Heavy investment in electric mobility and digitization – CO2 regulation requires moderation – Record level of employment – Domestic market is strong despite switch to WLTP – German OEMs produce 16.5 million cars worldwide
Statement delivered by Bernhard Mattes, President of the German Association of the Automotive Industry (VDA), at the end-of-year press conference held at 11.00 h on Wednesday, December 5, 2018, at the VDA in Berlin
Ladies and Gentlemen,
A look back over the year 2018 shows quite clearly that the German automotive industry has a huge amount of work to do. We are shaping a transformation process that will change automobiles, mobility, and with that the sector itself.
We are certain that we will make a good job of these tasks. I am confident about this because our companies are driving electric mobility forward with the same determination with which they are pushing forward digitization and connected and automated driving.
Worldwide we are dealing with several megatrends:
- an expanding population that is living increasingly in large cities,
- an expanding middle class with purchasing power and significant mobility needs,
- digitization and connectivity on all relevant markets.
This growth dynamic must be combined with environmental conservation and climate protection. For the automotive industry that means more mobility and lower emissions, more growth and lower consumption of resources – a real challenge!
As the most innovative automotive industry making the world’s largest investments in research, we are in pole position. We are ready for the mobility of the future. But success in this long-distance race also requires the appropriate political guidelines to be put in place.
CO2 regulation and electric mobility
This brings me to the topic of CO2. The EU’s CO2 target for 2020/2021 is very ambitious – and the most demanding target anywhere in the world – compared with China, Japan or the US. Europe is now discussing the CO2 targets for passenger cars for the period up to 2030. We are convinced that 35 or 40 percent would be unrealistically high. That would be an excessive target for the industry.
The Commission’s proposal (30 percent reduction) can only be achieved if the proportion of electric vehicles among new registrations rises rapidly – right across Europe. We take an even more critical view of the proposals made by the European Parliament for reducing CO2 output from heavy-duty commercial vehicles (reductions of 35 percent by 2030 and 20 percent by 2025). These targets are not feasible either technologically or economically within the period envisaged. Given the disproportionately high penalties of EUR 5,000 for every gram above the target, these demands could actually threaten the existence of some commercial vehicle makers.
How well the market for e-vehicles picks up speed will depend on many factors: battery costs, the charging infrastructure, fuel prices and public procurement.
The German automotive industry is making massive investments in the future:
- It is trebling its portfolio of electric models to 100 over the next three years.
- It will invest 40 billion euros in alternative powertrains over the same period.
- It is a leader in patents for alternative powertrain technology: one third of patents anywhere in the world in the fields of electric mobility and hybrid drive come from Germany.
We have a strong position on the electric mobility market. We account for 50 percent of new passenger car registrations in the EU, and in Germany we have a market share of 66 percent.
Framework conditions – charging infrastructure
Innovative products are insufficient on their own – the right framework must also be in place. Halving the assessment basis for the taxation of electric company cars (for a limited period from Jan. 1, 2019, to Dec. 31, 2021) will provide effective leverage for accelerating the market ramp-up. Furthermore, the environmental bonus should be extended beyond June 2019; the funding is not yet exhausted. Above all, the charging infrastructure must be expanded. At present Germany has 13,500 publicly accessible charging points, 900 of which are high-speed charging points. By comparison, in Oslo there is one charging station for every 450 inhabitants, while Berlin has one charging station for ten times as many people (4,500). Many other EU countries have an even more sparse charging infrastructure. Most charging is done on private premises. For electric charging to become a matter of course, the legislation on buildings, tenancies and property ownership will have to be revised.
We are driving the ramp-up of electric mobility forward. But we must not restrict the debate to an either-or argument. Internal combustion engines will still be needed for a long time to come. We should also utilize the option of climate-neutral fuels (called e-fuels), as they exert their effects throughout the entire vehicle fleet. After all, individual mobility continues to increase. A recent DLR study concluded that in 2040, the total mileage traveled by passenger cars in Germany will not decrease, but will rise to 700 billion kilometers, i.e. 11 percent more than it was in 2010. The vehicles on the roads will indeed still include some cars with a combustion engine – most of them hybrids or plug-in hybrids – but battery-powered cars will increasingly dominate new registrations.
