China power and climate change: German auto industry in the sandwich pincers

China power and climate change
German auto industry in the sandwich pincers

By Helmut Becker

Landwind and Brilliance once failed when entering the market in Europe and Germany. But now a new generation of Chinese manufacturers is at the ready – with full e-power. Things are getting tight for the German auto industry. Also for another reason.

There is no doubt: for the industrial giant Germany, a decline in the auto industry would be fatal. The growth and prosperity of the German economy largely depend on their weal and woe. The automotive industry, with all of its deep and widely ramified supply levels – including all services and activities on the fringes – accounts for a fifth of Germany’s gross domestic product. It is therefore the engine of the German economy. According to labor market experts, around one in seven employees works in and for the automotive industry, with 780,000 people working directly for it alone. Still!

Two thirds of all vehicles produced by German manufacturers each year are made outside of Germany, half of them in China alone. tendency further increasing. This is one reason why renowned manufacturers such as VW, BMW and Mercedes-Benz continue to achieve record results. However, these numbers are misleading for the well-being of the German economy, because the fate of the German economy depends mainly on the rest of the automotive industry – on the many small and medium-sized suppliers and the deep value-added links with other industries. And the suppliers are sometimes in dire financial straits. Thousands of jobs are already history, more will follow.

Combustion off from 2035

The planned end of the EU combustion engine endangers Germany as a location for cars, and with it the prosperity of current and future generations. The decision by the EU Parliament, EU Commission and Council of Ministers threatens to end combustion technology from 2035. In order to reduce the climate-damaging CO2 emissions in the transport sector to the level of the international obligation, only CO2-free cars will be allowed instead of combustion cars driving electric cars with battery power (BEV). And only in Europe! Combustion engines are still allowed worldwide – even “without an alternative”. No industrial region in the world, especially not China, has joined this ban.

However, the prerequisite for CO2-free BEVs is the availability of “green” electricity for battery operation, sustainably generated with wind and sun. This will not be the case anywhere in the EU or in Germany until well after 2035. With the result that although the transport sector can meet its climate target on paper because of the electric cars, the energy sector misses its targets all the more by generating more electricity from coal.

The energy year 2023 will go down in German annals as a blueprint for this discrepancy between climate claims and climate reality: the remaining three nuclear reactors must be shut down on April 1st for ideological reasons; they will be replaced by the commissioning of hard coal-fired power plants.

For the German auto industry, an end to combustion engines in the EU means the loss of its outstanding competitiveness and its technological leadership on the world combustion engine market. Instead, it is forced to establish a new leading position in electromobility.

Difficult situation

And that’s difficult because competitors are already claiming this position. As a result, the German auto industry finds itself strategically in a sandwich position. On the one hand, it is deprived of its core competence in the home market of Europe due to the EU combustion ban. On the other hand, it cannot build up new, outstanding core competencies compared to its competitors from Asia or the industry pioneer Tesla and the battery and electric drive knowledge it has acquired in the meantime. Unlike the combustion engine, the electric drive does not provide any premium technical features. The music plays in the electric car at the battery and the battery management.

Tesla and the Chinese car manufacturers are now leaders in battery and battery technology: Tesla in the upper market segment, Chinese manufacturers such as Nio, BYD or Great Wall in the lower price segments. German manufacturers are currently hardly there with real model offers.

Things are getting tight for Germany as a car location

Now the strategy pincers snap! Things are getting tight for Germany as a car location. The car industry is in danger of falling into the sandwich trap: Below, a massive market is being lost due to a lack of inexpensive electric models of their own. At the top of the premium segment there is little to nothing because of the fierce competition – especially with Tesla. Just a note: Tesla plans to sell 20 million electric cars on the world market by 2030. That would be a quarter of today’s global market.

On the other hand, Chinese car manufacturers such as Geely and BYD are about to enter the German and European markets. With massive investments, for example in trade, through cooperation with large car dealership chains or through sponsored entry into the fleet business. A success of the small and inexpensive models is not excluded. Gone are the days when Chinese cars like Landwind and Brilliance failed miserably.

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