R&D and engineering job cuts symbolic of wider industry issues
Sweeping engineering cuts at Renault and Stellantis signal more than cost control. As Chinese rivals set the pace in EVs and software-defined vehicles, legacy automakers are accelerating a structural shake-up.
Renault and Stellantis have recently announced significant restructuring, for which read cuts, in their engineering and R&D operations, especially in Europe. They are not the only vehicle companies to reorganise their engineering operations in the light of the increased competition from the Chinese and the industry-wide trend to software-defined-vehicles (SDVs). The moves by Renault and Stellantis also hint at a wider reorganisation of vehicle manufacturing with significant implications for suppliers and the workforce throughout the industry.
Renault used its Shanghai R&D operations to cut the development time required for the new Twingo to just 21 months
China drives the speed of change
“China Speed” is a phrase often heard in the industry in recent times; Toyota moved some of its R&D operations to China in 2023 to take advantage of Chinese engineering speed, and much of its bZ EV programme emanates from China as a result. Renault used its Shanghai R&D operations to cut the development time required for the new Twingo to just 21 months; the new Renault CEO, Francois Provost, wants to adopt Chinese methods at the company’s R&D TechnoCentre to the west of Paris.
One of the things which Provost will do as part of adopting Chinese methods is to cut engineering jobs, with 2,400 positions to go over the next two years, out of 11,000 engineers which the company has globally. The CGT union in France has questioned how Renault will be able to develop and then produce the 36 new models it has planned for 2030; of course, when car companies say they will introduce such a number of new models, they are being slightly disingenuous as several of these 36 models will be made on common platforms or be closely related variants of a base model. Even so, from a traditionalist’s viewpoint, the union representative’s comment has a certain logic.
Developing a technical advantage
However, things have changed, irrevocably. Chinese engineers work longer hours, are almost certainly paid less than their western counterparts, and are arguably as well if not better qualified. Having learned from the developed world companies’ transplants in China, the tables have been turned. China not only makes the most vehicles, backed by the power of the state it has to be said in many cases, but it is now poised to dominate the industry worldwide.
A senior Honda executive has been quoted as saying that “we” have no chance against the Chinese; whether all in the company or the industry as a whole agree is another matter. Adopting Chinese methods, as Toyota has done, as Renault is doing, and co-opting them as partners – as Stellantis is doing (through planning to bring Leapmotor into its small car development programme for Europe) – suggests that the legacy companies are not necessarily accepting the Honda executive’s view mentioned above.
Like Renault, Stellantis is cutting its engineering workforce, or rather some of it, and expanding other areas of its R&D operation. The traditional home of Opel R&D in Rüsselsheim used to employ nearly 8,000 engineers a decade ago; this has been steadily eroded (as has production in the nearby car plant) to just 1,650 today – and 650 of these will disappear in the near future. The Russelsheim site will focus on adapting corporate platforms for Opel and Vauxhall, and specialise on developing lighting, AI and ADAS for the group’s European operations. However, Stellantis is expanding its engineering capability in France with 700 engineers to be added at the Sochaux factory; half of these positions will be for R&D, with the others tasked with bringing on stream a new automated, low-carbon paint facility which could be a template for other factories.
Like many other developments in the industry, the SDV trend is being led from China, with a critical difference between the Chinese and Western vehicle companies already apparent
The new engineers in Sochaux will not be the only new engineering positions in the group; 2,000 engineers will be added in the US where the company is undergoing what it calls its “Deep Reset” strategy. One commentator has described the new Stellantis R&D and engineering resource allocation strategy as one of “networked competency”: Russelsheim specialising in AI and lighting is really just the latest step in managed decline of its German operations, whereas Sochaux will lead the group’s new manufacturing methods strategy.
Different approaches to software defined vehicles
What is not clear, at least not yet, from the moves announced by Renault and Stellantis is how they will link into the related mega-trend in the industry, namely the switch to software-defined-vehicles. Like many other developments in the industry, the SDV trend is being led from China, with a critical difference between the Chinese and Western vehicle companies already apparent. According to a recent report from Alix Partners, Chinese vehicle companies keep their SDV development work in-house to a much greater extent than their Western counterparts, as well as allocating almost twice as much of their R&D budget to SDV features.
The implication for the industry, whether in-house at the car companies or at the suppliers, is that manufacturing will generate a declining proportion of the value of the vehicle production process. How this will impact traditional automotive manufacturing centres remains to be seen
Moreover, there is a critical difference between the SDV approaches of Chinese and western companies which may in turn have a major impact on manufacturing methods. The Alix Partners survey suggests that close to 60% of Chinese companies use “decoupled technology stacks” which separate hardware from the controlling software. This in turn makes rapidly applying over-the-air updates and adding new features much easier. Western companies by contrast still tend to use single “patched” stacks which add new software onto existing hardware.
Big changes ahead for vehicle manufacturers
In broader terms, it is worth noting that the Chinese approach is effectively reducing the value of components and shifting key mechanical functions away from the component themselves and into the software which controls them. The logical consequence of this is that mechanical components will become even more commoditised and steadily represent a declining proportion of the vehicle’s value. The implication for the industry, whether in-house at the car companies or at the suppliers, is that manufacturing will generate a declining proportion of the value of the vehicle production process. How this will impact traditional automotive manufacturing centres remains to be seen; but it is worth noting the irony involved here – as western vehicle companies shift their engineering and R&D into software related activities, as they will have to do to try to remain competitive with the Chinese, so they will effectively sign the redundancy notices for more and more manufacturing jobs in traditional vehicle production heartlands.
