Germany’s auto industry is in crisis. Chinese EV manufacturers are racing ahead, backed by powerful government support. Can Germany’s legacy carmakers survive on their own? Is it time for a radical shift? What if German automakers pooled their expertise and worked together? Could strategic mergers and global partnerships be the key to survival?
00:01Does it have to be a match made in heaven, especially when your very survival is on the line?
00:10Alarming figures for the German automotive industry, with profits drying up worldwide, slumping sales and a crushingly tough market.
00:19Is the German car sector doomed?
00:22What's the best strategy to survive?
00:25Go it alone or join forces?
00:27How much more punishment can German car makers take from China's superiority?
00:33What if those companies were to pull their strengths and combine their capacities and expertise and truly pull together?
00:43A merger of, say, BMW, Mercedes and Volkswagen would in terms of numbers easily create the world's biggest auto manufacturer, overtaking current top dog Toyota.
00:54Although, would that actually make the German car sector more competitive?
01:00I'm not sure what the advantage would be. In times of transformation you have to be fast, disruptive, open-minded and ready to adapt quickly.
01:08Experience shows that when big companies merge, they spend years dealing with integration issues.
01:15So what is actually the best of both worlds?
01:20We're probably one of the only ones who doesn't need that because we're scaling enough with our 12 brands that we have.
01:29So scaling with other manufacturers might have different issues. For us it's not important.
01:33For us the important part would be to have clarity and policy and a clear path forward.
01:38Next year, our company will have its 140th anniversary and I would say with everything we've planned going forward, we are very well set up for the future.
01:48Companies can choose that option if they want to, but now deciding to quickly bring in additional expertise without slowing things down with merger processes, that would be the wrong way too.
01:58Germany has a long history of automotive mergers. Almost a century ago, Daimler Motors Corporation hooked up with fellow carmaker Benz.
02:12A landmark in German corporate history leading to the birth of Daimler Benz.
02:18In 1932, four other carmakers joined up to form Auto Union, the predecessor of today's Audi.
02:27In 1998, Daimler tried its hand at becoming a global player through a transatlantic amalgamation with Chrysler.
02:34But the marriage broke up just eight years later due to synergies failing to materialize and clashing corporate cultures.
02:412021 saw the emergence of a multinational conglomerate. Originally comprising Fiat, Chrysler and Peugeot, Stellantis now has 14 car brands under its umbrella.
02:53Germany's Opel is now a key element of Europe's most valuable automaker.
03:00For Opel boss and Stellantis managing director Florian Hüttl, combining forces is a logical step.
03:07There's tons of benefits, frankly. First of course, we share development and we know it's a period of transformation in the industry.
03:19So there's a lot to shoulder and there's big investments to be made in technology, in manufacturing facilities, in battery production and many more things.
03:28So the size of Stellantis allows us to tackle this investment for a start. And at the end of the day, let's look at the results.
03:35Corporate coupling as a global survival strategy. But size is no guarantee of success. Ultimately, it's profits that count because they enable companies to invest in future technologies and remain competitive.
03:49And this is where the Chinese have taken the lead, especially with EVs.
03:56The profit margins posted by the likes of BYD are currently far superior to their rivals.
04:02And the magic formula here is internal consolidation, although in China's case, not so magic, with a government mandate and backed by an estimated $250 billion in subsidies since 2009.
04:16We go the BYD way. I'm not comparing our performance with the others. We're working very hard. We are using every opportunity to tell our story. We have great products and great technology.
04:30And I think this stands out. We are very focused on what we are doing. We know that we have a big, big way in front of us. In fact, I always say the challenges fuel us and humble us in a continuous positive motion.
04:47And of course, we have to be prepared to face the diversity of Europe.
04:52China was quick to see that the inevitable transformation of mobility and therefore of the car was an opportunity. Its manufacturers secured access to key resources for battery production and reimagined the entire development process.
