Pushing the Pace of E-Mobility

Political pressure and concerns about climate change are transforming Germany’s automotive sector from the wheels up. This major cross-sector upheaval has created unparalleled investment opportunities.

June, 2020

After years of dawdling on minor roads and byways, the electric vehicle industry in Germany has finally shifted gear and moved into the fast lane. The race for dominance in the e-mobility sector is officially on – 2020 really will be the year of the electric car in Germany.

The numbers speak for themselves. In Europe this year, 176 new models of electric vehicles (EVs) will come onto the market. Next year there will be 214. And by 2023, German manufacturers alone will be selling 150 types of e-vehicles, says Henning Kagermann, chairman of The National Platform Future of Mobility (NPM), a group of advisors to the German Government.

In the cleanroom of Continental Nuremberg, an employee holds up a circuit board showing the engine’s switching system. The company makes components for electric vehicles.

© dpa/picture-alliance

In 2019, adds automotive analyst Matthias Schmidt, “Europe’s largest passenger car market, Germany, also became Europe’s largest purely electric passenger car market in terms of annual registration volumes.” Writing in the monthly West European Electric Car Market Intelligence Report, which he compiles, Schmidt also predicts that the numbers are set to grow, thanks to increased government subsidies for buying EVs and hybrids in Germany.

Industry insiders point to the dramatic changes happening at Volkswagen (VW), Germany’s largest carmaker and one of the biggest in the world. “We are on the cusp of a new era,” the company’s COO, Ralf Brandstaetter, told shareholders late last year. “Volkswagen is launching the largest electro-offensive in the auto industry.”

Over the next five years, VW will invest between EUR 19 and 33 billion in developing electric engines. “We are saying goodbye to the fuel-powered engine,” explained the head of strategy, Michael Jost, at a conference in Berlin in 2018, adding that the company’s last diesel- or petrol-powered engine will be sold in 2040.

Legislation is driving change

By 2025, VW plans to have 1.5 million electric cars on the road, and within a decade, they will be producing 75 different models of EV. Much of this is being done using VW’s “modular electric drive matrix” system. The MEB is a standardized toolkit of sorts that can be used to make the basic building blocks of all kinds of EVs. The system will also be used by VW subsidiaries SEAT and Skoda and shared with U.S. carmaker Ford. By standardizing the basics, VW hopes to avoid the kind of production hold-ups Tesla has experienced, which cost the U.S. carmaker a lot of money.

»Volkswagen is starting the largest electro-offensive in the auto industry.«

Ralf Brandstaetter
Chief Operating Officer of Volkswagen

Of course, this isn’t just happening because conscience-stricken carmakers suddenly want to save the planet. There is increased pressure from German and European authorities legislating to ensure that emissions reductions goals are achievable.Stringent emissions rules mean that manufacturers’ fleets of new EU vehicles must average no more than 95 grams of CO2 emissions per kilometer by 2021 (emissions are calculated by fleet to take into account different vehicle sizes and weights). The limit will sink to 59.4 grams in 2030. If manufacturers don’t hit those targets, they have to pay penalties. And these could be huge. For example, according to London-based PA Consulting, VW could end up looking at fines close to EUR 4.5 billion depending on how many cars they sell in Europe. Daimler and BMW could both face sanctions of close to EUR 1 billion. Carmakers are scrambling to avoid this.

Furthermore, in a new package of national climate-related regulations passed at the end of 2019, the German Government stated that it envisaged 7–10 million EVs on the road by 2030. To achieve that, state incentives will have to continue. When researchers at Germany’s Petroleum Industry Association added up all the current state benefits and incentives, they concluded that, from 2021 onwards, buying an electric VW instead of a car with a conventional motor would save around EUR 26,200 over four years.

Facts & Figures

6,000

Ammount that German buyers of an EV costing up to € 40,000 can claim in sudsidies*

2.2 m

Number of EVs in Europe carmakers need to sell in 2021 to meet tough new fleet emission rules**

Sources: *VW; **McKinsey

Of course, there are still significant challenges. “At this critical turning point, there are three things necessary in order to smooth the way to e-mobility,” Fermin Bustamante, head of German e-mobility at multinational power company Vattenfall, wrote in Handelsblatt newspaper: “Firstly, the sales of electric cars must rise exponentially, and there are positive signs this is happening. Secondly, a sufficient charging infrastructure is needed. And thirdly, charging infrastructure, cars and suppliers must all be seamlessly connected in order to make it as simple and efficient as possible for customers – so-called interoperability.”

The pressure to do all that, and quickly, is having a major transformative effect on the industry, say experts. Some changes may have a negative impact on employment. Electric drive trains, for example, only have about 200 parts as opposed to 1,200 for combustion engines, so they require fewer workers. But other disruptions create new opportunities.

An industry in flux

“At the moment, the auto industry is experiencing massive transformation,” confirms Peter Fuß, senior advisory partner for the automotive sector at consultancy EY Germany. “Things like electrification of power trains, autonomous driving and mobility services or connectivity demand completely new expertise in many different areas of technology. And that opens up enormous opportunities for new players to stake out their place in Germany’s automotive sector.”

“The competitiveness of the German auto industry and the security of jobs in Germany really depends on the success of e-mobility,” Henning Kagermann argues. And that “will depend strongly on whether the basic components – such as batteries – can be manufactured in Germany, rather than outside the country.” Furthermore, Kagermann doesn’t believe that e-mobility should be viewed as an issue that affects only the auto industry. “It is a key technology along the path to sustainable and integrated energy,” he argues.

