_ Stefan Freiberg, resaerch assistant, MIWI Institute. Berlin, 2020.
Introduction
Politics and the media cultivate the image of climate-friendly, CO2-neutral electromobility. If one assumes that these protagonists are ideologically blinded with the overriding goal of reducing CO2, then electric vehicles in the long-term might be suitable for achieving this goal. Based on the scientific data, the ifo Institute[1] and VDI[2] have already recognized that electric vehicles have a worse CO2 balance in production and driving than comparable vehicles with internal combustion engines due to the energy-intensive battery production and the fact that the German electricity mix is relatively CO2-intensive.[3]
If, for the reasons mentioned, the goal of reducing CO2 emissions cannot be achieved with electric vehicles, the question arises as to why this uneconomical technology, which is not very suitable for everyday use, is being promoted so strongly. For this purpose, the thesis is formulated at this point that the politically and media-driven switch to electromobility is due to the current developments in important foreign markets (especially China) and that the German Federal Government is currently trying to work with the German automotive industry to correct serious undesirable developments of the last few years to maintain its competitiveness abroad. To this end, state funds are used, among other things, for purchase premiums, charging station infrastructure, battery cell production and the procurement of raw materials from abroad in order to support the structural change in the automotive industry, which is in parts unavoidable. According to the thesis, there is no “war against the auto industry” on the part of the German government, but the exact opposite is the case. Neither the federal government nor industry are ideologically deluded; rather, tangible economic interests play the decisive role in this issue. The narrative of “saving the climate”, which has meanwhile become sustained in society, is also suitable in this case for the justification of considerable redistribution from the citizen to parts of the economy and thus for the creation of “artificial economic growth”. Linked to this, it is quite conceivable that the climate protection debate, which is heavily charged in the media, and the associated zeitgeist for parts of the economy provide the motive for the creation of supposedly environmentally friendly products.
Regardless of the other motives for a partial switch to e-mobility, the foreign growth markets are by far the most relevant to these industrial policy trends at home. The idea that the German automotive industry invests tens of billions in new technology every year just because an alleged youth movement stays away from school on Fridays or a pseudo-green party demands it seems unrealistic.
The author of these lines expressly emphasizes that he does not want to evaluate the approach of the federal government with this policy note, but only to describe it.
The growth markets in the automotive sector – facts and figures
The most important growth markets in the automotive sector have been the Indian and Chinese markets for several years, with the latter also forming the world’s largest single market with around 24 million cars sold. German vehicle manufacturers currently have a market share of 24.5 percent in China.[4] While sales in Germany have stagnated with an average of 3.5 million new registrations annually since 1991, the Chinese market has grown by approx. 2000 percent.
Bernhard Mattes, president, VDA, on the Chinese market:
“China is also setting standards in the field of electromobility: In no other country are more new e-cars registered. In 2018 there were around 1.1 million vehicles (of which a quarter were plug-in hybrids / PHEV, and three quarters were purely battery-electric / BEV), an increase of a good 80 percent compared to the previous year. The share of electric vehicles in the overall Chinese passenger car market is 4.5 percent. There is considerable future potential here, especially for the German automotive industry: In the coming years, German manufacturers will be launching numerous electric models in many segments. We are confident that we can increase our e-market share in China (currently: 5 percent).“[5]
The currently rapidly growing Indian market has the potential to become the world’s third largest sales market after China and the USA.[6] The US market is also playing an increasingly important role for e-vehicles, where the e-market share has doubled within a year.[7]
The importance of these markets for the German automotive industry cannot be overestimated. In the following, the Chinese market will be discussed, because this is where the structural change in parts of the automotive sector becomes particularly clear.
Electromobility as a disruptive technology
Chinese economic and foreign trade policy is characterized by a long-term, persistent mentality. While the Western management culture strives for short-term profits, the state-controlled economy of China is geared towards sustainable development from an economic point of view. As part of the “Made in China 2025” industrial strategy, the Chinese government has defined ten sectors in which the country wants to achieve technological leadership with the help of massive state intervention. Together with other measures, China wants to and is likely to become the world’s leading industrial nation by 2049. The increasing prosperity and the education of a broad middle class inevitably led to the question of how individual mobility in China should be designed in the future. Since Chinese industrial policy is aimed at weakening global competition in the long term, the state relies on a disruptive technology in which technology leadership can be achieved with manageable investments. In the transport sector, from the Chinese point of view, electromobility is suitable for achieving this goal, since the majority of the Western automotive industry had not made any significant investments in this area until recently. Compared to other alternative drive methods (e.g. hydrogen), electric vehicles also have a significantly more favourable energy balance during their service life. It can also be assumed that China wants to reduce its dependence on oil imports.
