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September 3, 2024 - 4:00pm
The car maker Volkswagen (VW) was founded in 1937 and hasn’t ceased production in Germany in the 87 years since. Until now, that is. It is has been reported that the manufacturer may close multiple plants in its home country, as it attempts to transition away from fossil fuels.
This would mark a turning point for a nation known for its industry. Competition from China, high energy costs, and “a difficult economic environment” are named by company management as the main reasons why drastic steps might be unavoidable. But VW brought at least part of the current misery on itself by pursuing a strategy which relied too much on China as an export market while neglecting to lobby for better economic conditions in Germany.
Apparently, bosses at the company’s Wolfsburg headquarters were entirely oblivious to a well-honed approach by the Beijing regime. This tactic involved enticing Western manufacturers to come to China, then learning and replicating their technology in order to build superior and cheaper products. This has proved successful in the areas of PV technology and electric vehicles, and similar may now happen with semiconductors as well.
The outlook for German — and European — car manufacturers is indeed worrisome. As Bloomberg observes: “After years of ignoring overcapacity and slumping competitiveness, the German auto giant’s moves are likely to kick off a broader reckoning in the industry. The reasons are clear: Europe’s efforts to compete with Chinese rivals and Tesla Inc. in electric cars are faltering.”
These problems did not just appear out of nowhere. Rather, they are the consequence of a German and broader continental policy approach, according to which a country can regulate itself into a world-class economy while neglecting innovation and competition. The same Bloomberg piece expresses confusion at the decline of electric car sales in Europe, stating that “the sluggish uptake has put the EV market in reverse this year, at a time of an expected steep rise.”
This expected steep rise, which never materialised, was supposed to be the result of regulatory steps forcing consumers to switch to electric vehicles, such as banning gasoline cars. Unfortunately, if not incentivised by generous government subsidies, consumers are refusing to comply, instead deciding to keep their internal combustion engine cars for increasingly longer periods of time. Unsurprisingly, once Germany ended its EV subsidy programme, sales collapsed.
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SubscribeHey look if it isn’t the consequences of actions I was wondering when you were going to come around.
Haha! Very amusing…and so true…
I think he’s going to visit other “fashionable” policies very soon…
Disappointing news to hear that mighty Volkswagen may close its plants in Germany. Market forces are powerful, and industrial policy like the German government has used rarely steers the market forces in the direction governments want them to go. The trick is to apply a light touch, and what government could ever do that?
Electric cars pose a challenge to the carmaking industry like it has never faced before. Carmaking has been a slow-changing industry, with big companies using Soviet-style five-year plans to make big investments upfront. Now it is changing more quickly than carmakers can react, forcing them to be nimble and (as in the computer industry) agile.
Can carmakers cope? I think they can. But the carmaking industry needs to restructure to be more cooperative and less competitive. By moving to a more modular car architecture carmakers can specialize rather than continue to churn out commodity cars that have few innovations and look a lot like their competitors’ cars. Let’s hope Volkswagen can make that shift to lessen its worries and woes.
I suspect this is only the beginning of auto industry pain as profit margins get squeezed from too much competition and rising costs. Cars have become way too expensive for many people, who also have to contend with rising rents and housing costs and much else. Having a car in many major cities has lost it’s appeal with too much traffic, rising parking fees, etc. Makes more sense for many people to use bike lanes, public transit, and short term rentals when you really need a car. The problems with EVs is well known, and rising costs are a big problem there as well, alot of people will not be able to afford them. Competition will heat up in that market, even for the massively overvalued Tesla as more and more models hit the market. The auto industry will probably face business failures and mergers in the coming years, and more bailouts. Stay away from auto industry stocks.
You make some good points, but I think the shift to more electric cars is a big opportunity for the carmaking industry, more than just a challenge. And while some of the big dinosaur companies like Volkswagen may not be able to change enough, I see signs that some companies will. I think the carmaking industry will come through this stronger, not weaker.
That’s because people do like cars. Sure, people could use bicycles more, and they might. Trump prosecutor Jack Smith was photographed at the Telluride Film Festival last week wearing a t-shirt that said Ride More, Drive Less. (He’s an avid bicyclist.) But people have been pushing that message for decades now. Public transit, car-sharing services, and other options have also been available for decades, and they are useful and more and used, but they have not been industry changing.
Electric cars will be industry changing. The potential is there for us to see a shift in the way people use cars similar to the way people shifted in using computers. When I started my first job in the computer industry just out of college, I didn’t have a computer in my home. No one did. Now everyone does.
The cost of electric cars is not really the problem. Tesla is probably coming out with its new Model 2 (or whatever they call it) in the next year or two, and GM will put its new Chevy Bolt on the market with comparable pricing and features. Those cars should be affordable. Chinese companies and at least one Korean company will have comparable products with less than $30,000 price tags.
But we spend so much on cars not out of necessity, but as symbols of status. So it’s hard to say where the carmaking industry will go, and investors may want to stay out of it.
Your reasoning reminded me of a well-known joke from the Soviet era: «No one will surpass us in the ability to create difficulties for ourselves and then heroically overcome them»
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BTW, the West’s policy towards renewable energy sources is an exact copy of the Soviet five-year plans.
Car companies were the heart of Germany‘s industrial success. If government tells the manufacturers, what car they should design and produce , it will only spell disaster for the future. How well 5 year plans worked under communism in the past!!
Engineers are literally prevented to come up with more efficient inventive solution, because politics tells them that only EVs should be sold.
