Germany Has a (Car) Problem. And With Them All of Europe.
Summary
TLDRThe German car industry faces its biggest challenge since the invention of the internal combustion engine, with a 20% decline in production and a loss to electric car competitors. The industry's slow start in electric mobility and past focus on diesel engines put it at risk, as global trends shift towards electric vehicles. The impact of this downturn could be felt across Europe, affecting not only Germany's economy but also countries within its supply chain.
Takeaways
- 🚗 The German car industry is facing its greatest challenge since the invention of the internal combustion engine, with a significant decline in production compared to 2019.
- 📉 German automakers like Volkswagen, Audi, BMW, and Mercedes-Benz are losing ground to foreign electric car manufacturers, particularly in the Chinese market.
- 🔋 German carmakers have been slow to adapt to the electric vehicle (EV) market, initially focusing on diesel engines and missing the early stages of the electric race.
- 💡 The US and other countries, including China, have been investing heavily in electric mobility, with China leading in lithium-ion battery production, a critical component for EVs.
- 🌏 The Paris Agreement and global climate policies have spurred the development of electric mobility, with Germany lagging behind in this transition.
- 🛑 The 'Dieselgate' scandal significantly impacted the German car industry, resulting in billions of dollars in compensation and a loss of reputation and sales.
- 🏭 Competitors have been building the necessary infrastructure for electromobility, including large battery factories, while German companies have been slower to respond.
- 💼 The German government has launched an electric mobility program to expand charging networks and subsidize EV purchases, but the industry is still playing catch-up.
- 🏢 The automotive industry is a major driver of the German economy, accounting for nearly 5% of GDP and a significant portion of employment and exports.
- 🌐 The potential decline of the German car industry could have far-reaching effects on the European economy, particularly in countries with a strong automotive presence.
- 🚀 Despite the challenges, German automakers have committed to investing €250 billion in research and development by 2027 to innovate and compete in the new automotive landscape.
Q & A
What did Gabor Steingart predict about the German car industry in Focus magazine in July 2023?
-Gabor Steingart predicted that the German car industry, and by extension Germany as a whole, is on the verge of collapse due to the greatest challenge since the invention of the internal combustion engine.
What significant observation did Handelsblatt confirm about the German automotive industry in July 2023?
-Handelsblatt confirmed that Germany's flagship automotive brands produced more than half a million fewer cars in the first half of 2023 compared to the same period in 2019, indicating a nearly 20% decline.
Why is the German automotive industry losing ground to competitors in the electric vehicle market?
-The German automotive industry is losing ground because it has been slow to adapt to the electric vehicle market, with competitors like Tesla and Chinese manufacturers making significant inroads and investments in electric vehicle technology and infrastructure.
What impact did the 'Dieselgate' scandal have on the German car industry?
-The 'Dieselgate' scandal, where German car manufacturers were found to have used software to falsify emissions measurements, led to a loss of trust, a significant financial penalty, and a tarnished image for the industry.
How did the US administration under President Barack Obama influence the electric car industry?
-The US administration under President Barack Obama had a significant influence by providing $2.4 billion in subsidies to manufacturers, mainly Tesla, and $1.5 billion to companies developing more efficient lithium-ion batteries, thereby promoting the electric car industry.
What role did the Paris Agreement play in the development of electric mobility?
-The Paris Agreement, ratified by 195 countries, pledged to pursue policies limiting the global average temperature increase to less than 2°C, which included the development of electric mobility as part of the fight against carbon emissions.
Why did German carmakers initially refuse to embrace the electric car trend?
-German carmakers initially refused to embrace the electric car trend because they were focused on perfecting diesel engines, which they believed would better adapt to tightening emission limits, and they were slow to recognize the potential of electric vehicles.
What is the significance of the battery manufacturing industry for electric vehicles?
-Battery manufacturing is crucial for electric vehicles as batteries are the most important component without which the vehicles cannot operate. The dominance of Asian companies in this sector has given them an advantage in the electric vehicle market.
What steps has the German government taken to promote electric mobility?
-The German government has allocated large sums of money to expand the network of charging points for electric cars and to subsidize customers who want to buy electric vehicles, aiming to support the growth of this sector.
How has the Volkswagen Group's investment in battery factories been perceived as a response to the electric vehicle market?
-Volkswagen Group's investment in six large battery factories has been seen as a significant step to catch up with the competition in the electric vehicle market, but it is also viewed with skepticism due to the decade-long delay compared to competitors.
What are the broader economic implications of the German car industry's struggles for Europe?