Source: VDA; cumulative new registrations from January 2009 until October 2019

Kagermann also envisages opportunities arising in peripheral and connected areas like alternative energy sources, digital concepts and intelligent platforms. Money is already pouring in. Last year, mobility-related start-ups, most of which were based in Berlin, received EUR 1.6 billion in venture capital, according to EY’s Start-up-Barometer. That’s four times more than in 2018 and more than what erstwhile investor favorites fintech- or e-commerce-related start-ups received.

Technologies are changing

Infrastructure is also expanding. At the moment Germany has about 24,000 charging stations for the estimated 300,000 electric cars already on the road. The number of publicly accessible ones rose by 50 percent between December 2018 and 2019. And in two years there will be 50,000 stations, partly because the German Government has pledged over EUR 3 billion to make sure additional ones are built.

Stefan Di Bitonto, Germany Trade & Invest’s automotive expert, predicts more investment and research into materials that can make electric cars lighter. “There are likely to be more innovative lightweight steel construction solutions” he suggests. “The industry is moving in that direction.”

Battery production is another major focus. “It’s quite a wide-open field at the moment because standards have not yet been decided upon,” explains Di Bitonto. “Lithium-ion, hydrogen fuel cells or something else – right now, I couldn’t tell you what kind of electric vehicles we will be using in 10 to 15 years.”

Whoever comes up with the electric battery of the future – or controls the raw materials from which it is made – could dominate the international market. Currently, international manufacturers (particularly those based in Asia) are the main producers of e-vehicle batteries. But European governments have now realized that this essential aspect of e-mobility can no longer simply be contracted out.

The EU is putting an estimated EUR 3.2 billion of subsidies into a European battery consortium currently made up of around 17 companies from around the bloc. A number of the battery technology and research initiatives will be based in Germany because of the proximity of experts and researchers and the fact that customers (the car companies that will use the batteries) and the German Government are willing to subsidize the push into this area.

Source: EFAHRER.com / Kantar

Consultancy firm Arthur D. Little reckons that battery production grew by 50 percent to become a global 90-billion-dollar industry in the next five years, while McKinsey analysts predict the market will expand by 19 times in the next decade. Over the past year alone, the number of factories producing lithium-ion batteries around the world has almost doubled – largely due to the demand from the auto industry.

Lithium refining in Germany

Interestingly, the biggest international increase has not been in China but in Germany, where seven of those factories are planned. Experts say, growth opportunities in this sector range from raw materials and manufacturing to recycling and research.

Deutsche Lithium – a joint venture between London-traded lithium company Bacanora and Germany’s SolarWorld – plans to start mining one of Europe’s largest lithium deposits in the eastern German state of Saxony. Dutch company AMG – short for Advanced Metallurgical Group – have announced investments of up to EUR 54 million in Germany’s first lithium hydroxide refinery in the eastern state of Saxony-Anhalt. Production at a site close to car manufacturers is slated to begin in three years. “We are convinced that this refinery is arriving at exactly the right time,” Stefan Scherer, the managing director of AMG in Germany, says.

Facts & Figures

400 k

Number of publicity available charging stations needed to power 2.2 million vehicles by 2021*

42 %

Amount by which transport emissions must fall in comparison to 1990 levels to achieve Germany’s 2030 climate goals

Sources: * McKinsey; **Federal Ministry for the Environment, Nature Conservation and Nuclear Safety

Foreign investment in German tech

One of the biggest battery makers in the world, Chinese firm CATL, is building a factory costing EUR 1.8 billion in the eastern state of Thuringia. The company looked at several possible sites but decided on Germany for a number of reasons, including, according to CATL’s European chief Matthias Zentgraf, the central location in Europe and accompanying transport options, the proximity to experienced automotive and engineering professionals, and perhaps even more importantly, the option of renewable energy sources. Zentgraf adds: “That’s vital when you’re trying to make a low-emissions product like this.” He also mentions that Thuringia is already powered by around 40 percent renewable energy.

Meanwhile, Chinese-American battery manufacturer Farasis is spending around EUR 600 million on a new European headquarters and factory in Saxony-Anhalt, one of the biggest investments there in over a decade. And VW itself has entered into an alliance with Swedish company Northvolt to produce batteries in the city of Salzgitter from 2024.

Demand for raw materials like cobalt and lithium, whose extraction can be both environmentally and socially damaging, is going to quadruple in the next 5 to 10 years, the Bavarian Business Association concluded in a 2019 study. Given that only a few countries possess large quantities of these substances, there are major risks for German car manufacturers’ supply chains. So the idea is to diversify, which is where Germany’s top engineering universities and research institutes come in.

New battery technologies

Researchers at the Helmholtz Institute Ulm, which specializes in electrochemical battery research, and the Faculty of Electrical Engineering and Information Technology at Munich’s Technical University are hard at work trying to develop new kinds of batteries that use more widely accessible substances such as sodium or vanadium salts.

German researchers are particularly focused on making batteries more environmentally friendly and hope to become world leaders in this regard. Audi says it is able to recycle more than 90 percent of the cobalt and nickel in its popular e-tron model’s batteries, and starting this year, VW will be able to recycle 3,000 EV batteries per annum at their pilot recycling plant in Salzgitter.

All the prerequisites are there for Germany’s e-car revolution to finally become a reality, says Henning Kagermann, citing “new technologies, new business models, new innovative and well-funded competitors that will arise.” And that presents Germany with a singular opportunity. “This transformation also offers a unique chance to think more comprehensively about the mobility of the future,” says Kagermann. “ Germany can become the leading international example for affordable, competitive and environmentally friendly mobility.”