🔋Catching The Bug
Germany is an energy and economic policy disaster, now undermining Germany’s automotive competitiveness.
If you found this article interesting, click the like button for me! I would greatly appreciate it :)
In 1937, the National Socialist Party under the control of Hitler underwent an initiative to make roads and cars more affordable to the average German citizen. This policy sounds nice in contrast to the many atrocities and crimes committed by one of the worst totalitarian regimes of all time. After decades of pioneers in the auto industry within Germany leading up to this moment, the German government created a state-owned company to target its cheap mass production goal. This was the birth of Volkswagen (VW), a longstanding company by today’s standards. Sidelined during WWII, the company eventually found its footing again. After the government sold its shares to the public and rebranded to the Beetle, VW became one of the largest auto companies in the world.
Fast forward to 2024 and those early turn-of-the-century Pioneers of German engineering may be surprised to find out that the auto industry in Germany is not what it used to be. The German economy hasn’t grown since Q1 2023, with outlooks into the future less than optimistic. Compare that with steady US GDP growth and there is a big discrepancy. While it is easy to chalk it up to the recent energy crises, energy and economic policy have not done them any favors. Shutting down nuclear in favor of resurrecting coal plants worsened their emissions and electricity costs. Running record deficits despite rampant inflation and letting companies stop producing for a period of time are also not economic recipes for success.
VW is now considering factory closures in Germany due to economic headwinds. While Germany is a “business location”, being the company's birthplace and tied with it a good reputation. However, there are only so many losses the company is willing to take. The cost of production, which is primarily raw material and energy costs has been rising faster in Germany than in other countries. Germany also has higher labor prices due to union involvement which has been one of the large points of contention. While this may be union negotiation tactics, the rising costs have already taken out much older companies in the country.
Germany has been an energy policy disaster for a while. Despite spending the most money on renewables, the country still has multiples higher carbon emissions than its neighbor France which fully decarbonized its electricity grid all the way back in the 1980s for ~667 billion in today’s euros. While France went fully into nuclear power, Germany has shut down all of its remaining nuclear power in favor of renewable energy targets.
To put it into perspective, from 2010-2022, Germany has close to 1 trillion euros spent on its energy transition initiative, Energiewende. In that time they have reduced their carbon emissions by a meager 142 million tons of CO2 and reduced fossil fuel use from 84% to 78%. In this span, the cost of electricity to consumers doubled and is over double the cost that US consumers pay. At this rate, fossil fuels will still account for 70% of energy consumption in 2050 when they plan to be fully decarbonized.
The US on the other hand was far from the poster child Germany was in terms of the energy transition over that period. Albeit a larger country, the US reduced its carbon emissions by 620 million tons over the same period, going from 86% to 80% share of fossil fuels. In contrast, the US did not have a clear climate objective over this period like they do now. While the share of renewables went up 6%, the primary reason for this was the aggressive transition from coal to natural gas that took place with the domestic shale gas boom.
In 2023, 13 years following the official policy of Energiewende, Germany’s grid still has 8x higher carbon intensity than France and on par with the US. Not only have these policies failed in their climate objectives, they have had deleterious economic consequences. These policies have bankrupted companies already and have put a toll on the industry in the country, making it less competitive on the global stage. VW showed less profit in Q1 2024 but is far from going bankrupt itself. Regardless, this hallmark of the German auto industry (and German industry in general) contemplating shutting down one of its factories is a testament to the economic conditions in the country.
-Grayson
Leave a like and let me know what you think!
If you haven’t already, follow me at TwitterX @graysonhoteling and check out my latest post on notes.
Socials
Twitter/X - @graysonhoteling
LinkedIn - Grayson Hoteling
Archive - The Gray Area
Let someone know about The Gray Area and spread the word!
Thanks for reading The Gray Area! Subscribe for free to receive new posts and support my work.
For such a historic culture of logic and science it's sad that Germany is flailing so bad. One comment I heard was they feel they need to be overly do-gooders since they still live with the stigma of WWII (ergo letting in so many immigrants they really didn't want during the refugee crisis, shutting down nukes and going green to their detriment, etc.).