-Nissan have different and conflicting priorities of their own.
Where Stellantis is closing plants at home and trying to erect new tariff barriers, BMW, Volkswagen and Mercedes are moving production to China. They are hardly compatible strategies, with some trying to get ahead of the trade war, while others are either directly hit - like Renault-Nissan hastily selling its plants in Russia at a loss - or put themselves in direct danger of receiving a mortal blow from the US-China trade war. Things are not looking too good for European capital.
Could it be a specific problem of the automotive sector?
The almost absolute duopoly in civil aeronautics between Airbus and Boeing seemed to be a safe haven for European and US capital. The first Airbus turns 50 this month, but the company cannot cope with this year's avalanche of orders, when it is also badly affected by the lack of chips. The war in Ukraine has made its situation much worse. Contrary to what Airbus and other companies in the industry were demanding, the EU imposed sanctions against Russian titanium.
But the headaches for Airbus and especially for Boeing do not end there. Its Chinese competitor, Comac, is gaining ground in the medium-haul passenger aircraft market. African and Asian countries have already placed large orders for C919s to the detriment of the Atlantic duopoly. Although today it does not really overshadow both, to give an idea, Comac has received more than 800 orders this year, while Airbus - having a backlog of 7,000 orders - has delivered 437 this year.
Yet Comac is still on the rise while the Chinese government has accidentally delayed permission for Chinese airlines to employ Boeing 737 MAX aircraft because of technical problems overcome years ago, conveniently pushing them to buy Airbus and Comac aircraft.
So, is the same thing happening with semiconductors?
SK Hynix chip factory in China
The sector at the media center of the trade war is the semiconductor sector, and of all the hugely capitalized sectors it is one of those causing the greatest number of problems for the rest of the industrial chain. It is also the sector in which the difference between advanced and mature processes is most exaggerated.
Let no one be fooled, the chip shortage is a convenient excuse to push the CHIPS act in the US and large investments in the semiconductor industry in other regions. Capital has very little interest in placing itself in the industry that makes the very chips that are in short supply in cars and aeronautics, the development of which has been left time and again to smaller companies and capitals. In fact, national capitals are vying to take control of the production of the ultra-advanced microprocessors and nodes monopolized by TSMC, SMIC and Intel.
This is no surprise. For instance, economic analyses point out that the main cause of the US economic recovery in the 1990s was the boom in huge capital investments for the large-scale production of computers and semiconductors. These investments far outweighed the supposed productivity improvements in the service sectors that were digitized during the same era:
The late 1990s were exceptional compared to the growth experience of the U.S. economy over the last quarter century as a whole. Although growth rates have not yet returned to those of the golden age of the U.S. economy in the 1960s, the data nevertheless reveal a remarkable transformation.
After twenty years of decline since the early 1970s, average labor productivity (ALP) grew 2.4% per year during 1995-98, more than a percent faster than during 1990-95. Total factor productivity (TFP) growth had been an anemic 0.34% per year between 1973 and 1995, but accelerated to 0.99% between 1995 and 1998. [...] Arguably, this represents a new paradigm. According to this view, the diffusion of information technologies improves business practices, engenders spillovers and increases productivity throughout the economy.
In this regard, recent experience gives cause for caution, as much depends on productivity growth in high-tech industries. Continued technological advances in these industries have been a direct source of improved TFP growth, as well as an indirect source of faster capital deepening. Therefore, the sustainability of this growth is highly dependent on the future pace of technological progress in these industries.
What makes next-generation chip manufacturing so attractive to capital?
This part of the semiconductor industry is the focus of the trade war and state aid. Of all the branches of the industry, the large-scale (billions of units) manufacture of smartphone processors, graphics cards and SoC (system on a chip) chips with progressively more miniaturized nodes and details is where the most capital is safely placed and where it is easiest for a handful of companies to stay ahead.
For instance, the ultraviolet lithography apparatus needed to efficiently make chips with tiny nodes is so complex and time-consuming to develop that it is virtually impossible for competitors to move to the front of the line.
No matter how much money they bring to the table, the big companies will already be developing the next node by the time the new contenders reach the level of the previous node. These machines use super-detailed masks with the chip design in order to project UV rays onto the surface of the silicon disk to be printed. The fact that some parts of the surface have been illuminated and others have not determines the minute details of the chip's layer-by-layer construction, so the more the light beam can be focused at small scales, the smaller the details possible.... And the more exaggerated the technical problems will become.
Among other things, light has to be efficiently emitted at smaller wavelengths, which requires laser systems that hit tiny tin targets at 10,000 cycles per second, convert them into plasma, and manage not to damage mirrors while generating sufficiently stable and strong light. This is not something that can be designed efficiently in 6 months, let alone manufactured.
What does all this have to do with technological warfare and imperialist tensions in Asia?
Deep ultraviolet photolithography (DUV) ASML machine