Content:
Almost exclusively electric cars were on show at the motor show in Munich.
Internal combustion cars have been shamefully hidden away, even though they still have the most customers.
The electric revolution is rolling and, above all, it is state-subsidized.
Manufacturers’ volume planners now have the direct correlation between sales volume and charging infrastructure in black and white in the data. The recommendation rates of EV drivers have fallen to record lows for the time being.
In 2022, EV manufacturers rushed from one sales record to another when EVs became correspondingly attractive thanks to subsidies.
There are other strategies that also result in high EV sales shares.
In Norway, the country with the highest proportion of EVs (84%), the purchase of combustion engines has been made unattractive by the state. So far, only combustion cars have had to pay VAT (up to 25%), road tax, tolls, parking and ferry fees and fuel (€2/l). EVs, on the other hand, were ridiculously cheap.
Many governments are promoting EVs as a future technology for individual mobility. An intergovernmental competition has broken out here: Who can afford more EVs.
But you can hardly see that. The competition takes place out of the spotlight.
At the IAA, I witnessed this exchange of blows on a global level.
The World New Energy Vehicle Congress (WNEVC) was held outside China for the first time at the IAA.
Organized by the Chinese State Industry Association, co-hosted by the German Automobile Industry Association. The room was filled with seven CEOs from leading global manufacturers, around 200 listeners and many Chinese press representatives.
After a few introductory words describing the state of the industry (approx. 3% of all cars worldwide are electric, 60% of all new EVs come from China, the share of traction batteries is even higher, CAGR of EVs in China so far 110%, is expected to fall to 50%), there was a face-saving exchange of blows.
The Chinese need access to the European market.
It is part of general cultural knowledge that in Asia it is always about saving face. However, it is also clear that the Chinese are extremely efficient and assertive business people. All states on China’s periphery have been dominated by an economic elite of Chinese origin for decades.
Until now, German manufacturers could be sure of technological superiority.
Chen Hong, Chairman of SAIC Automotive (represented in Europe by MG, among others), is talking about the launch of the fixed battery next year and a new consumption record of less than 9 kWh/100 km. This was not echoed in the local press.
But what Cheng meant was: “We are superior to you in this technology.
Then Wang Chuanfu, the legendary founder and CEO of BYD, took to the stage.
This is the man in the industry who won Warren Buffet as an investor. Wang points out that cars only release 30% of emissions in transportation and reports that BYD initially electrified buses, trucks and mopeds. It is simpler and more effective, as can be seen from the CO2 savings from the 100 BYD buses in Germany.
Then he comes to the main point: “We need stable processes, uniform standards and common regulation,” he says.
William Li (Bin), founder and CEO of NIO, seizes his opportunity and praises the German manufacturers. VW’s new development center in Heifei is exemplary and makes clever use of the advantages of the development ecosystem. China has 120 million talented people in the tech industry – by comparison, the ACEA reports 16 million employees in the European automotive industry.
His key point: competition in China is cutthroat.
The resources in this industry are incredibly large. There is talk of around 500 production licenses for manufacturers of electric vehicles. Strong competition is good for the customer – they get excellent products at a low price.
However, too much competition is fatal for many companies.
Only the Chinese manufacturers who make the step into Europe, into a profitable market, will survive.
German manufacturers need state benevolence.
Oliver Blume enters the stage.
His presentation comes across as erratic, his diagrams contain errors. He talks a lot about cooperations; a cooperation with Xpeng has just been launched.
It unconsciously represents what has just happened.
Volkswagen was bought off.
BYD has taken over the market leadership and launched the Seal with 80 kWh for €45,000 in Volkswagen’s core market. But what impresses the engineers the most and leaves them speechless is the speed with which Chinese manufacturers bring new vehicles onto the marke
Environmentalists protest at the gates of the trade fair and demand a change in transportation.
The other Oliver (Zispe) enters the stage.
And he’s talking about the fuel cell again
I can already hear the outrage from the LinkedIn community.
But he hits the nail on the head – the event is called the “New Energy Forum”. What Zispe is actually complaining about is government intervention in companies’ strategies, which is causing the bubbling “cash pools” to dry up more and more. The “New Series” is reminiscent of the good times of the 3s, and of course Zispe also has a page with the Chinese cooperation partners.