-The struggles of the German car industry could have far-reaching implications for Europe, as the industry is a key economic driver not only in Germany but also in countries like the Czech Republic, Slovakia, Hungary, Poland, and Spain, where German car brands have a significant presence.
Outlines
🚗 German Automotive Industry's Struggle
The script discusses the challenges faced by the German car industry, as stated by Gabor Steingart and confirmed by Handelsblatt. The industry has seen a significant decline in production, with flagship brands like Volkswagen, Audi, BMW, and Mercedes-Benz producing nearly 20% fewer cars in the first half of 2023 compared to 2019. German automakers are losing ground to foreign electric car manufacturers, particularly in the Chinese market. The script also highlights the impact of the 'Dieselgate' scandal and the subsequent financial and reputational losses for companies like Volkswagen. It suggests that German carmakers may have missed the early opportunities in the electric vehicle market due to their focus on diesel engines and their slow response to the global shift towards electric mobility.
🔋 The Race for Electric Mobility
This paragraph delves into the global shift towards electric vehicles (EVs) and the role of the US, China, and other European countries in this transition. It mentions the US government's support for electric mobility under President Obama, which included subsidies for manufacturers and battery technology development. The script contrasts this with the German car industry's initial reluctance to embrace electric vehicles, choosing instead to focus on diesel engines. The 'Dieselgate' scandal is again referenced, highlighting the repercussions for Volkswagen and the industry's slow start in the electric vehicle market. The paragraph also discusses the dominance of Asian companies in the production of lithium-ion batteries, a critical component for EVs, and the lack of German representation in this sector.
🌏 Global Impact of German Automotive Challenges
The script outlines the broader implications of the German automotive industry's struggles for the European economy. It emphasizes the industry's significant contribution to Germany's GDP and employment, as well as its role as a major export product. The narrative extends to other European countries like the Czech Republic, Slovakia, Hungary, Poland, and Spain, where the automotive industry, heavily influenced by German companies, is a crucial part of their economies. The potential collapse of the German car industry could have a ripple effect, impacting these countries' economies and employment. The script also touches on the current economic recession in Germany and its potential to escalate into a broader crisis, affecting political stability and the eurozone's balance.
🛠️ Revitalizing the German Automotive Industry
The final paragraph discusses the German automotive industry's response to the challenges it faces. It mentions a €250 billion investment plan by German carmakers and suppliers in research and development of new technologies by 2027. This investment is aimed at creating innovative cars and batteries to compete in the electric vehicle market. The script suggests that this could be a turning point for the industry, but it also raises the question of whether it is too late to catch up with competitors like Tesla, Chinese manufacturers, and others. The future of the German automotive industry is presented as a critical factor for the economic and political stability of Germany and Europe.
Mindmap
Keywords
💡German car industry
💡Internal combustion engine
💡Electric vehicles (EVs)
💡Dieselgate
💡Elon Musk
💡Charging points
💡Lithium-ion batteries
💡Emission limits
💡Investment in R&D
💡Economic recession
💡Eurozone
Highlights
Gabor Steingart warns of the potential collapse of the German car industry and Germany itself in Focus magazine.
Handelsblatt confirms the challenges faced by the German automotive industry, noting a 20% decline in car production in the first half of 2023 compared to 2019.
German automakers are losing ground to foreign electric car manufacturers in the competitive market.
Volkswagen had to cut production and costs due to a lack of clients, while Mercedes faces challenges in the Chinese market.
Audi struggles to develop its own e-platform for electric vehicles, seeking Chinese cooperation.
Tesla sold over 20,000 electric cars in Germany in the first quarter of 2023, outpacing German brands.
German carmakers may have missed the early stages of the electric vehicle race and made strategic mistakes.
US President Barack Obama's administration played a significant role in promoting electric vehicles with subsidies and support for battery development.
The Paris Agreement of 2015 spurred the development of electric mobility to combat carbon emissions.
German carmakers initially focused on diesel engines, missing the shift towards electric vehicles.
The 'Dieselgate' scandal in 2015 revealed Volkswagen's use of software to falsify emissions measurements, leading to significant financial and reputational damage.
US President Donald Trump targeted the German car industry for retaliation, further impacting Volkswagen.
Asian companies, particularly Chinese, have been successful in supplying lithium-ion batteries, a critical component for electric vehicles.
The German government launched an electric mobility program to expand charging infrastructure and subsidize electric car purchases.
Elon Musk's Tesla has been successful in building a factory in Germany and capturing the market.
Chinese electric car manufacturers, like BYD, are outselling German brands in the electric vehicle market.
The automotive industry is a significant driver of the German economy, accounting for 4.7% of GDP and employing 900,000 people directly.
German car exports brought in €245 billion in 2022, making them the country's most important export product.