The ten sectors in which China aims to achieve technology leadership are:
- Agricultural machinery
- Shipbuilding and marine engineering
- Vehicles with an alternative drive and electromobility
- New generation information and communication technologies
- High-end controlled machine tool systems and robot technology
- Electricity systems
- Systems for aerospace technology
- New materials
- Modern systems for rail transport
- Biomedicine and high-performance medical devices
It is noticeable that vehicles with internal combustion engines are not part of the Chinese industrial strategy. The Chinese government is aware that Western manufacturers cannot forego the local market and can therefore in fact be forced to produce electric vehicles if they want to maintain their market share in China.[8] The same will apply to the Indian market in the foreseeable future.
The FDP parliamentary group in the German Bundestag also describes the Chinese strategy of disruption in connection with e-mobility in a small inquiry (Drucksache 19/13076).
Sales quotas for e-vehicles in China
The Chinese government set sales quotas for e-vehicles in 2019. Originally, the introduction of the quota was planned for 2018, which was prevented, among other things, by interventions by the then Foreign Minister Gabriel and the Federal Chancellor. The German manufacturers were thus granted a one-year delay in order to adapt to the changed market conditions in China. [9] In this context, it should be mentioned that Gabriel was still considered the future chief lobbyist of the automotive industry until recently.[10]
Contrary to numerous media reports, the quota is not 10 percent of the vehicles sold, but is calculated using a point model taking into account, for example, the origin of the battery or the type of vehicle.[11] Depending on the calculation, it should and should initially be effectively 6-8 percent and increase annually by two percent. Since it has become apparent that important markets are increasingly relying on e-mobility, German vehicle manufacturers have been investing heavily in this area and are currently even working on common vehicle platforms in order to develop competitive products, especially for foreign markets.[12]
Internal combustion engine bans
Numerous countries – also within the EU – have already presented more or less specific plans to phase out combustion technology.[13] India and China want to implement this by 2030, although no final legal framework for this has yet been established.[14] These markets are also becoming to be dependent on the internal combustion engine for the time being, but the industrial policy direction of thrust is clearly recognizable and is directed directly against the Western and thus German automotive industry.
The European Union is currently more cautious here: According to the Federal Government and the EU Commission, the currently valid CO2 limit values will mean that 90 percent of all new vehicles within the EU will still be equipped with an internal combustion engine in 2030 (Drucksache 19/10853). This is likely to happen a larger part of the hybrid vehicles, which would be associated with a considerable increase in added value for the manufacturer.[15]
The battery cell production
In the case of purely electric vehicles, between 20 and 40 percent of the added value comes from the battery.[16] If this has to be purchased from abroad, this is associated with a considerable loss of added value. Since battery cells are already widely used outside of mobility and around 80 percent of the lithium-ion cells produced worldwide currently come from Asia, the BMWi has announced its own cell production.[17],[18] This is intended to reduce the dependency on Asian suppliers which is also clearly rated positively by German industry. The plans are currently being massively torpedoed by other states, such as Bolivia’s sudden rejection of the planned lithium raw materials agreement.[19] With the state-subsidized cell production, the BMWi is at least partially becoming a supplier to the automotive industry.
With his Industrial Strategy 2030 – which includes battery cell production – the Minister for Economic Affairs, Altmaier, is trying to partially copy the Chinese strategy of technological leadership. This is at least understandable when considering the current external economic situation, whereby the middle class should definitely be involved. In view of the escalating trade war and the increasing attacks on the German economy, the industry is threatened with massive cuts without far-sighted coordination, as has occurred several times in the past. Examples of this are German PC and television manufacturers as well as network and communication technology companies – Germany used to have considerable market shares here.