Digitization, artificial intelligence, connected and automated driving, and autonomous driving
We are convinced that the future of the car will be primarily electric – and it will be digital. The importance of artificial intelligence (AI) here has just been demonstrated by the digital summit meeting. AI has a decisive role to play on the path to automated and driverless vehicles. And it offers the automotive industry huge potentials in its products, production chains and value chains. We will also experience the great progress made in digitization, connected and automated driving, and autonomous driving at the IAA 2019 in Frankfurt. We look forward to many new formats and players that will also come from startups and technology companies. The IAA is transforming itself just like the entire industry.
Patent applications around the world for connected and automated driving show that the German manufacturers and suppliers are very successful in this field. Half of such patents are from these companies, who come in first place in an international comparison.
Digitization also means that OEMs and suppliers are becoming service providers and developing new mobility solutions. Car-sharing, ride-pooling, e-scooter sharing, mobility platforms and mobility apps are just some examples – and they are only the beginning. We are pushing connected and automated driving forward. To do so, we need a powerful digital infrastructure – that is, total coverage with 4G and 5G along all state and federal roads, on the freeways and in industrial regions.
Clean urban air and individual mobility
German OEMs recently pledged additional measures to ensure clean air. They still take a critical view of hardware retrofits, but they are willing to make a financial contribution. However, we are sure that rapid fleet renewal would be by far the most effective way of making the air in the cities affected even cleaner.
The most advanced diesel passenger cars provide an answer to the nitrogen oxide issue. They have very low NO2 emissions even on the roads. The Euro 6d-TEMP standard will apply to all newly registered cars as of September 2019. But today there are already over 1,200 models (both gasoline and diesel vehicles) available on the market, and more than 700 of them bear a German group badge. At this time, over two thirds of all new passenger car registrations are of Euro 6d-TEMP vehicles. So the latest, clean passenger cars are swiftly penetrating the market. We are on the home straight when it comes to resolving this problem.
The German automotive industry is a responsible and strong employer. Manufacturers and suppliers make a key contribution to prosperity and social security in this country. We know that the auto industry has to regain credibility. We want to continue helping to build up new trust. That will not happen overnight, but it will happen with perseverance, with long-term environmentally friendly products and new mobility services, and successful work on the enormous transformation process. To this end, we are investing tens of billions in research and development – also in technology “Made in Germany.” But it will be possible to shape the future of hundreds of thousands of jobs in Germany and secure capacities at German sites only in cooperation with politicians and trade unions.
Industrial policy – for free and fair trade
We should do that simply because the world does not leave us alone with our problems. The effects of Brexit can already be felt. So far this year, our passenger car exports to the United Kingdom have slumped by 14 percent. Everybody has to understand that no-one is going to benefit from Brexit – it will have a direct impact on the automotive supply chains. Every attempt must be made to avoid a hard Brexit. After the positive conclusion of the EU summit, the decision now has to be taken by the House of Commons. We hope that reason will prevail.
The situation is similar with regard to trade relations with the US. Taken together, the EU and the US represent 50 percent of world trade. We support a transatlantic agreement on industrial goods in conformity with WTO rules, which should include automobiles. Removing import tariffs and reaching the greatest possible understanding on regulations represent the right way to go. That will benefit both sides.
Regarding the G20 summit, the signals from Buenos Aires are an encouraging sign that a solution can be found in the trade war between the US and China. If China reduces its import duties, that will have positive effects for our companies. In 2017 the German auto makers exported 150,000 light vehicles from their US production to China. One in five of all cars that we build in the US goes to China.
That brings me to the market.
