Financial Times: German car industry faces "day of recoking" and "no one will survive"

If you still have any doubt that the electric vehicle wars have begun, you have to check out this latest report from our friends Joe Miller in Frankfurt and Peter Campbell in London. (It’s pretty entertaining).

German car industry faces ‘day of reckoning’

Tens of thousands of jobs cut as auto groups pump billions into electric technology

That’s the headline. Maybe some of those genius Tesla bears can explain why the rest of the auto industry is spending billions of dollars to catch up to Tesla’s “worthless” electric vehicle technology.

Two weeks ago a bumper crowd of restructuring experts flocked to the swanky environs of Frankfurt’s Villa Kennedy hotel, their sights firmly set on the casualties of the crisis sweeping the German car industry.

Financial Times

Well, looks like $TSLAQ was right about restructuring. They just got the name of the company wrong. Anything German would have worked.

Days later, Mercedes-Benz owner Daimler and Volkswagen’s Audi brand announced more than 20,000 job losses, in the first real signs of the huge human cost of the sector’s transition from combustion engines to electric vehicles.

Financial Times

The first 20,000 is just the begining unfortunately. There will be blood.

The auto industry is in the midst of a far-reaching upheaval.

Herbert Diess, Volkswagen Chief Executive Officer

Translation: Tesla is forcing everyone to switch to software based electric cars, and we were not prepared.

No one will survive in the form they exist today.

Ralf Kalmbach, Bain & Co, who has spent 32 years advising German carmakers

That is extremely bold language coming from someone who has been advising the German auto industry for 32 years. If you believe him, this is the end of the German auto giants. They will not survive in their current form into an electric autonomous future. It sounds hard to believe at first, but if even they’re admitting it at this point it’s probably true.

The enormous expense of this transformation, he added, has left the engine of the country’s postwar Wirtschaftswunder, or economic miracle, facing the “biggest crisis since the invention of the automobile” by Karl Benz more than a century ago.

Financial Times

Because the German auto industry didn’t prepare for electrification and autonomy, because they laughed it off and didn’t take it seriously…

The biggest transformation since the invention of the automobile is now their biggest crisis since the invention of the automobile. They’ll have to work hard to catch up, and many people doubt whether they still have time to.

It is estimated that the German car industry, which directly employs 830,000 people and supports a further 2m in the wider economy, will be forced to plough some €40bn into battery-powered technologies over the next three years.

Financial Times

40 billion euros is $44 billion US dollars. So the German auto industry will spend $44 billion on electrification in the next 3 years. Tesla’s market cap is $59 billion. Believe it or not, there are still people like Russ Mitchell who don’t understand where Tesla’s valuation comes from:

Hell, Dieselgate alone cost Volkswagen $34 billion!

“We have seen the first few chapters of the transformation, but this is a book with many chapters,” warned Ola Kallenius, Daimler chief executive, last month, as he confirmed the carmaker would post significantly lower profits for at least two years.

Financial Times

It’s goint to be a page turner for sure.

German auto giants, from Daimler and Audi to suppliers including Continental and Bosch, have announced that around 50,000 job will be lost or are at risk so far this year, as their traditional businesses become less profitable. 

Financial Times

To make matters worse, a demographic time bomb is ticking, which could permanently reduce the number of new car buyers, and a new raft of competitors, including the likes of Uber and Google’s Waymo, are emerging with products such as autonomous cars that will probably drive the future of transport.

Financial Times

I don’t think those are the competitors you’re looking for.

“The German auto industry needs to learn to adapt faster, to change faster,” warned auto analyst Arndt Ellinghorst at Evercore ISI.

Despite these warnings, the premium carmakers have been reluctant to go “all-in” on electric technology, at the risk of alienating existing engine-loving customers.

Financial Times

Classic case of The Innovator’s Dilemma.

With the electric car market still in its infancy, Daimler’s Mr Kallenius told investors that the Mercedes-owner would “not develop technology for the sake of technology”.

Financial Times

RIP Daimler.

BMW, similarly, has been keen to play-up its traditional expertise. 

“We believe there is still much room for growth in the automotive sector,” BMW’s chief executive Oliver Zipse said, dismissing the earnings potential of so-called mobility services, such as car sharing and self-driving taxis.

“There is a long-term growing demand for individual mobility worldwide, especially in the premium segment. The fundamentals behind it are much stronger than the current dip in the overall market, which is mainly due to economic slowdown.”

Financial Times

RIP BMW.

