In Berlin, I recently asked for a coffee. Quickly, I was handed a cup, but Mr. Coffee refused to accept payment by card and instead poured my cup down the sink. The same German conservatism, pride, and lack of digitalization are evident in German politics and the automotive industry. Soon, this may affect not only Swedish industry but also households across the nation.
Germany has experienced a decline in growth. They have been stagnant and in the negative for many years now. There is a lack of new initiatives and reforms in education, business, energy, taxes, and digitalization. Perhaps the clearest indication of this is seen in the country’s automotive industry. Germans are selling five million fewer cars now compared to the peak year of 2018. The export machine is at a standstill. Over 100,000 automotive workers are facing layoffs.
Fewer car customers today want to buy the Germans’ beloved Verbrenner (combustion engine). If you remember the Dieselgate scandal involving the Germans, you may understand the reason behind this shift. While other brands were developing software and quiet batteries, Germans focused on refining combustion engines and mechanics.
A "secret document" now suggests that eight factories may need to be shut down in Europe this year.
A German Awakening
Suddenly, in January, there was a positive development. The domestic electric Volkswagen ID7 was the best-selling electric car in Germany. Several other German electric cars also ranked high on the list. Could this be a turning point?
A voice close to the heart of the crisis is Marc Llistosella, chairman of Knorr-Bremse, one of the major suppliers to the German automotive industry. They are ten times larger than the Swedish company Haldex. I asked him about the mood in Germany.
"Do not blame the competition, do not blame customers or politicians. The responsibility lies with ourselves," Llistosella said.
To test the automotive industry back home, I made some calls. Their stern response was, "No, we are prepared." They believe that German electric cars will still need Swedish brakes, seals, pumps, and rubber gaskets. But if the Chinese take over, can Swedish suppliers sell to Chinese supply chains, I asked. Suddenly, there was silence on the other end of the line.
When I asked Austrian subcontractors, they were much more aware of the crisis. "The big automotive crisis is here. We are surprised that you Swedes are not talking about this," they said.
13 Million Jobs – Double the Magnitude
The crisis in the automotive industry is reminiscent of how Sweden lost its textile and clothing industry in the 1960s. I have seen the deserted factories that once thrived in the textile town of Alingsås.
It also brings back memories of our shipyard and steel crisis in the 1970s, which I witnessed as a child in Malmö. Since then, Europe has also lost the production of shoes, consumer electronics, auto parts, semiconductors, and white goods. During those years, unemployment rose from just under 3% to a costly 8%. Six million European industrial jobs disappeared. Newly industrialized countries like Korea and Japan took over those jobs.
In the European automotive industry, 13 million jobs are now at stake. This is double the magnitude of previous industrial crises.
German Challengers are Many
The new industrialization of the automotive industry began quietly in 2004. Both Tesla and BYD started then. During the recent automotive crisis, these two new giants increased their global sales of electric cars by 37% and 87%, respectively. To a total of four million cars. This starkly contrasts with the German decline of five million vehicles.
While Germany was in a slumber, Tesla and BYD built electric chains from lithium mines and batteries to software and automated car factories. And they have impressive profit margins. Many more brands are also entering this space.
Is the success of Volkswagen’s electric ID7 the European breakthrough? Perhaps it is more of a turn of the tide under pressure.
Certainly, German sales of electric cars surged by 54% compared to the previous year. Unfortunately, this is not due to customer demand. The reasons include EU requirements, massive discounts, and zero-interest leasing for electric cars. While China uses carrots, Europe uses sticks.
Car companies that do not sell a quarter of electric cars face fines totaling 100 billion SEK this year. Despite the German boost, Volkswagen only reaches 17% of the required 25%. Several companies have issued profit warnings and requested relief. EU President von der Leyen has been firm, stating, "The rules will not change." The regulations are in place to encourage the industry to modernize.
Unfortunately, cars are just the tip of the European iceberg. Europe’s largest economy, Germany, has been stagnant throughout the 2010s. Schools, taxes, technology, digitalization, and energy policy are described as failures. The capital market is dysfunctional. A close friend at the Swedish embassy in Berlin tells me that fax machines are still buzzing in German companies. Free Wi-Fi is scarce. The online world operates poorly. Charging stations are rare. Only 1% of households have digital electricity meters. This is why German electric cars are still a distant dream for many.
German Cars Soon to Be Cheaper
The good news is that European automotive giants have promised new, smaller, simpler, and cheaper electric cars by 2025. This is great news for consumers. However, owning an electric car is a different experience. The price tag works differently. A gasoline car is rear-heavy. It is relatively cheap to buy but expensive to run because gasoline is costly, and repairs are frequent. An electric car is the opposite. It is front-heavy. Even though the car loan may be larger, the fuel costs half as much. Additionally, the lifespan of an electric car is expected to be much longer.
The industry’s concern now is the Chinese car factories in Eastern Europe. With refined supply chains, cars become cheaper. It may be quite exciting to see how Swedish subcontractors will break into this market. "Chinese software is 34% cheaper and 70% better," mutters a German automotive analyst.
"What should I do with my old gasoline Skoda?" asks a reader. Already, there is a market for "Leasing a used electric car." By 2038, every other car on our roads will be electric. This is exciting for consumers, but it may cause some unease in the automotive industry.
Claes Hemberg, independent economist and former chief economist at Avanza