Global passenger car market – US, China and Europe
The global passenger car market is being held back by the trade conflict between the US and China. For example, German car manufacturers’ exports from the US to China slumped by one third during the first ten months. The Chinese car market has been contracting for several months. We assume that the global passenger car market will total around 85 million vehicles in 2018. That would match last year’s figure. In 2019 we expect a small increase to 85.9 million new cars (+1 percent).
What is the situation like on the large markets in 2018? In Europe we expect to see a small rise (+1 percent) to 15.8 million passenger cars. Here the biggest factor holding the figures back is the UK. By contrast, France and Spain are growing, while Italy is somewhat weaker. For 2019 we expect that Europe will maintain its very high level of sales (15.8 million). The US market will also remain at a high level in 2018 (17.2 million light vehicles). We expect a similarly large volume in 2019.
China is currently taking a breather on its growth path. For 2018 as a whole we expect to see a slight loss of 1 percent, down to 23.9 million passenger cars. One sign of strength is that the German OEMs, and especially the premium brands, have bucked the trend in China and pushed up their market share to 22 percent. In 2019 the Chinese market will stay volatile. We are assuming slender growth to 24.4 million units (+2 percent). The German group brands take almost one fifth of the world market, and on the global premium market their share actually exceeds 70 percent.
German passenger car market
The German domestic market for passenger cars will reach a volume of around 3.4 million new registrations in 2018 (-1 percent). In view of the distortions caused by the switch to WLTP, this is an extraordinarily good result. And it is all the more remarkable because 2017 already saw the highest level of new registrations in this decade. A similarly strong result can be expected in 2019, above the average of the last five years. We expect a volume of nearly 3.4 million new registrations (-1 percent).
Passenger car production and exports
Domestic passenger car production will amount to a good 5.1 million units in 2018. That is a fall of 9 percent, triggered principally by the temporary WLTP-related dip. This effect will only last for a few months. We are confident that in 2019 domestic production can be increased again by 2 percent to a good 5.2 million units. Foreign production of passenger cars, on the other hand, will expand in both this year and next. For 2018 we expect a volume of roughly 11.4 million units, which equates to a rise of 5 percent. In 2019 the figure may well reach 11.7 million (+3 percent).
Overall, this means that global passenger car production by the German group brands is remaining stable in 2018, totaling 16.5 million new cars. However, a lot depends on how international trade policies develop. If things go well, we could reach the 17 million mark for the first time in 2019.
Exports of passenger cars in 2018 will come to 4 million units, 8 percent short of last year’s value. We expect a slight increase (+2 percent) in 2019 to 4.1 million exported cars.
The number of employees in Germany grew by two percent by September, to 833,700. That is 15,600 more employees than in the same period last year – and it is the highest level of employment since Germany’s reunification. Including the motor-vehicle business (trade and workshops), the total workforce in the German automotive sector comes to 1.28 million employees. And that does not include many jobs in upstream and downstream areas such as foundries, gas stations, the taxi business, forwarders, etc. For 2019 we expect a high level of employment similar to that recorded in 2018.
We see the transformation process challenging the entire automotive industry primarily as an opportunity – for companies and for ordinary people. “Zero emissions” and “Vision Zero” are objectives that deserve every effort. However, the necessary political measures must always be subject to a technical and economic check, otherwise opportunities will turn into risks.
The remarkable thing about the automotive year 2018 is that our companies have created more jobs and taken employment to a record level. In view of the difficult conditions, policymakers and the industry should work together to permanently strengthen the framework conditions in Germany as a location for industry and investment.
The German passenger car market has developed well in 2018. It has proved to be very robust despite all the difficulties. Yet a look at the international markets does not produce a cloudless picture.
In all probability, 2019 will also be a year of transition.
In the medium and long term, however, the signs continue to indicate growth. And that gives us reason to be optimistic, as does the fact that in the near future the German automotive industry will launch many models onto the market, which will set new standards in emissions, range, consumption and connectivity.