The economic health of Germany is crucial for the stability of the eurozone, as it balances the weaker southern European economies.
The German car industry announced a €250 billion investment in research and development of new technologies by 2027 to compete with global rivals.
Transcripts
"The German car industry will collapse, Germany will collapse. At least Germany as we have known
it so far" announced Gabor Steingart on the pages of Focus magazine on July 15, 2023.
The former editor-in-chief of the Handelsblatt newspaper and then its publisher has sounded
the alarm. In his assessment: "the German automotive industry is facing its greatest
challenge since the invention of the internal combustion engine."
A week later, on July 21, the Handelsblatt itself published an extensive analysis confirming the
observations of its former boss. It says that Germany has something to worry about. In the
first half of 2023, the flagship brands of the local automotive industry: Volkswagen, Audi,
BMW and Mercedes-Benz, produced more than half a million fewer cars than in the same period
four years earlier - in 2019. This represents a decline of almost 20 per cent overall. To
make matters worse, German automakers are giving ground to competitors where the future is being
forged. It's losing to foreign electric car manufacturers, and it's losing at every turn.
It's too early to talk about disaster,
but the German automotive industry is on a curve it hasn't experienced in decades.
If it doesn't emerge victorious from this bind, the effects will be felt not only by
the entire German economy but also by all of Europe. Welcome to the Twenties Report.
Due to a lack of clients, Volkswagen had to cut production and cut costs this summer. Mercedes'
luxury electric cars, meanwhile, are losing out in the Chinese market, the most critical
market for the Stuttgart-based giant. Audi, on the other hand, is unable to develop its own
e-platform, designed for the new generation of electric vehicles. It invites, therefore,
Chinese companies to cooperate. At the same time, Tesla is elbowing its way into the German market.
In the first quarter of 2023, Elon Musk's company sold more than
20,000 electric cars to customers in Germany. Germans choose them
almost twice as often as battery-powered models from Volkswagen, Audi, or Mercedes.
This is where the question arises. How can Germany, one of the world's largest
and perhaps most qualified car manufacturers, slowly slip down the hierarchy of car suppliers?
It seems that German carmakers slept through the early stages of the electric race,
and once they were in it, they made cardinal mistakes,
often due to their own arrogance. So let's trace how this happened.
"Tesla will be the first US automaker to go public since the Ford Motor Company held its
IPO in 1956." - announced in February 2010 Elon Musk. Adding further that his
company will become a milestone in the resurgence of the electric car idea,
which until recently had been rejected by most car companies.
Despite the sceptics, Musk turned out to be right. Although it should be remembered that
a major influence on his success had the US administration of President Barack Obama. In
early 2011, the US president promised voters in his State of the Union address that there
will be one million electric cars on American roads in four years' time. To achieve this,
he gave $2.4 billion in subsidies to manufacturers (mainly Musk) and $1.5
billion to companies developing designs for more efficient lithium-ion batteries.
Soon, other European countries and China followed the US lead, and work on improving electric cars
took off. This dovetailed perfectly with the principles of the global climate agreement
concluded under the auspices of the UN in Paris on 12 December 2015. It has so far been ratified by
195 countries, the only major country not to have done so being Iran. The signatories have pledged
to pursue policies that will limit the increase in the global average temperature to less than 2°C.
The development of electric mobility in highly developed countries was seen as part of the
fight against carbon emissions. This, in turn, meant diverting huge sums of money to this end.
Meanwhile, up until the Paris Agreement, German carmakers stubbornly refused to see
the new trend. They stuck to the strategy they had adopted at the beginning of the 21st century,
saying that the future lies in even more perfect diesel engines.
During the long reign of Angela Merkel, as the European Union successively tightened emission
limits for carbon monoxide, hydrocarbons and nitrogen oxides for passenger cars,
it seemed that diesel engines would be the engines better able to adapt to the new requirements than
petrol ones. However, the industry had reached a point where it was no longer technologically
possible to reduce emissions further. At the time, German companies, led by Volkswagen,
preferred to focus all their efforts on hiding the facts rather than admitting they were wrong.
The nearly 10 million cars sold not only under the Volkswagen brand but also under the Skoda,
SEAT and Audi were fitted with software designed to falsify emissions measurements. The clever
program detected that the car was being tested and immediately switched the diesel engine to
low-emission mode. Thanks to the software, the new cars complied with the strictest standards,
but only at diagnostic stations. During everyday driving, such low emissions proved impossible.