Ola Källenius complains that the car industry should fix everything on its own.
Not only does the charging infrastructure need to be tight, but the charging experience needs to be seamless. And that’s what he’s not saying: Tesla has achieved the best charging experience.
TESLA’s governance is as central as that of the Chinese government: if the boss says something, it will be done.
It’s different in the German automotive industry. Here, many company bosses have to come together on a “win/win/win/win/win/…” basis to develop a common strategy and common standards.
The government’s response is not long in coming.
The WNEVC is coming to an end.
I can only find one blog entry in the German press. The words spoken fall flat and are not made available to the public. Instead, they are provided with headlines such as “The Chinese are flooding Europe with cheap EV.”
The next day, German Foreign Minister Baerbock advises the German car industry not to become too dependent on one market in the face of geopolitical conflicts. She means China.
At the end of the trade fair, Economics Minister Harbeck urges industry to make the necessary investments in key industries.
The following week, EU Council President von der Leyen announces an investigation into unlawful subsidy strategies by the Chinese government.
The Norwegian strategy seems too expensive for Europe as a whole. The responsibility for the turnaround to EVs remains with the car industry.
But the framework for the car industry will be tightened further. A dystopian outlook is opening up.
Even if political processes in Europe are slow, they are faster than the industrialization of a new technology such as electric drives.
In addition to the launch of new EVs, battery factories and charging infrastructures are being built in Europe. At the same time, manufacturers are working on software platforms to remain competitive in this technology. The VDA has estimated the investments for the coming years at around 500 billion euros.
If market access to China were to be decoupled, this would multiply the pressure on the German and European automotive industry to adapt and the necessary speed.
- A large proportion of the EUR 500 billion in investments mentioned above are currently being absorbed by vehicles sold in China. Manufacturers sell around 15 to 30% of their vehicles in China. According to one of the parties involved, the Chinese partners are already refusing to continue to bear the allocations and pass them on to customers. If the Chinese market were to collapse, product investments by German manufacturers would have to be reduced accordingly, as they would not be compensated.
- The majority of traction batteries are currently sourced from Chinese manufacturers (see above). These battery manufacturers would have to be replaced if the markets were decoupled. The corresponding investments for development, procurement of raw materials and production facilities are added to the base of 500 billion euros.
- The turnover of European manufacturers and suppliers would fall to the same extent if the Chinese market were to disappear: Costs would rise and profitability or even investments from own cash flow would be lost.
- The rollout of EVs to the mass market would be delayed, certainly by 5 to 10 years. This means that the EU’s climate neutrality targets would be obsolete without other measures that require further investment.
- The necessary investments and the temporarily low value added in Europe will further increase public and private debt levels, causing interest rates to rise and investment activity in Europe to fall.
- The supply of vehicles in China can be completely taken over by Chinese manufacturers in the event of decoupling. The loss of foreign manufacturers would further reduce the proportion of available combustion engines. Not least because of this, China could become the first country in the world to achieve technological change in the automotive sector under its own steam and by exploiting competition.
- China also has problems with high levels of debt, but also has access to markets outside the West. With the increase in purchasing power in countries of the global South, the remaining Chinese manufacturers would gain an extremely strong competitive position and pricing power.
This is a dystopian and, from today’s perspective, outrageous and very unlikely scenario.
But deglobalization is on the political agenda, and the WNEVC has only reiterated the current positions of the industry.
Deglobalization of the automotive industry requires a radical restructuring of the business model. And this transformation is much more radical than the “software-driven electric car”.
Arno Antlitz (CFO VW): No reason to take such a gloomy view
In a Bloomberg interview, Arno Antlitz points to Germany’s capabilities: its technological expertise, robust SME sector and good training infrastructure. The German automotive industry has demonstrated the means and skills to overcome the most difficult challenges.
He is right: the world will not cease to exist.
But the need for transformation and learning in the industry for the rest of this decade is much greater than we previously assumed.
The changes are more radical than assumed in the previous plans.
The competition is clear. And if we no longer meet directly in each other’s markets, we will meet in the global markets.
The coming years will be exciting. Not only for CEOs, transformation officers and employees in the industry, but also for visitors to the IAA 2025.
