At a recent trade show, German foreign minister Annalena Baerbock offered a sobering assessment of the country's auto industry. She raised a crucial question: Will Germany be a global leader in the future?

While American automakers struggle with labor issues, German heavyweights Volkswagen, Mercedes-Benz Group, and BMW face their own challenges in the race toward the electric vehicle (EV) future.

According to Clean Technica, Tesla and Chinese company BYD dominated global EV sales in the first half of this year, accounting for more than a third of the market share together. Volkswagen managed a distant third place with only 7%.

The situation is not unique to Germany. Established automakers across the world are playing catch-up with Tesla and Chinese counterparts. Ferdinand Dudenhoeffer, director at the Center for Automotive Research in Germany, highlights the need for these established companies to reinvent their design and development departments, which are still primarily controlled by internal combustion engineers.

The big question remains: Can German automakers bridge this gap? The market's confidence varies depending on the company. Volkswagen, despite changing CEOs in July 2022, has seen a 25% decrease in its value over the past year. On the other hand, Mercedes-Benz shares have risen by 19%, while BMW has experienced a substantial 33% increase in value. However, the challenge for German automakers is magnified by Volkswagen's sheer size—roughly equivalent to Mercedes-Benz and BMW combined.

Volkswagen's expansive lineup, ranging from economy Skodas to luxurious Audis and Porsches, may pose obstacles to its ability to adapt and streamline operations. The involvement of unions, which hold half of the seats on VW's board, and the state government of Lower Saxony, which owns 20% of the shares, could impede efforts to prioritize focus and efficiency. Dudenhoeffer likens Volkswagen to a state-owned company and predicts a diminishing significance over time.

The German government's atypical stance on addressing the challenges in the auto industry demonstrates a willingness to confront the harsh realities. As global trends shift toward electric vehicles, German automakers must embrace change and innovation to secure their positions in the future.

The Electric Luxury Showdown: Mercedes and BMW vs Tesla

Introduction

In the competitive world of electric vehicles (EVs), both Mercedes and BMW are gearing up to challenge Tesla within the next few years. Despite the high costs associated with this electric transition, these German auto giants have a leg up due to their profitable gas-powered vehicles. Philippe Houchois, the head of European and U.S. auto research at Jefferies, states that their fat margins provide them with deep pockets for investing in new technologies while still being able to pay dividends. Houchois specifically recommends BMW as a stock pick, thanks to its current dividend yield of over 8%.

German Auto Makers' Strategic Investments

As a collective group, German auto makers have aligned their focus on electromobility and allocated an impressive 380 billion euros ($406 billion) towards research and development as well as factory construction over the next five years. The industry lobby VDA confirms that this significant investment will expedite the production and advancement of electric vehicles.

China's Vital Role in Germany's EV Industry

One common thread among Germany's Big Three auto manufacturers is their heavy dependence on China—for both sales and technology. For instance, Volkswagen made a strategic move by investing $700 million for a 5% stake in Guangzhou-based XPeng (XPEV) in July. This investment aims to foster collaboration in developing a superior EV platform, according to Houchois. Furthermore, BMW recently established its fifth Chinese Research and Development center in Shanghai, affirming its belief in China's importance in shaping the future of mobility.

The Challenges of Geopolitics in the EV Age

While Germany looks to cement its position in the EV market, the European Union's decision to investigate Chinese EV imports with the intention of potentially imposing higher tariffs poses a mixed blessing for Germany. Professor Dudenhoeffer notes that this move by France carries the risk of inviting harsh Chinese retaliation, which could ultimately harm Germany's automotive industry. As the EV age unfolds, geopolitical factors remain uncertain and contribute to a highly unpredictable landscape.

Conclusion

In the race for dominance in the EV market, Mercedes and BMW are formidable contenders set to challenge Tesla's reign. With their robust financial capabilities and extensive investments in research and development, these German auto manufacturers are well-positioned to make a significant impact. The important role that China plays in both sales and technology collaboration further strengthens Germany's position. However, as this nascent EV age progresses, the future remains uncertain and Tesla cannot be counted out.

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