The scam, later dubbed "Dieselgate", came to light in 2015. In September of that year, the US
Environmental Protection Agency (EPA) discovered what was going on. Unfortunately for the Germans,
Donald Trump, who took over the US a year and a half later, made the German car industry one of
his targets. He sought retaliation, believing that Germany played unfairly with America and
its companies. This directly cost the Volkswagen Group more than $25 billion, which it had to pay
into a compensation fund to deal with the claims of defrauded customers. On top of this came losses
in image and sales. Thanks to the continued support of Angela Merkel's government, the
company was able to weather the storm. However, this did not prevent another type of loss.
Far more in tune with the spirit of the new age, car companies from the US,
China, Japan and South Korea were investing huge sums in the development of electric or
hybrid cars at a time when German companies were stubbornly perfecting the diesel engine.
Competitors were also building the facilities necessary for the electromobility revolution,
led by huge electric battery factories. In this area, especially Asians have been
very successful. In 2022, more than 70 per cent of all lithium-ion batteries
in the world were supplied by Chinese, South Korean and Japanese companies.
The Chinese conglomerate CATL leads the pack with a 35 per cent market share. In second
place is South Korea's LG Energy Solution with almost 16%. BYD comes in third with 11 per cent.
Among the big manufacturers of this most important component of any electric car,
without which it won't hit the road, you won't see any company from Germany.
When Chancellor Angela Merkel negotiated a settlement with the Americans to protect
German companies from the consequences of "dieselgate", she also launched a domestic
electric mobility programme. The government in Berlin allocated large sums of money to expand
the network of charging points for electric cars and to subsidise customers who wanted to buy a
car with such a drive. It was electric cars that were to save a key sector of the German economy.
The peak moment of optimism came in early November 2019. At that time,
the Chancellor and her ministers held a summit meeting at the Chancellery with the heads of
German automotive companies, trade unions and the Association of the Automotive Industry (VDA).
Later it was announced that there would be no turning back, and that by 2030 there would be
one million electric vehicle charging points for many millions of such cars in Germany.
The problem is that the competition still had a 10-year head start. Elon Musk had the audacity
to build a huge Tesla factory in Grünheide, near Berlin. And it turned out to be his success story.
But it seems that a bigger threat to the Germans than the Americans is the Chinese.
Looking only at sales of electric cars: the BYD corporation in 2022 sold a total of 911
000 units. And counting hybrid cars, more than 1.8 million, recording an increase
in sales over the previous year of the size of a whopping 211%! Tesla in 2022,
sold as many as 1.3 million electric cars, and recorded a year-on-year increase of 40%.
Meanwhile, Germany's largest manufacturer, the Volkswagen Group, which includes the Audi,
Porsche, Skoda, SEAT and of course, Volkswagen brands, among others, sold 572 000 electric
cars in 2022. Noting a 10 per cent increase in electric car sales. And yet, in addition to BYD,
other Chinese manufacturers, led by BAIC and Zotye, are also catching wind in their sails.
Overall, in the Middle Kingdom, a key market for German companies,
through preferences and subsidies, more than 20 per cent of newly purchased cars
are electric cars. And in the vast majority, Chinese electric cars. As presented, the sales
figures of top German brands occupy places only in the second ten of Chinese rankings.
The devil, as usual, is in the details. Electric cars need neither a gearbox nor a clutch nor
the whole complicated system of a diesel or petrol engine - thus the finest works of German
technical thought. Instead of these, batteries are essential. In this way, German automotive loses
its greatest assets. Now it belongs to others - the Americans and the Asians, mainly the Chinese.
Admittedly, it was the European Union institutions, with very strong German
lobbying, that passed a directive banning the registration of new
passenger cars with internal combustion engines on the old continent from 2035.
Contrary to Berlin's earlier expectations, however, it may turn out that it is not
the German carmakers that will benefit most, but the American and Asian ones.
Last year, Volkswagen CEO Herbert Diess announced a massive investment in constructing six large
battery factories. But a decade's delay will not be easy to make up. If this feat
is not achieved, we could be witnessing the twilight of the German car industry,
and perhaps even, as Steingart claims, "the end of Germany as
we know it”. But does it really so much depend on just one industry in Germany?
Let's start with the fact that the automotive industry has been the main driver of the German
economy for several decades. Its importance has only grown since 1990. Thirty years ago,
the automotive industry in unified Germany was responsible for 3 per
cent of Germany's annual GDP; today, it accounts for about 4.7 per cent,
and indirectly as much as 7.5 per cent of GDP if you include the automotive suppliers.
In no other of the world's most developed economies is the automotive industry as
crucial as in Germany. In the US, Japan and South Korea, the share of the automotive industry in
key economic indicators such as GDP and export earnings is significantly lower.
