Published on June 21st, 2018 | by Tobias Engelmeier0
Is The German Car Industry Losing The Electric Race?
June 21st, 2018 by Tobias Engelmeier
When you think about electric cars, chances are your mind conjures up the coyly, charming face of Elon Musk, founder of Tesla. He tells us how humans should become a multi-planetary species and how, yes, somewhere along the way, we will drive chic and clean electric cars. The future is possible! It is within reach, if we just bundle our technological and entrepreneurial might.
True, in the here and now, his production sites don’t ramp up fast enough and every once in a while, a Tesla self-destructs. But hey, shit happens. And we can best learn from mistakes. At the same time, with less noise but equal strategic determination, China is making rapid strides towards building a future automotive ecosystem around electric cars.
Contrast that with German car managers, clad in grey suits, focusing their energies on fighting a messy rearguard action to save the combustion engine and amortize billions of past investments into production sites. Yes, they dabble in electric cars, but they don’t push for a mobility revolution. And those managers who do want to push? They join Tesla. Or they go to China, like the former BMW manager Carsten Breitfeld who co-founded the electric vehicle company Byton.
However, when electric cars will drive us into a clean mobility future, and whether the German car industry will play a prominent role in it, will not only be decided in the corporate head offices of Stuttgart or Palo Alto. It will also be decided in Brussels and Berlin.
Today, with the notable exception of Norway and, to a lesser extent, Holland and Switzerland, electric cars still make up only a fraction of the cars on our roads. In Germany, the number is less than 0.1%. It is difficult to predict how rapidly this will change. Five years ago, the German government announced a target of 1 million electric cars by 2020. This would require a 30-fold increase in the next 3 years — a highly unlikely scenario. Our electric mobility future cannot be built on a political statement of intent — it requires specific interventions from all stakeholders.
Making Electric Cars Green
In Germany, transportation causes around a third of annual CO2 emissions. Electric cars will not automatically reduce this number. They will only do that if their footprint is lower than that of combustion engines across the entire lifecycle — including the manufacturing and recycling of batteries. Today, manufacturing a Tesla Model S emits around 17.5 tons of CO2, a third of its total lifecycle emissions. Charging it at Germany’s current electricity mix, which still includes a high share of power from lignite, coal, and natural gas power plants, will add to the emissions. As a result, an electric car has a carbon footprint comparable to a diesel car. (Diesel cars cause much more of some other types of pollution, however.)
To make electric cars truly green, therefore, requires a more energy efficient production process (especially for batteries), as well as a reanimation of the country’s energy transition towards a higher share of emission-free renewables.
Making Charging Infrastructure Universally Available
Depending on the model, a car with combustion engine can go two to four times farther than an electric car today. Many potential electric car customers still suffer from range anxiety, an expectation that they might be stranded somewhere with no charge point in sight. To convince them, we need to build a wider and uninterrupted network of charging stations. Germany currently has 8,700 of them (as compared to around 14,500 petrol stations). However, 85% are private and the vast majority of them are in cities.
Building new charging stations makes little commercial sense as long as there are too few users for them. It is a classic chicken-and-egg conundrum. Here is an example calculation, based on our models: Let us assume an investor is looking for a three-year payback period and that power at a charging station is sold at 54 cents per kWh. In that case, the number of electric cars in Germany would have to be ten times higher to ensure enough capacity utilization to make even the existing charging infrastructure profitable. If the number of electric cars were to grow only five-fold, then the payback period would be five years – but only if operating costs can be cut by half and investment costs by 30%. Some retailers like Aldi are offering charging facilities on their parking lots to attract customers. While that is a welcome add-on, it does not replace the need for comprehensive coverage.
The market cannot solve this problem by itself in the next couple of years. Only a large governmental rollout plan, underpinned by subsidies, will unlock the benefits of scale required to make the investment case for charging infrastructure stack up.
New Thinking in the Auto Industry
Electric mobility will only be a strategically attractive option for the German industry if it is ready to reinvent itself. Many components and much of the know-how found in cars with combustion engines are not required for electric vehicles: they include pistons, gears, clutches, turbochargers, exhaust systems, starters, alternators, fuel pumps, and associated sensors. Today these products are at the core of the value chain and a competitive industry. Most of them come from suppliers who jointly employ over 300,000 people. They need to develop new competencies and solutions to remain relevant in the age of electric mobility.
But it is not only the suppliers who need to change. Volkswagen, Daimler, BMW, Opel, Porsche, and Audi also need a new strategy. Currently, around 70% of a car’s value creation comes from suppliers. If car manufacturers are not willing to re-integrate more deeply into the value chain, they risk becoming mere assembly providers for Chinese or US technology leaders. Bosch, a leading tier 1 supplier, recently gave up its plans for a battery manufacturing plant. Tesla and BMW, on the other hand, decided to develop their own battery technologies — to some extent or another.
An Enterprising State
The government has to position itself as an enabler of the mobility future, much like the Chinese government is doing. It can support companies in making the transition from old to new. Even Tesla has received billions in tax money from the US government. The current German landscape of subsidies, tax incentives, and investment benefits for consumers and companies is insufficient as demonstrated by the failure to meet targets. Instead of the 1,500 fast charging stations that could address range concerns on highways and federal roads, the government subsidized around 8,000 simple charging stations.
What is more, as with the energy transition, the government needs to also become the central planner for a mobility transition. The challenge is not only the provision of fast charging stations, but the integration of these into a power grid that is increasingly dynamic, with millions of distributed power generators and an ever-higher share of fluctuating wind and solar. Studies estimate that a 30% share of electric cars can already lead to demand peaks with the potential to destabilize the grid. This is no insurmountable challenge. Companies like ABB offer a seamless set of solutions from transmission to controls and charging stations, making the grid more capable, flexible and smart. Where needed, storage solutions can be added (possibly from electric vehicles themselves). What is missing is the government’s master plan.
The German car industry will only be able to compete in the electric mobility future, if the country as a whole decides to tackle the transition head-on and become a shaper of the change to come, not an object of it. This is of particular importance in this time when German automotive companies struggle to regain trust after the diesel scandal and when the Trump government undermines the fundamentals of global trade.
Dr. Tobias Engelmeier is an entrepreneur, author and advisor. He founded the company TFE Consulting and works on new energy and digitalization in Africa, Asia and Europe. He’s a regular contributor to CleanTechnica and The Beam.