Some German car companies have already pulled most of their production out Germany, leaving back a rump of their former self. BMW just celebrated their 30th anniversary of their huge plant in South Carolina and expending their production from there, sending cars all over the world.
Especially Germany will suffer, you hear daily that car parts supplier are filing for bankruptcy. The rest of Europe are facing the same problem and will join the exodus. Germany‘s and Europe‘s deindustrialisation will continue, shedding thousands of jobs as governments’ bureaucratic interference forces consumer to buy something they don’t want. Green NetZero policy will be the death nail to modern manufacturing and innovation .
Wrong- ultra low emission ICE cars are ready from all German OEMs
The simple, inescapable fact is that like steel there is huge overcapacity in the worldwide auto industry. The only solution to this is reduced capacity. And that’s going to come out of the highest cost locations for the most part. So Germany, Italy, France etc. . Well, Italy’s basically already gone (Stellantis is essentially bankrupt today). Only the boutique Italian brands will survive. Sad, but unavoidable now.
Leglislating planned obsolesence – the EU’s answer – trying to force us all to switch to electric cars – isn’t going to work. You can already see this in the used car market where cheap, small old cars have very strong residual prices and large, new luxury models and EV depreciate at a record rate. Your “market forces” say that most people want cheap, reliable motoring. I’ll get an EV about the same time I get a smart meter. And no – governments ultimately have zero influence on market forces, which will ultimately overpower them when thye run out of subsidies.
My guess is that the carmaking industry will restructure in the next decade or so, and I think government can help push that process along. I’ve been working in trying to help companies get new electric car technology to the market for a long time now, since before Tesla even got started. We’ll be making a push in the next six months on this, and we’ll see what happens.
But just think how clean and green the continent will be in the future!
No pollution from industry.
Surely “everyone” will be pleased about saving the world? (especially China of course)
You are wrong, the happiest will be the inhabitants of the European continent. I am talking about the few who will manage to survive. Literally.
You don’t think Europe would be colonised by outsiders?
Neo-cavemen?
You can’t have the highest energy costs in the world and expect industry to compete. It just ain’t happening. Govt managed economies have always failed. You have to make the cost of doing business as cheap as possible. Govt regulations have a role, but these EV mandates are an attempt to restructure an entire industry based on govt diktat.
When your industrial policy can destroy the German auto industry, you truly are raising the bar for staggering moronic incompetence.
Or an actual enemy.
Germany’s economic situation is reminiscent of California’s economic situation during and after the 2020 COVID outbreak.
Politically active Leftists glimpsed an emergent opportunity with State-enforced COVID lockdowns to use the vast regulatory powers of the State to *control* free-market forces. By so doing, they believed they could bend California and eventually other States to their environmentalist will to ‘save the world’ from fossil fuel and energy consumption.
Instead, we saw free-market forces deeply wound California, as businesses that faced adapt-or-die reality, rapidly fled California for States like Texas that welcomed them with fewer regulatory costs affecting their businesses.
It’s truly fascinating to observe powerful Leftists placing these speculative ‘all-in’ market bets solely based on the wafting fumes of their dreams of how the world ‘should be’ rather than how it is.
An apt analogy is if one were to adamantly believe they could use sheer willpower to force their car’s combustible engine to run on residual petrol fumes while ignoring that the car’s gas gauge needle is actually pointing at “EMPTY.”
Yes,
There are few explanations:
1) West leaders are all morons, unlikely.
2) They are Neo-Marxists and want to destroy West to create better, woke, lefty society, possible.
3) They are stooges of China and Russia, so they follow orders of their masters. Quite likely in Germany case.
4) They follow orders of their globalist masters, most likely.
“Unsurprisingly, once Germany ended its EV subsidy programme, sales collapsed.”
——
How many other industries are still kept afloat only because of state subsidies (i.e.,taxpayers’ money being channelled into them)?
Yes, all the green bollocks, net zero racket.
Then all the NGOs, useless pseudo universities, all Human Remains DEI jobs.
Then 100 billions for useless immigrants.
You clear these parasites out and uk and other Western countries budgets are in surplus.
“We are now seeing the consequences of what can happen if a government focuses excessively on accomplishing ideological goals, no matter the costs, and if companies structure their production according to these targets rather than consumer preferences.”
This is effectively a political system that grew out of socialism in Italy in the 1920s that was widely admired at the time as a vital new form of political organisation but whose name beginning with an F if I posted it in full would get my post censored as the name is now nothing more than an insult.
Unfortunately the UK is the only other significant country which has laws and not just policy, mandating Net Zero policies. It’s industrial base is weaker than Germany’s so this is even more absurd and self defeating.
I might have a little more sympathy if Volkswagen hadn’t engaged in emissions cheating. And two tier compensation (far higher in the USA, grudging and meaner in Europe).
But they were not alone. Pretty sure all the major European auto makers were at it and the regulators complicit in turning a blind eye. Rather like the press phone tapping – The Sun got the headlines and the [deservedly] bad press. But The Mirror was equally up to its neck in it. And the “regulators” must have known there too.
The electricar nonsense will decimate the German car tier 1 and 2 supply industry, and therefore, a large part of Germanys industrial base if it continues, but hopefully the near zero / low emission ICE engines that the German OEMs already have ” ready to go” will come to the rescue, as long as politicians are not craven to the power of the eco sandaloids.
Let us not forget that the post war Labour Government turned down the opportunity to own Volkswagenwerken AG for free!
If you begin by restricting discussion only to those who agree with you, the results are likely to be unwelcome