In Germany, car factories provided jobs for 750,000 people in 1992. Today,
the figure is around 900,000, and including subcontractors, it is as high as 1.7 million.
At the same time, German cars, which still enjoy an excellent reputation,
are Germany's most important export product. More than 65 per cent of them go to foreign markets.
In 2022, their sale brought Germany export revenues of EUR 245 billion.
This figure may not seem so impressive when you consider that Germany's total
exports in 2022 were worth 1.58 trillion euros. What is more,
despite all the international turmoil, they grew by as much as 14 per cent year on year,
making Germany the world's third-largest exporter after the United States and China.
However, no other sector of their economy can match the automotive industry in terms
of foreign trade. Even the machinery and chemicals industries lag behind.
This interconnectedness means that when the German car industry has a runny nose, the whole of
Germany feels the chill and then falls ill. What's more, the malaise threatens not only Germany.
In the case of the Czech Republic, where the Volkswagen Group has owned the Skoda
plant in Mladá Boleslav since 1991, the automotive industry employs some 120,000
people in a country with a population of around 10 million. While sales of cars and
their components abroad account for up to 20 per cent of Czechia's total export earnings.
The economy's dependence on the car industry is even more pronounced in Slovakia. This
country of just 5.4 million people has become one big car assembly plant. The
car industry employs about 170,000 people and accounts for about 30 per cent of export
earnings. Until 2006, Slovakia had only one manufacturer, Volkswagen Slovakia,
with a plant in Bratislava. Investors from other countries then came in, but diversification
does not mean the economy is immune to a possible collapse of German car companies.
Nevertheless, it is Hungary with 9.7 million populace, that is potentially
in the worst situation. Mercedes has its car factory in Kecskemét, Audi in Győr,
and BMW is finishing a plant near Debrecen. Hungary's car industry already accounts for 18
per cent of the country's export earnings. And it is almost entirely dominated by German companies.
On this map of threats, it is still worth remembering Poland, as around 25% of the
cars produced in the country are German brands. The investments like Volkswagen’s in Poznan and
Polkowice, or by Mercedes in Jawor, are of great importance for the western regions of
the country. The situation is similar in Spain, where Seat, which belongs to the Volkswagen Group,
is of great importance for Barcelona and the entire region of Catalonia.
In addition to the final plants that crown the entire production process, there are thousands of
subcontractors that are directly or indirectly involved in the entire German supply chain.
So it is easy to see that if the German car industry's cold does not go away but
becomes a chronic illness, not only Germany but also the Czech Republic,
Slovakia and Hungary will be seriously affected. Poland and Spain could also be badly hit.
The whole issue is also worth considering in a slightly broader and different context.
It is worth remembering that the German economy is now in its third quarter
of recession. According to a report by the International Monetary Fund,
of the G7 countries, Germany is the only one to have recorded consecutive declines in GDP.
And there are no signs that a turnaround is imminent. The PMI, which tracks developments
in the manufacturing sector, is breaking depressed records in Germany month after
month. While 50 points indicate a neutral level, it fell to 38.8 points in July 2023.
In short, pessimism has taken hold between the Oder and the Rhine, and the alarming news from
the car industry is only adding to it. The recession threatens to turn into a crisis,
and an economic crisis could turn into a political one. The first symptom of this
is the rapidly growing support for the AfD party - Alternative fur Deutschland. Some
22 per cent of those surveyed are already planning to vote for the far-right party,
which has so far remained on the fringes of political life. In the polls, the AfD has
overtaken the SPD - the Social Democrats and the Greens, and only the CDU/CSU is still ahead of it.
Since the middle of the last century, the foundations of German democracy
have been economic prosperity and social security. When there are fears that both
foundations are beginning to crumble, there is nervousness and a search for - alternatives.
Germany's economic health and predictability also underpin the eurozone as a whole. Especially
when Greece, Italy and Spain - all ‘euro countries’ are heavily indebted. Until now,
the economic strength of the North has balanced the weakness of the South. If
this balance is lost, the whole structure will begin to totter.
Awareness of this problem seems to be growing in Berlin. In mid-May, following
a meeting under the auspices of the German Association of the Automotive Industry (VDA),
carmakers and their suppliers announced that they would invest a staggering €250 billion in
research and development of new technologies by 2027. Spending almost twice as much as,
for example, Poland's annual budget income is expected to result in the birth of innovative
cars and batteries far better than any currently available on the market.
So the Germans have taken up the challenge posed to them by Musk, the Chinese, the Japanese,
or the Koreans. But is it a little too late? We will find out only when we see the next stages
of the race, the future of which is at stake not only for Germany but for all of Europe.
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