In a striking opinion piece, William Todts, Executive Director of the NGO Transport & Environment (T&E), points at the mess the German car industry has made these recent decades and the efforts from the European Union to tackle the problem.
“Earlier this month, Ursula von der Leyen sent shockwaves through the European and Chinese car industry by announcing a probe into illegal Chinese subsidies for electric vehicles (EVs),” Todts says. “The Commission president is cleaning up the mess the German auto industry created.”
“The probe is a fateful step,” he adds. “If tariffs on Chinese imports are enacted, it could set in motion a sequence of escalation and retaliation that could fundamentally alter EU trade and industrial policy.”
According to Todts, the story starts in the 1980s when the German car manufacturers went east, and, for example, Volkswagen became the most prominent car seller in China. However, the Europeans missed the electric transition and are now faced with the consequences.
In 2017, EU Commissioner Maros Sefkovic warned of a ‘Kodak moment’ for the European car industry, and despite the warning and the efforts concerned, that’s what we are seeing now, says Todts. “Arrogance is a major factor. German car execs thought no one would ever act on their diesel emissions cheating. They dismissed Tesla and China as upstarts and niche players. After all, only Germans know how to build high-quality cars.”
“While Chinese car makers innovated, drove down costs, and helped nurture a world-class battery industry, German carmakers and suppliers enjoyed record profits, lobbied against, cheated, and then grudgingly complied with green laws,” Todts points out.
“But at no point, not even after Merkel’s China visit or Tesla’s meteoric rise, did they go “all in” on electrification. That same arrogance was displayed at this year’s Munich car show, where BMW CEO Zipse criticized the EU and its 2035 zero emissions goal and lack of support for e-fuels.”
Not so kind
Is Todts glorifying the Chinese car industry? Not the least: “China is not some nice democratic trading nation with a smart climate and industry policy. It’s an Orwellian dictatorship bent on replacing the West as the world’s leading economic and technology power.”
“Whether it’s chips, steel or batteries, and electric cars, the Chinese play by their own rules. If ‘winning’ requires hundreds of billions of subsidies, creating state-owned national champions, or restricting graphite exports to emerging battery competitors in Europe, China will do it,” he adds. “Europe has turned a blind eye to this because we were paralyzed by German carmakers’ dependence on Chinese profits.”
But Todts also looks west: “Similarly, it is not credible to accuse China of unfair subsidies and ignore the US Inflation Reduction Act (IRA). The reality is that the EU battery industry can neither compete with subsidized Chinese nor with North American subsidized imports.”
“We will need a much more comprehensive overhaul of our trade and local content rules if we want a flourishing processing, cathode, cell, and EV industry in Europe,” Todts warns.
More vision and leadership
Installing import tariffs alone will not prevent foreign manufacturers from coming to Europe. So, “Volkswagen & Co. will need to up their game. It starts with basic things. EU carmakers are underinvesting compared to Tesla and the Chinese and wasting money on dividends and share buybacks. That must change,” urges Todts.
“Car execs like Oliver Blume (VW Group) should use their influence to end the embarrassing e-fuels nonsense. We need to focus on boosting EV sales all across Europe. The Commission’s corporate fleets initiative is a perfect opportunity to boost EV demand in Europe, which, if paired with trade defense, should be a gift from heaven for EU carmakers.”
To realize this, we need more political leadership, Todts stipulates. “None of this will happen without political leadership. Europe’s auto industry has a decades-long track record of doing too little, too late. Car execs can’t untie the Gordian knot they created by being so dependent on China.”
“And so Ursula von der Leyen deserves much credit,” Todts concludes. “She is showing tons more vision and determination than any of her predecessors, or indeed the current chancellor of Germany, the ever-absent Olaf Scholz.”
It is indeed a fact that European car manufacturers have been neglecting the signs of change for an extended period because they thought they were invulnerable. In the eighties, the Japanese first proved that this supremacy wasn’t carved in stone. Twenty years later, the Koreans did the same, and now the Chinese are threatening the waning European domination in the car industry.
Having import restrictions everywhere is not the way to solve things, but if the other actors are playing like that, Europe needs to react. The problem is that the European manufacturers’ technological supremacy for decades in an ICE-based car industry isn’t just there in the electric era.
Europe urgently needs a more coherent and clear vision about what it will do with one of its major industries and how it will support this. For this, a determined leadership is needed. The challenge is immense with European elections coming next year and the risk of an even more divided European political scene. This won’t be simple to resolve.