05:06Someone who's familiar with both sides is Daniel Kirchert. He spent over 20 years in China working for BMW, Nissan and EV start-up Byton.
05:21The reason why young Chinese buyers are turning away from top German brands and going domestic is not because they've suddenly turned patriotic.
05:29It's because Chinese EVs are great products. In terms of quality and design, they're on par with the German brands. But when it comes to the digital experience, the digital ecosystem and smartphone connectivity, they're way ahead.
05:47This is one of the biggest challenges for German car makers, coming from a strong tradition of mechanical engineering and now struggling with the digital customer experience.
06:01And that's where they're losing competitiveness on the Chinese market, especially among the next generation of car buyers.
06:08The big problem with EVs for the German auto industry is cost structure. And that's why we're now seeing lobbying efforts to delay the phase-out of combustion engine cars.
06:22Because China is light years ahead in terms of cost efficiency for the electric drivetrain and the battery.
06:29No German manufacturer is even close to being competitive here, and not in the next three or four years either.
06:35That's the prime challenge. Any kind of cooperation that helps to ensure competitive supply chains and reduce costs is beneficial.
06:43But I'm not very optimistic about the immediate future, because the Europeans have failed to build up a complete battery supply chain.
06:51That can't be done overnight, it takes five or ten years.
06:55The major European players have failed and I'm not seeing any real political will to massively support the industry, which would make sense.
07:03If anything, the focus is more on regulation and obstruction, which for me is the wrong way.
07:10Germany is continuing to struggle. Its famous car-making tradition is arguably more a hindrance than a help, making the competitive realignment required painfully slow.
07:22And a major factor here is the jobs issue. Numbering around 800,000 workers, the German auto industry is one of the country's biggest employers, with one in ten of those jobs now potentially at risk.
07:35Then there's political hesitancy, with no clear exit from combustion engines, and no clear commitment to e-mobility.
07:48We're in constant dialogue with the ministries of economic affairs and transportation. While we're all in with electric, silencing things is not the right way. And we're not talking about a few percent. The future is electric.
08:02If everyone commits, the ramping up of EVs will succeed, and if the EU ensures that we're not dependent on others for raw materials. Most of them come from outside Europe. Do we have the trade relationships and enough supply contracts?
08:20We're doing our part, and in future technologies, we have investments totaling 320 million euros over the next four years, although that in itself won't be enough to build up the ecosystem.
08:35So what is the best way? According to a Chinese proverb, if you want to go fast, go alone. If you want to go far, go together.
08:43Volkswagen seems to have taken that idea at least in part to heart, working not against competitors, but with them. Its partnership with Chinese car maker Xpeng focuses on digitalization and expanding platform and software collaborations.
09:00The aim is to boost VW's appeal in China's high-volume market. For both sides, a winning deal.
09:06Volkswagen is currently leading the European EV market and is gaining momentum with constant new model launches. As a leading local company, they seem to be extremely strong.
09:19So I don't think Europe has completely missed the EV boat. But I do think Chinese companies have more opportunities and capacity to compete in this fast-moving development race.
09:30In the combustion engine era, Chinese cars couldn't compete on this scale with Europe. But the new energy solutions give us that chance. And we have to use it by leveraging our advantage and challenging the respective local market leaders.
09:50Pooling resources seems to be the order of the day, whether in the form of a joint venture, partnership or indeed merger. And especially where the market forces companies to leave their comfort zones.
10:06My own business experience tells me there is no clear right or wrong and it ultimately depends on the people involved. And we are seeing Chinese and German companies working together for mutual benefit across different markets.
10:21The Chinese are interested in German strengths and vice versa. Our understanding of the Chinese market is vital. It's a diverse world out there. What matters is succeeding and for me that means keeping jobs and value creation in Germany.
10:38So together or everyone for themselves when it comes to boosting your chances of survival, will Germany manage to turn its fortunes around?
10:48What do you reckon? What's the best strategy for Germany's car industry? Leave us a comment and don't forget to subscribe.
Be the first to comment