When you think of Germany, you think of cars. Germany invented the automobile and its leading car makers – Volkswagen, BMW, Mercedes-Benz, Porsche – are exalted global brands, have been for decades. These companies and their suppliers form the backbone of German industry, with more than 800,000 direct jobs and hundreds of thousands of indirect ones.
How many of these jobs will remain in a decade or two? Germany and other European countries where building cars forms an essential part of the industrial and innovation fabric – France, Italy, Slovakia, Czechia – could crash as China, and the United States, to a lesser extent, come to dominate the market for electric vehicles. The European automotive giants, especially the German ones, are lumbering beasts who came late to the EV revolution. At the same time, China has pretty much locked up some of the critical metals, such as cobalt, that no car battery can go without.
There will be pain. The European auto makers may not be able to overcome the competitive disadvantages they created for themselves, aided and abetted by climate-obsessed governments that did not realize that net-zero goals could trigger rapid deindustrialization, not the opposite.
Today, the German auto makers are spending fortunes playing catch-up with their Chinese rivals and Tesla, Elon Musk’s baby that has turned into automotive giant, with a market value more than seven times that of Volkswagen. But the investments may be too little, too late.
Germany’s obsession with highly profitable but outmoded diesel technology was highlighted in 2015, when Dieselgate erupted. At the centre of the sooty scandal was VW, which became a German national embarrassment and international pariah when it admitted to having rigged its diesel engines to pump out false readings in environmental tests. The engines were much worse polluters than advertised. As the lawsuits piled up – the bill reached US$25-billion within three years – VW and other German companies began to reassess their century-plus commitment to the internal combustion engine.
Then, earlier this year, Brussels handed a death sentence to all the European auto makers’ diesel and gasoline engines by approving a ban on new cars and light trucks powered by fossil fuels by 2035. The ban is part of the European Union’s “Fit for 55″ target of reducing greenhouse gas emissions by at least 55 per cent by 2030.
In essence, emissions-reduction policy was a gift to the Chinese automakers, who, by then, were well on their way to world domination in the EV game; China realized the potential of EVs a good 15 years ago. With only a dozen years left to reinvent themselves as zero-emission car makers, the Europeans are running out of time and may not be able to overcome China’s lead, nor that of Tesla, which has been making battery-powered cars since 2008.
China’s EV-related production is astounding. According to the Korean renewable energy consultancy SNE Research, China’s share of the global EV battery market has been rising relentlessly in recent years, reaching more than 60 per cent by 2022, up from less than 50 per cent the year before. It is likely that 2023 will see another leap. China’s CATL is the biggest EV battery maker, with more than a third of the global market. A few South Korean battery makers are among the top 10, but not nearly as big as the Chinese ones.
At the same time, China is on course within two years of controlling half of the global cobalt market, up from 44 per cent today, according to British cobalt trader Darton Commodities. China already controls three-quarters of global cobalt refining capacity.
China is moving up the EV value chain quickly. Germany’s Allianz Research said that Chinese companies sold more than double the number of EVs last year than Europe and the United States combined, and hold an 80 per cent share of the domestic EV market, squeezing out the European car companies. Inevitably, China will flood foreign markets with EVs that cost thousands of dollars less than those produced by European and American companies. “As [EVs] eventually grow to account for all new car sales in Europe, Europe-made cars are likely to be substituted by those made in China, irrespective of whether they are manufactured by a Chinese, American or European company,” Allianz said.
You can see where this is going. The European car industry faces a brutal shakeup and the strong brand values of car makers such as BMW and Mercedes may not be enough to protect them from savage pain. If European customers are legally forced to buy EVs in a dozen years, they will naturally gravitate toward the cheapest models. The European car companies may be able to keep the luxury EV market, but not more. They could be relegated to niche status in a market they invented almost a century and a half ago.
The question is whether European governments will watch their car makers, and the millions of high-paying jobs that go with them, shrink as Chinese EV brands take over. Governments may be forced to slather the car makers with subsidies to keep them alive, in effect forcing taxpayers to fix a problem that governments helped to create by insisting that the industry ditch fossil fuel cars before it was ready.