If you ask the average person on the street, do they love technology, the answer is yes. Every technological improvement can mean or has meant some type of change. In the manufacturing business this is very good, companies are able to do things that years ago, they had to outsource because it was too expensive as an option. One of the issues of new technology is the change in processes, people have to adapt to. In the example of car manufacturing, the internal combustion engine vehicle requires lots of parts and a supply system has developed to ensure each and every part is better each year. For electric vehicles, the supply system is developing, but there are less parts needed. Less parts needed means new competition.

In an article by Nick Carey of Reuters, the European Union has adopted less use of carbon as a policy and using less is good for the environment in general. One of the biggest users of carbon is the internal combustion engine or gasoline from cars, using less is good. From a policy perspective that is what politicians do, from a boots on the ground perspective, the industry is going through many changes. All car makers in Europe and America, assemble the vehicles they do not make the parts, it is outsourced. The issue is making EV parts, because there are fewer of them is not as profitable to the outsourced firms as making parts for the internal combustion engine. As a result the big 3 of Forvia, Continental and Bosch have all announced or expecting to announce layoffs in their internal combustion engine parts supply systems. Recently Germany’s Allgaier filed for bankruptcy.

Unlike the European automakers that are reliant on external suppliers with separate supply chains for fossil fuels and electric, their Chinese rivals are highly vertically integrated, producing almost everything in-house and keeping costs down. (when Henry Ford make the Model T for the US market, all the parts were done at the Rouge plant where at its peak over 100,000 people worked, outsourcing came years later). According to Nick Parker, a partner and managing director of AlixPartners, the vertical integration allows the Chinese to undercut their European rivals.

In times of change, companies face a delicate balancing act between cutting costs to fend off Chinese rivals and avoiding pushing their suppliers too far. In a movie called Margin Call, the Jeremy Irons character was asked did we do right by our clients? He said no, but we live to fight another day.

Linking to dividend paying stocks, most of us believe technology is a good thing, until it affects our jobs or income stream, then we say it was better before the technology. However, there is always opportunity in the markets and as an investor you must be aware of it. Government policies can push companies to doing actions for the good of the country, but not necessarily for the good of margins of the investors. The players have done nothing wrong, but change was not on their side, as an investor you want to ensure change is on your side.

There are more questions than answers, till the next time – to raising questions.