In the first five months of 2021, the German car industry has exported 1.14 million cars. This compares with 1.59 million in the same period of 2019 and 1.82 million in 2018, falls of 28% and 37% respectively.
We are told this is a combination of only partial recovery so far from the Covid-19 damage done through closed showrooms in 2020 – and a shortage of semiconductors hitting the ability of factories to make sufficient vehicles. These two explanations are partially true, but they are also convenient excuses when there are also some important structural changes underway.
The German export industry was on a falling trend before the virus struck. The 4.4 million exported cars in 2015 and 2016 slid down to 4 million in 2018 and 3.5 million in the year before the pandemic. Meanwhile, governments – especially in Europe – became more aggressive in demanding changes from diesel and petrol to electric vehicles. They introduced additional taxes and banned some diesel vehicles. The German industry had invested a great deal in ever-cleaner and better-performing diesel technology and needed to migrate factories and products in a hurry.
The biggest single importer of German cars has been the UK. The German diesel, as well as the petrol models, have proved very popular. This year to date, the UK has purchased 909,000 new cars. Only 93,000 of these have been new conventional diesel models, leaving the diesel market share sharply down on levels five years ago, at 10%. Battery models have risen quickly from a small base but only amounted to 8% of the total in the year to June.
People have bought fewer new cars overall and allowed the market shares of petrol and hybrids to rise at the expense of diesel. More people in the UK are now saying they have been put off buying a new diesel or petrol car – but have not yet been persuaded to buy a battery-electric vehicle. They have been, by default, wooed to the idea that we should reuse, recycle, repair and maintain our cars and other machines for longer and see what happens.
All this is bad news for carmakers – indeed they face a “double jeopardy”. Manufacturers need to intensify their spending on new model design, tooling and new production lines to be ready for a surge in battery-vehicle demand. They need to try to see off the challenge of new electric carmakers such as Tesla and Chinese companies such as Geely. Meanwhile, they face much-reduced revenue for the cars they sell, as the battery cars do not sell yet in huge volumes whilst the diesel (and to a lesser extent the petrols) are waning in numbers.
These trends have nothing to do with semiconductor availability. This issue has closed some factories for a time, but it has not reduced the demand for cars. Demand has also fallen thanks to the remorseless briefing against traditional vehicles, which we see from most governments, green groups, media groups and global conferences. Potential customers do not want to be pariahs for buying the wrong type of car – or fear that once they have bought a new diesel or petrol they face new taxes and bans on the use, which will cost them and cut the value of the second-hand vehicle.
As a result, Germany is suffering from a decline in activity and profit in its major industry. It could put it right by finding the iconic new battery models which take off but, so far, no one has produced the equivalent of the Mini or the Beetle – or even the Golf – of the battery revolution.
The battery cars from the traditional manufacturers look much like the cars they seek to replace and still face scepticism by a lot of potential buyers over range, time to recharge, future taxation of the vehicle and amount of power required, as well as the resilience of the engineering. The new electric cars also need more semiconductors, worsening the shortages.
Investors need to be careful when considering an investment in this industry, which is currently undergoing major surgery. Tesla shares are already discounting its victory, and shares in traditional carmakers are discounting this struggle they demonstrate over market share and margin. They will need to conquer the electric issues to stage good recoveries. Germany’s blue-chip Dax index has been a poor performer within the European family this year, as the country’s industrial economy struggles to adapt to the green imperatives.
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