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Government officials usually are cheerleaders for their countries’ key industries. Not German foreign minister Annalena Baerbock, with respect to the all-but-sacred auto sector.
“The auto industry is faced with the question of whether and how we will be a global leader in the future,” she declared at the annual IAA Mobility trade show.
While the U.S. Big Three grapple with a revived United Auto Workers union, German counterparts
(ticker: VOW.Germany),
(MBG.Germany), and
(
BMW
.
Germany) have troubles of their own—trailing badly in the race toward the electric vehicle future.
U.S.-based
(TSLA) and rising Chinese star
(1211.Hong Kong) racked up more than a third of global EV sales between them in the first half of this year, according to Clean Technica. Volkswagen was No. 3 and fading with 7%.
True, every other household-name auto maker also badly lags behind Tesla and the Chinese in EVs. “All the established companies need to reinvent their design and development departments, which are controlled by internal combustion engineers,” says Ferdinand Dudenhoeffer, director at the Center for Automotive Research in Germany.
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Can the Germans catch up? It depends on which company, markets think. Volkswagen has lost a quarter of its value over the past year, despite a switch of CEOs in July 2022. Mercedes-Benz shares are up 19%, while BMW has gained 33% in the past 12 months. The bad news is that VW is roughly as big as the other two combined.
VW’s lineup sprawls from economy Skodas to luxury Audis and Porsches. Moves to focus and slim down could hit a governance roadblock: Unions hold half of the seats on its board, and the state government of Lower Saxony, 20% of shares. “VW is like a state-owned company,” Dudenhoeffer concludes. “It will become less important over time.”
Mercedes and BMW are rolling out electric luxury models that could challenge Tesla two or three years from now. Fat margins on their gas guzzlers give them deep pockets for the expensive electric transition, says Philippe Houchois, head of European and U.S. auto research at Jefferies.
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“They can fund new technology and still pay a dividend, where some pure-play EV start-ups are hitting a funding wall,” he says. His stock pick is BMW, with a current dividend yield north of 8%.
German auto makers as a group have budgeted an impressive 380 billion euros ($406 billion) on research and development and factory construction over the next five years, chiefly focused on electromobility, says industry lobby VDA.
One thing that Germany’s Big Three have in common is heavy dependence on China—for sales and, increasingly, technology. Volkswagen spent $700 million for 5% of Guangzhou-based
(XPEV) in July, hoping to collaborate on a better EV platform, Houchois says.
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BMW opened its fifth Chinese R&D center in Shanghai this summer. “BMW believes that China is the place to be for future mobility,” a company release read.
That makes the European Union’s recent move to investigate Chinese EV imports, with an eye toward higher tariffs, a mixed blessing at best for Germany, says Dudenhoeffer. “This is a crazy idea that risks much more damaging Chinese retaliation,” he says. He sees a wily maneuver by France, whose car complex is much less China-exposed.
Geopolitics is one of many known unknowns in an EV age that is just dawning, Houchois says.
“This is still very much an open field,” he says. “Tesla won’t win everything.”
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