In this context, we would like to remind of a public hearing on Germany’s attractiveness as a location and the amendment to the Foreign Trade Regulation in the Committee for Economic Affairs and Energy on March 20, 2019. Here the representatives of the entire industry spoke out against the possibility of state intervention, because this would run against entrepreneurial freedom. On the other hand, the representatives from science and research warned that without at least some government intervention, long-term economic losses would occur.[20]
Personnel intensity of the internal combustion engine vs. e-vehicle
It can be assumed that the switch to electromobility will lead to massive job cuts in the automotive industry, since e-vehicles are considerably simpler than those with internal combustion engines. It can be assumed that, from the industry’s point of view, this is at least not a negative side effect of structural change in the transport sector. The history of industrialization shows that technical innovations are usually associated with a decrease in the workforce in production. A net loss of approx. 114,000 jobs as a result of electrification is forecast for the entire industry by 2035.[21] According to a study for the Federal Ministry of Economics, up to 300,000 jobs in the automotive industry are endangered by the electrification of the car market by 2040.[22] The change to the electric battery, which will be mainly produced in Asia, will cost the Bavarian automotive suppliers alone around 55,000 jobs by 2025.[23]
Conclusion
It is undisputed that the internal combustion engine will continue to form the backbone of the German automotive industry for the next few years. However, the structural change evident in some important markets cannot be ignored by the manufacturers. From a political point of view, it is not easy to make a final assessment of the developments in the automotive industry. In addition to the foreign trade aspects mentioned, the so-called “traffic turnaround” (Germ. Verkehrwende) – just like digitization – is likely to lead to a considerable reduction in jobs. The developments in the automotive industry would be a further step on the way to the erosion of the middle class in Germany and Europe.
Whether the Chinese strategy of disruption will be successful in the long term also depends on technical problems that cannot be foreseen at the moment. It is conceivable that the provision of a sufficiently powerful charging infrastructure with very high numbers of e-vehicles and the limited suitability for everyday use of the vehicles will also become an insoluble problem in China and that e-mobility will therefore remain limited to a certain market share. It should also be mentioned that the goals of the Chinese industrial strategy, although very ambitious, are in parts also unrealistic.[24]
In any case, the situation of the German vehicle manufacturers is critical: In addition to the serious US attack (the “diesel affair”) and the ongoing Chinese attack (disruption), the lack of willingness to make long-term investments has put the automotive industry in a difficult position. It may be corrected through consistent adaptation to the changed market conditions. The manufacturers’ announcement that they will invest more than 40 billion euros in e-mobility in the next three years alone is an unquestionable sign of its future importance far beyond the German market.[25]
Should state measures actually become necessary to support the German automotive industry, these are to be advocated as long as the taxpayers’ money is used to maintain competitiveness and jobs. An outflow of funds to shareholders in the company must be ruled out.
The final word at this point should be given to the Chairman of the Board of Management of the Volkswagen Group, Dr. Herbert Diess, left:
“From today’s perspective, the chances are perhaps 50:50 that the German automotive industry will still be among the world’s best in ten years.”[26]
Notes
[1] Sinn H.W. (2020). Möglichkeiten und Grenzen der europäischen Energiewende – Perspektive eines Volkswirtes. ifo Institut. München. URL: https://www.hanswernersinn.de/de/moeglichkeiten-grenzeneurop-energiewende-ake-dpg-02102020
[2] VDI (2020). Ökobilanz von Pkws mit verschiedenen Antriebssystemen. URL: https://www.vdi.de/fileadmin/pages/vdi_de/redakteure/vor_ort/bv/braunschweiger-bv/news/News_BV/VDI-Studie_OekobilanzPkw_Internet.pdf
[3] As an excursus, it should be mentioned at this point that no electricity customer in Germany can purchase “100% green electricity”, as these offers are based on purely accounting shifts in generation shares and therefore do not have any influence on the emissions balance of an electricity product. From a technical point of view, the only way to operate an e-vehicle with almost CO2-neutral electricity would be self-generation, for example via an on-board PV system.
