More and more evidence is accumulating of the growing crisis in the European auto sector. There had been signs of trouble for a while, but it is the disruption caused by (and in anticipation of) the coerced “transition” to electric vehicles (EVs) that is now clearly threatening disaster to a sector that accounts for around 7 percent of the EU’s GDP. As many as 13 million jobs may be at risk.
The flow of bad news from automakers (in the U.S., as well as Europe) keeps on coming, but it is the European manufacturers who are in the most trouble for now, torn between what the regulators are demanding (more EVs), what consumers are buying (far fewer EVs than expected), and what Chinese carmakers are selling (EVs at a price low enough for buyers to overlook their flaws).
The fact that Volkswagen is in trouble is hardly a secret, but massive layoffs are now about to begin.
CNN:
Volkswagen plans to close “at least” three factories in Germany, lay off tens of thousands of staff and downsize remaining plants in the country, the company’s employee group said Monday.
The domestic factory closures would be the first in Volkswagen’s 87-year history, and they lay bare the challenges facing Germany’s largest manufacturer. The plans are already facing pushback from labor unions in the country, where Volkswagen employs 295,000 people, setting the stage for possible strikes in the coming weeks.
VW’s problems are not solely due to EVs. Nevertheless, the unions threatening the company with strikes have picked the wrong target and, in all probability, will do further damage to a company on which so many jobs depend. If they want to protest these job losses and limit the toll to come, they should spend more time focused on the politicians in Germany who went along with the EU’s plans to squeeze out the sale of new “traditional” cars by 2035. And they should target Brussels, too. Organ-grinder, monkey, and all that.
The Wall Street Journal notes that “VW operates factories in most European countries and owns brands such as Spain’s Seat and the Czech Republic’s Skoda” and rightly observes that, “if something’s wrong at VW, something’s seriously wrong in Germany and Europe.”
It is, and it’s going to get much worse before long. Looking specifically at Germany, VW’s troubles have been increased by the catastrophic consequences of Angela Merkel’s Energiewende.
The Wall Street Journal:
Electricity prices for large industrial users in Germany are well above the European Union average, let alone the U.S., China or Japan. This is largely the result of Berlin’s decision to eschew coal and nuclear power in favor of renewables that are more expensive and less reliable. Natural-gas prices have been on a rollercoaster since Russia’s 2022 invasion of Ukraine disrupted gas supplies. VW is the latest of many companies to scale back production in Germany to escape these costs.
Responding to the growing alarm in Europe, the EU has now increased tariffs on imported Chinese EVs (most manufacturers of which have received massive state support) to up to 45.3 percent, a number that is probably not enough to stop Chinese imports (currently Chinese cars account for about 8 percent of the European market, up from 1 percent five years ago), although it may put a cap on their share of about, the EU Commission estimates, 15 percent.
Let’s see. BMW, for one, has opposed the tariff increases, arguing (essentially) that it risked dooming EU manufacturers to irrelevance, a position that may owe just a little something to the company’s own exposure to China. Germany opposed the tariff increase on similar grounds: It has more than carmakers selling to (and present in) China. “Win-win,” said Angela Merkel back then.
But the Chinese market is rapidly becoming less valuable to foreigners than it was. In an article (a must-read for its analysis of the multilayered challenge posed by Chinese manufacturers) for the Financial Times, Kana Inagaki, Edward White, and Sarah White note that:
The rise of homegrown brands has sharply reduced the sales of European, US and Japanese carmakers in China, which in recent years has been the biggest and most lucrative market for brands such as Volkswagen, Mercedes-Benz and BMW.
Foreign brands’ market share of Chinese auto sales is trending at a record low of 37 per cent in the first eight months of 2024, down from 64 per cent in 2020, according to data from Shanghai consultancy Automobility.
Mercedes has already pulled out of a joint venture in China, and VW may follow suit.
Western manufacturers may also lose out in third markets to Chinese competition. China has overtaken Japan to become the world’s largest exporter of cars, for reasons both of opportunity and necessity. The opportunity is obvious enough, the necessity comes from massive overcapacity. The latter is a consequence of the capital indiscipline frequently seen in China (and made easier by the indulgence of a mercantilist state) and the (relatively) subdued state of its domestic economy. According to the EU Commission (Reuters reports), China’s spare production capacity of 3 million EVs per year is twice the size of the EU market.
But overcapacity is a problem in the European auto sector too, and that too will be made worse by Chinese manufacturers trying to get round the EU tariffs by opening production facilities within the bloc. These will almost certainly be based in low-cost manufacturing areas outside the EU’s auto-manufacturing heartland, meaning that the new tariffs will protect fewer jobs there than Brussels may hope. That this will stir up political discontent is a bonus for Beijing (and Moscow too). What’s more, Beijing will be able to use the decision where to locate production in the EU to gain political leverage (it’s no coincidence that BYD has opted for Viktor Orbán’s Hungary for its first European plant).
The EV “transition” is proving to be a gift to the West’s enemies and a disaster for its consumers, taxpayers, workers, and most of its automakers (Tesla recently reported good third-quarter results) and the businesses that supply them. And no, it won’t make much of a difference to the climate.
The WSJ argues that “Europe’s auto-industry travails are painful evidence that net-zero climate policy is the worst act of economic masochism in the West since the 1930s.” That may be so (it may well even end up eclipsing the creation of the euro, which takes some doing), but it also seems set to be a geopolitical disaster too. There’s a lesson there for the U.S.