Their confidence, however, jars with the impending bloodletting in the country’s powerhouse sector.

In the next decade, almost a quarter of a million auto jobs will be lost in the country, according to Ferdinand Dudenhöffer, the director of the Center for Automotive Research at the University of Duisburg-Essen. Smaller suppliers, such as paint shop Eisenmann, have gone out of business.

Financial Times

German auto execs be like:

This Is Fine GIF - Find & Share on GIPHY
This Is Fine GIF - Find & Share on GIPHY

Car sales in China, which helped Germany’s biggest brands weather the financial crisis, have slowed for 17 months in a row, drastically reducing a key source of revenue at the precise moment it is needed to fund new technologies.

Financial Times

Oh shoot, one of the most populated countries in the world is pushing hard to transition into electric vehicles. There goes the word’s biggest auto market. Oops. Who could have seen this coming?

We have kind of the worst situation now. We have got to do the heavy lifting in the next three years.

Ola Källenius, Daimler CEO, to investors

Ughhh I know getting disrupted into bankruptcy is the wooorrrrrst. Especially for investors.

Despite widespread anxiety in the industry about the lack of demand for electric vehicles, strict EU carbon-emissions rules are forcing carmakers to accelerate their production plans, or face billions of euros in fines from Brussels. 

Financial Times

People want electric cars, but they have to be good. They have to be a better experience than polluting cars. If the German auto industry can’t deliver on that promise, the demand for EVs will go elsewhere.

The EU’s targets for 2030 can mean that between 7m to 10.5m battery-powered cars will have to be on Germany’s roads by the end of the next decade.

Financial Times

How many of those will be German EVs?

Volkswagen, whose first mass-market battery-powered hatchback, the ID3, is rolling off production lines in east Germany, is “convinced that the transition to electric-mobility will gain traction next year,” according to VW’s Mr Diess. 

Financial Times

Well, it better.

“For the moment, you have to consider that with every electric vehicle, manufacturers are losing a tremendous amount of money,” said Mr Kalmbach at Bain. That is not expected to change until the middle of the next decade.

Financial Times

They’re going to lose money until 2025? That explains why they don’t want to sell them. But at least they can just fire workers to reduce costs, right?

The unique strength of German labour unions has forced Daimler and Audi to provide job guarantees, which stretch to the end of the next decade, while VW’s supervisory board is dominated by its powerful workers’ representatives and local politicians, who would stand in the way of mass redundancies.

The cost of shedding jobs in Germany, often estimated at €100,000 per axed position, forces companies to consider reskilling programmes or wait for employees to retire.

Financial Times

It costs $110,000 USD just to fire someone in Germany?!?! Hope those old gas car employees can figure out autonomous, software based EVs…

“Even during the financial crisis, there were hardly any lay-offs because of agreements with labour unions,” said Rainer Mehl, a managing director at consultancy Capgemini. “As this crisis gets tougher, there will probably be a need for deeper cuts.”

It seems Germany’s flagship brands are merely putting off the inevitable.

This is because they are still too profitable for widespread cuts to be politically palpable, said Max Warburton, a veteran auto analyst at Bernstein.

“In this industry you can only cut jobs in a crisis,” he added. “Deep down, they all know that. They all know they’re going to have to, they are just trying to postpone the day of reckoning.”

Financial Times

Wow, holy shit. Things are way more fucked than I thought.

Get your popcorn and flamethrowers everyone. The electric vehicle wars have officially begun.

🍿🔥

Read the full story at the Financial Times

6 thoughts on “Financial Times: German car industry faces "day of recoking" and "no one will survive"

  1. Middle of next decade is 2025, not 2035…

    But yeah, the claim that car makers are forced to sell EVs at a loss never really made sense. The regulations do not force them to sell anything at a loss. All they do is putting fines on overly polluting vehicles. Consequence? Raise the price of polluting vehicles to compensate for compliance costs — problem solved. But of course that would amount to admitting that the regulations are effective in accelerating the demise of combustion engines — which is the last thing legacy car makers want…

    PS. Didn’t I just write something about the near impossibility of firing people from large companies in Germany?… 😉

  2. Unfortunately, not everyone’s laughing… it’s a series of unfortunate events for humanity and the biosphere at large. There could be severe consequences of massive companies going bankrupt. Remember 2008? I hope Tesla finds a way to license their tech so the transition is not so rough for ICE workers…

  3. Biggest challenge since the invention of the automobile? Aren’t they forgetting WWII? That was more than a hiccup…

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