[4] Mattes B. (2019). Deutsche Automobilindustrie wird gestärkt aus Transformation hervorgehen. VDA. URL: https://www.vda.de/de/presse/Pressemeldungen/20191023-mattes-deutsche-automobilindustrie-wird-gestaerkt-aus-transformation-hervorgehen.html
[5] Mattes B. (2019). Deutsche Automobilindustrie setzt in China auf Elektromobilität und Digitalisierung. VDA. URL: https://www.vda.de/de/presse/Pressemeldungen/20190416-Mattes–Deutsche-Automobilindustrie-setzt-in-China-auf-Elektromobilit-t-und-Digitalisierung.html
[6] VDA (2019). Markt International. URL: https://www.vda.de/de/themen/automobilindustrie-und-maerkte/markt-international/entwicklung-der-globalen-maerkte.html
[7] McKinsey (2020). Electric Vehicle Index. URL: https://www.mckinsey.de/branchen/automobil-zulieferer/electric-vehicle-index
[8] Wübbeke J. et al. (2016). Made in China 2025. MERICS. URL: https://merics.org/en/report/made-china-2025
[9] NTV (2017). China führt E-Auto-Quote erst 2019 ein. URL: https://www.n-tv.de/wirtschaft/China-fuehrt-E-Auto-Quote-erst-2019-ein-article20057912.html
[10] VDA (2019). VDA stellt Weichen für die Zukunft: Hildegard Müller wird neue VDA-Präsidentin. URL: https://www.vda.de/de/presse/Pressemeldungen/191129-vda-stellt-weichen-f-r-die-Zukunft-hildegard-mueller-wird-neue-VDA-praesidentin.html
[11] iwd (2018). Staatsgemacht: Chinas Boom der Elektroautos. IW Köln. UEL: https://www.iwd.de/artikel/staatsgemacht-chinas-boom-der-elektroautos-372492/
[12] Fasse M., Hubik F. (2019). So verbünden sich BMW und Mercedes gegen VW. Handelsblatt. URL: https://www.handelsblatt.com/unternehmen/industrie/elektromobilitaet-so-verbuenden-sich-bmw-und-mercedes-gegen-vw/25049528.html
[13] Aretz E. (2019). Ende des Verbrennungsmotors. Norwegen gibt das Tempo vor. Tagesschau. URL: https://www.tagesschau.de/wirtschaft/verbrennungsmotor-international-101.html
[14] Viehmann S. (2018). Ab wann verbieten welche Länder Benzin- und Dieselautos?. Focus. URL: https://www.focus.de/auto/elektroauto/verbrenner-verbote-weltweit-2025-bis-2050-focus-online-zeigt-wann-welches-land-benziner-und-diesel-verbietet_id_9632138.html
[15] VDMA (2018). Antrieb im Wandel. Die Elektrifizierung des Antriebsstrangs von Fahrzeugen und ihre Auswirkung auf den Maschinen- und Anlagenbau und die Zulieferindustrie. URL: https://elektromobilitaet.vdma.org/documents/266699/25083160/Antrieb+im+Wandel+-+Broschuere/1bdef884-8c1c-4681-8ac1-ef51bd12fff0
[16] Wietschel M. et al. (2017). Perspektiven des Wirtschaftsstandorts Deutschland in Zeiten zunehmender Elektromobilität. Fraunhofer Institut. URL: https://www.isi.fraunhofer.de/content/dam/isi/dokumente/sustainability-innovation/2017/WP09-2017_Perspektiven-Automobilindustrie-Elektromobilitaet_Wietschel-et-al.pdf
[17] VDE (2019). Batteriezellfertigung für die Elektromobilität in Deutschland. URL: https://www.vde.com/resource/blob/1876056/bf663ae459e3be4cf57ea6994767b973/positionspapier-batte-riezellfertigung-in-deutschland-data.pdf
[18] BMWi (2020). Batterien für die Mobilität von morgen. URL: https://www.bmwi.de/Redaktion/DE/Artikel/Industrie/batteriezellfertigung.html
[19] ING (2019). Bolivien stoppt Deutschlands Zugang zu Lithium. URL: https://www.ingenieur.de/technik/fachbereiche/rohstoffe/deutschland-sichert-sich-wichtigen-zugang-zu-lithium/
[20] Deutscher Bundestag (2019). Ausschuss für Wirtschaft und Energie. Protokoll-Nr. 19/34.
[21] Mönnig A. et al. (2018). Elektromobilität 2035. Effekte auf Wirtschaft und Erwerbstätigkeit durch die Elektrifizierung des Antriebsstrangs von Personenkraftwagen. IAB. URL: http://doku.iab.de/forschungsbericht/2018/fb0818.pdf
[22] BMWi. (2019). Automobile Wertschöpfung 2030/2050. Studie im Auftrag des Bundesministeriums für Wirtschaft und Energie. URL: https://www.bmwi.de/Redaktion/DE/Publikationen/Studien/automobile-wertschoepfung-2030-2050.html
[23] BIHK und ifo Institut (2019). Fahrzeugbau – wie verändert sich die Wertschöpfungskette? München. URL: https://www.ifo.de/en/publikationen/2019/monograph-authorship/fahrzeugbau-wie-verandert-sich-die-wertschopfungskette
[24] Kunze F., Windels T. (2018). »Made in China 2025«: Technologietransfer und Investitionen in ausländische Hochtechnologiefirmen. ifo Institut. URL: https://www.ifo.de/DocDL/sd-2018-14-kunze-windels-etal-china-2018-07-26.pdf
[25] See footnote Nr. 4.
[26] Diess H. (2018). Wir sind es gewohnt, dass das Auto in der Kritik steht. Handelsblatt. URL: https://www.handelsblatt.com/unternehmen/industrie/zuliefererboerse-diess-rede-im-wortlaut-wir-sind-es-gewohnt-dass-das-auto-in-der-kritik-steht/23191326.html?ticket=ST-71915775-CBCHQUfJbbsi2100L2WO-ap5
2 comments