Ten years ago, the European car industry was the invincible titan of the global economy. Brands like Audi, Mercedes Benz and BMW dominated not only in sales but also in profits per car sold. Just 13 years after the then-leader of the German Greens said that they did not need car factories, his dream is coming true. The German car industry is dying. What will happen to our suppliers who depend on it?
According to the show Studio at 5 (“Studio ob 17.00”), around 40,000 people are employed in around 400 companies in the automotive industry in Slovenia, and together they account for a tenth of Slovenia’s GDP. As the German car industry, in particular, has seen a severe downturn, domestic suppliers are also feeling the effects, but ironically – as economist Marko Jaklič explained – mainly those who bet on the green transition.
On the show, he shared an interesting fact: “Paradoxically, the Slovenian companies that have bet on the green transition, i.e. on electric cars, are the ones that have been hit the hardest. I have data for quite serious large companies that in many cases they are somewhere in the region of 70 percent, not 30 percent, behind in their annual plan,” Jaklič said.
How did this paradoxical situation come to be? After all, less than five years ago, it was said that only companies that prepared for the green transition in time would survive. What went wrong?
The end of the green electric vehicles revolution
The electric vehicles revolution is finally over after the explosion of electric vehicle sales in the 2020-2022 period. Analysts can hardly agree now that it was a Potemkin village, brought to its knees mainly by government subsidies, which are now being withdrawn in many countries – interestingly, not from “sunny” Slovenia.
Electric cars without subsidies are still far too expensive, and Western manufacturers are threatened by the invasion of cheap and shoddy Chinese electric vehicles. Alarmed by potential Chinese competition, the Biden administration this year raised the tax rate on imported electric vehicles to 102.5 percent from the previous 27.5 percent. Morgan Stanley research suggests that this move could slow the penetration of Chinese electric vehicles in the USA. The European Union has also decided this year to levy additional taxes on Chinese vehicles, but this only amounts to 37.5 percent for the manufacturers most helped by the Chinese authorities. Another nail in the coffin of the electric vehicles revolution is the lack of charging. According to a recent Harvard Business School survey, one in five charging stations in the USA is not working, while in the EU, it is even worse.
Although the EU’s Alternative Fuels Infrastructure Regulation will improve the electric vehicles infrastructure (including a better ratio of chargers to vehicles operating in the coming years), there are still problems with easy access to infrastructure, says Matthias Schmidt, an independent automotive expert based in Germany. Europe will continue to face high costs when it comes to charging electric vehicles.
Western buyers don’t want electric vehicles – but there are also no investments in conventional drives
Analysts at BloombergNEF recently cut their outlook for electric vehicle sales until 2026 by 13 percent. The researchers suggest that plug-in hybrids could still see growth, but not pure electric vehicles.
The problem faced by manufacturers and subcontractors (also in Slovenia) is that it was assumed that end consumers would leapfrog from internal combustion engine vehicles to electric vehicles in a short time on the wave of subsidies, technology improvements and consequent price increases. They invested accordingly – most of the money they made from the sale of conventional vehicles went into the development of electric cars, and now they are facing a shortfall in demand for products on which they have spent billions of dollars in development costs.
The consequences are well known – Mercedes Benz has cancelled the development of a new generation of its electric platform, while also announcing that it will continue to develop internal combustion engines. Ford also announced that it would invest less in battery cars and cancelled a planned seven-seat electric SUV. The wounded giant Volkswagen AG (VW) shelved plans to build a 2-billion-euro factory for a major new electric car project called Trinity, opting instead to build the model at its existing Zwickau plant, only to have the project delayed twice: First, they said the new generation of electric vehicles would be on the market in 2028, then 2032, and now they say it may not even be available by the middle of the next decade, when they will officially no longer be able to sell conventional vehicles in the European Union at all.
The winners are those who are still developing the technology for normal conditions
All car factories – even China’s – have therefore announced a sharp reduction in investment in electric vehicles, mainly due to a lack of interest in the market. The problem is that subcontractors have already geared their production and development capacities towards the green transition and are mainly working on electric motors, batteries and heat recovery systems. In the last five years, there has been almost no investment in the production of internal combustion engine technology and related gearboxes and other powertrains. Most of the automotive giants are still using internal combustion engines developed around 2013, when the technological transition to Euro6 started. Manufacturers are now pumping investment funds into the development of conventional motors with great urgency, but the problem is that the subcontracting industry is already on the “green” path and is finding it difficult to adapt further. The real “winners” are those who have followed Toyota’s path of a moderate and gradual transition, mainly through hybrid-powered vehicles. Ford, Toyota, Volkswagen and Mercedes Benz have committed to investing 100 billion dollars in internal combustion engine and hybrid technology over the next decade, which has caught many subcontractors – including in Slovenia – off guard.
But manufacturers really have no other choice. JATO Dynamics data shows that sales of electric vehicles in Europe fell by 11 percent in March to 196,045, led by Tesla’s Model Y at 26,847, a 42 percent drop. Sales of plug-in hybrid vehicles increased by 2 percent to 100,695, led by the Volvo XC60. In the first quarter, total sales increased by 4.8 percent to 3.4 million compared to the same period last year. So, the car industry itself is not in trouble – it’s the part of the car industry that has focused on going completely green that is in trouble.
There are many Slovenian subcontractors who – also thanks to government subsidies – have completely jumped on the green development train. While internal combustion engine technology ensures the survival of Slovenian suppliers in times of stagnating sales of electric vehicles, development projects are almost exclusively focused on e-mobility. Last year we saw a “Black December”, with a historic drop in industrial production of 10.2 percent year-on-year and 5.3 percent on a yearly basis. But it seems that this is only the beginning.
I. K.
