How Much Is The German Auto Industry Under Threat?

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Several years ago, the German government expressed its concerns about exporting German car-building jobs to China and the attendant political and economic upheaval that would entail. However, at that time, the German auto industry felt confident that it could continue to mainly produce and sell ICE (internal combustion engine) vehicles in Germany while at the same time exploring the possibilities of electric vehicles for the expected “niche” market. We had the award-winning BMW i3 (2013 Green Steering Wheel winner and 2014 World Car of the Year winner) and the budget Volkswagen e-Up.

German carmakers invested in Chinese joint ventures and expected to dominate the domestic Chinese car market. Things have changed. The public has embraced EVs and demand has skyrocketed. Domestic Chinese car manufacturers have improved their products and continue to innovate exponentially. As Leo from the My Electric Car newsletter puts it: “Germany has relied on an analogue industrial base and is unprepared for the digital future.”

German carmakers are facing the prospect of cheap yet highly intelligent (AI) quality imports coming into Europe to erode the market share of stalwarts like BMW, Volkswagen, and Mercedes. They are also facing falling market share in the domestic Chinese car market. However, their investments in Chinese carmakers continue, and some, like the YouTuber Electric Viking, predict that within 10 years, most of the cars now made in Germany will be made in China. German automakers cannot keep up with the pace of innovation in quality, technology, and price reduction.

What is the economic future for economies dominated by the auto industry? In an article co-authored by myself and Dr Paul Wildman, we posed the question “Is Toyota circling the drain and will it take Japan with it?” No one is suggesting that any German carmaker is circling the drain. However, a significant loss of jobs in the German auto industry will lead to political instability. German auto unions play a large part in the political process. I doubt that they will sit back and let their power erode through job losses.

I believe that the German situation is more complex than the Japanese situation. Exporting EV jobs to China may create social upheaval, but profits coming back to the German economy will benefit the country. German auto companies might survive, as managers of brands and importers of product, but there may be fights along the way with IG Metall. IG Metall represents over 2 million workers, including those employed in the auto sector.

Can the German government with union backing protect the jobs of the workers? Possibly, yet they have not so far. Could it lead to the imposition of import tariffs? Will legacy automakers be decimated as some predict? Tesla and BYD are currently the leaders in the EV field — any challengers are a long way behind. It reminds me of Apple and Android. Will the Chinese gobble up more historic brand names like Volvo and MG? Probably.

Sam Evans, the Electric Viking, tells us in a recent video that China has surpassed Germany as the second biggest exporter of cars and is probably passing Japan as you are reading this. The USA ranks fourth according to Google. Sam predicts that within ten years, most of the cars now made in Germany will be made in China. For example VW and Audi … are already doing this by using Chinese EV platforms and badging locally. There appears to be a change from building cars in China to sell in China, to building cars in China to export — perhaps back to Germany.

Using Volkswagen as a case study, Sam points out that VW has cancelled (other news outlets say “delayed to 2028”) its flagship project Trinity and will be using four different EV platforms from four different joint ventures to power its EVs — from FAW (VW), SAIC (Audi), Xpeng (VW), and Leap Motors (VW). Let that sink in. Audi, the luxury German brand, will have the same underpinnings as the SAIC MG4 — a popular value-for-money car for everyman.

This is not just batteries; it is the whole platform. Of course, VW could opt to import the platforms and turn its German factories into coach builders, but I doubt there would be much profit in that. VW famously delayed ID 3 deliveries because of problems with software. It ended up delivering the cars and then having to update them with difficulty. VW has now invested €2 billion into China to build its software.

As VW sales slump in China, it appears that the Chinese population thinks that Chinese made EVs are better than German brand EVs, including Teslas.

Dr Wildman comments: “My counterpoint is that due to extremely poor strategic decisions by the legacy key players, one/we/you need/s to recognise the extremely powerful and market dominant position the Chinese have (been allowed to take even usurp) and the amazing quality of their product now. Absolutely equals in my opinion BMW for instance. The Chinese brands have already occupied over 2/3rds of the market space for EV’s and continue to expand.”

(Paul has driven BMWs for years and now drives a Tesla Model 3 Long Range – built in China.)

“Strategic opportunities have been lost and now the market is occupied by the Chinese — Audi, GM, VW, Volvo, Polestar are all Chinese now (using Chinese EV platforms) even Tesla now is predominantly made in China. My prediction is that by 2027 it is all over red rover for the Japanese auto industry and 2028 all over red rover for the non-Chinese platform using European auto industry.”

Chinese domestic brand exports to Europe are expanding and these electric vehicles are appearing regularly among the top 20 EVs sold in many countries. In the recent stats from Sweden, MG, Polestar, and BYD feature in the top ten.

Is the German auto industry going through the same process as the British auto industry did in the 70’s, but for a different reason? German workers will need to adjust and quickly.

Despite Dr Wildman’s dire predictions, I expect that the German economy with survive and that their car companies and the workers employed will adapt. However, how “German” a German car is may become less and less. As Paul has reminded me: “Chinese EV companies are demonstrating the Confucian adage ‘conquest through service’.” Servicing the west through exporting electric vehicles. 

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David Waterworth

David Waterworth is a retired teacher who divides his time between looking after his grandchildren and trying to make sure they have a planet to live on. He is long on Tesla [NASDAQ:TSLA].

David Waterworth has 750 posts and counting. See all posts by David Waterworth