Emissions scandal, electric cars will test German industry in 2019

GERMAN PRESS AGENCY - DPA
HANOVER
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Signs on road point to a planned driving bans for older diesel vehicles in Stuttgart, Germany, Nov. 9, 2018.
Signs on road point to a planned driving bans for older diesel vehicles in Stuttgart, Germany, Nov. 9, 2018.

Huge changes swept over the auto industry in 2018. Can carmakers still look optimistically to the future? The diesel emissions scandal is anything but resolved and driving bans have hit the industry

Germany's auto industry is battling for its future. The Volkswagen diesel emissions scandal that broke in 2015 continues to be felt, bringing about diesel bans and accelerating the shift to electric vehicles.

It all began with VW using software to falsify the emission readings of millions of diesel cars. Since the scandal broke in September 2015, the VW crisis has spread to the entire industry. Motorists must deal with more and more cities banning their diesel cars, with courts upholding bans in 2019 in Stuttgart, Berlin, Cologne and Frankfurt. Even an entire autobahn A40, the main artery of the city of Essen, will be affected.

The response of politicians has been frantic, with one "diesel summit" between the government and carmakers after the other. A compromise deal with the car industry that German Transportation Minister Andreas Scheuer is seeking has a loophole. VW and Daimler have agreed to pay up to 3,000 euros if a customer, fearing a driving ban, wants to adapt their diesel car. But manufacturers are strongly opposing demands for engines and exhaust filters to be refitted. Technical solutions are not expected before 2020, so commuters and diesel car owners are being kept in limbo.

Germany, the birthplace of the internal combustion engine, is still lagging behind in the area of electric cars.

Christoph Stuermer, an analyst at Price Waterhouse Coopers (PWC), says, "The manufacturers here have not yet succeeded in meeting the high demand for electric cars quickly enough."

Is it a bad omen? Not necessarily, experts say, for the manufacturers are steadily working into the more affordable price areas. So far, electric cars are seen as being too expensive. In China, the U.S. and the five most important European marks, according to the PWC, the number of new electric car registrations surged by 48.2 percent in the first nine months of 2018 to 1.7 million. According to German industry expert Stefan Bratzel, there will be a "clear rise in the market dynamics" from 2020 onward.

VW, starting at the end of 2019, will be launching its ID models, with a small electric car for under 20,000 euros. By 2023 VW is planning to invest 44 billion euros in future technologies, 30 billion of that in electric mobility. The plans will likely entail reduced payrolls, an issue VW will have to wrangle with unions over.

Meanwhile, Daimler is set to introduce its EQ battery-powered city sports utility vehicle in mid-2019. In 2021 BMW will be rolling out its i4 aimed at competing with Tesla. These developments notwithstanding, the industry is aware that the real action is going on elsewhere. "China, as the leading market for electric mobility, is increasing the distance from other core automotive regions like Europe and the U.S.," Bratzel says.

Electric cars are to lead the industry into the future. But in the manufacture of battery cells, German industry has – so far – been holding back. At the moment BMW, Daimler and VW are purchasing battery cells in Asia and then assembling them as battery packs. VW works council boss Bernd Osterloh never tires of warning that the battery will have a value-added share of 40 percent in the car of the future. "We will have to build battery factories," he insists.

German Economics Minister Peter Altmaier sees things similarly and is planning for state support to give a boost to battery cell production in Germany. By 2021 the Berlin government is to provide a billion euros to help get things started.

German carmakers keep arguing that the diesel engine is still needed and by now at the latest the reason is clear. European Union states want new cars in 2030 to emit an average of 35 percent less carbon dioxide than in 2020. The stricter the emission goals, all the more must companies sell no-emission or low-emission, which means either purely electric cars or the relatively more climate-friendly diesel. But their share overall has been dropping for some time now.

Hardly any motorist really believed the CO2 emission claims that carmakers made under the old test standard NEDC (New European Driving Cycle). This was set to change in September when the new WLTP (Worldwide Harmonized Light Vehicle Test Procedure) replaced the previous system. But Europe's car industry is having its problems with it, and above all VW is only slowly going forward due to its many different engine-transmission systems. As a result, VW has suffered bitter losses in its new deliveries. Daimler has twice now lowered its earnings projections, and BMW also has reduced its profit expectations.

U.S. President Donald Trump has his very own ideas about world trade, and German carmakers are a thorn in his side. The dispute over possible U.S. punitive tariffs on cars from the European Union has caused great concern among German car manufacturers. Studies show that thousands of jobs would be lost in the U.S. car industry if Trump gets his way. There is still hope that Washington will refrain from imposing special tariffs.

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