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The Electric Car Revolution: The Case of German Manufacturers

Izabelle Apostol

Introduction


The automotive industry has been facing various challenges in the past decade. Starting with the ‘Dieselgate’ scandal in 2015 and increasing emergency of the climate crisis, a shift can be seen in the industry towards electric vehicles (EVs). These changes are significant, as large economies, such as Germany, are dependent on the car industry, which generates ~5% of the country’s GDP, and 820,000 jobs.[1]


Worldwide, the electric car market is expected to grow at a CAGR of 40.7% between 2021 and 2028 to reach $855.17 billion.[2] Total EV sales will be growing from 2.5 million in 2020 to 11.2 million in 2025, then reaching 31.1 million by 2030.[3] Ultimately, EVs would secure approximately 32% of the total market share for new car sales, as seen in the figure underneath. However, after 2030, the growth rate of EV sales is expected to slow down, as it will have to be sustained by more advanced technologies, requiring a multi-billion-dollar capital investment.


Geographically, Germany is expected to account for the largest share in the European electric cars market,[4] and attract significant car manufacturing and EV investments. The shares in German EV market grew steadily, and unlike other EU countries the rapid rise was witnessed in 2020, during the pandemic.[5] The key players driving the overall German car market are Volkswagen, BMW and Daimler. The growth is supported by multiple factors, including government norms such as environmental policies and strict regulations, forcing the companies to adapt and invest in the developing EV market. However, questions rise over how this market transition will affect the companies, and overall, the car industry.



What are the drivers of this market shift?


I. The role of environmental policies


EU has been a leading figure in the race to stop the climate change. Its first environmental policies date back to the 1990s and with time, the bar has been raised with more strict regulations on the EU companies. The regulations on the car industry are a significant part of the larger clean air policy package that was first published by the European Commission in 2013.[6] The policy package includes objectives for the reduction of air pollution in the EU by 2030, and the achievement of zero pollution by 2050. The package also includes legislative proposals to achieve those objectives, such as the implementation of stricter emission limits which would reduce the air pollution generated by cars.[7] As part of this regulation, every car model must pass an emission test prior to market launch.


To abide by these new policies and maintain a competitive position in the car market, large companies such as VW, BMW and Daimler (top three car manufacturers in Germany) have adopted new strategies and initiatives to be at the forefront of the EV production in the world.[8]


II. The role of car manufacturers


The car manufacturers are playing a detrimental role in the transition to electric cars. They not only have to comply with changing emission limits, but also develop a new business model that aligns with EU’s target of zero emissions by 2050. In response to the air policy package, the companies acted differently to this challenge yet keeping their core organisational values and vision intact.


1. Volkswagen


Initially VW used a loophole in the regulations, to cheat the emission tests through a special software, instead of adapting to the new standards. The illegality came to light in 2015 and remained known as the ‘Dieselgate’ scandal. The scandal not only had long term effects on the company, but also on the diesel car industry, with customers gradually loosing trust in the manufacturers and developing preference towards the electric cars.


In response to the scandal, VW’s business strategy evolved towards rebranding as a leading electric cars manufacturer. This includes overall investments of 35 billion euros in the electric car market and technologies.[9] The company aims to achieve electric car sales target of 20-25% by 2025 and of 40% by 2030.[10] This statement reflects the EU clean air policy package which sets its goal to substantially reduce air pollution by 2030.[11] VW also invested in developing new green technologies, such as fuel from wastewater and creating more efficient gas-powered engines, which they claim reduces emissions by at least 15%.[12]


By revenue, the global EV market is dominated by Tesla. However, VW plans to catch up by 2030,[13] and its EV production to exceed that of diesel cars.[14] In 2021, VW more than doubled its electric cars sales and the European sales increased, now constituting 26% of the market share.[15]


Overall, VW is only one car manufacturer that contributes to the fast-paced transition to the EV market.


2. BMW


BMW had a similar response to VW and increased its production of electric cars, as it plans to become a fully sustainable company.[16] BMW claimed that ‘sooner or later, the majority of drivers will be making the switch from petrol cars to an electric vehicle.’[17] Starting with 2013, BMW produced electric models of some of their most popular diesel cars, such as i3 and i8.[18] This makes BMW one of the first European car manufacturers to invest in developing the electric cars industry. They also invested in other projects, such as Connectivity Services which identifies the fastest and most efficient route, simplifying the search for a parking place, which eliminates unnecessary emissions.


In terms of sales, 7.9% of the worldwide cars sold by BMW in 2020 were electric.[19] Globally, BMW electric car sales is at 7%, same as VW, but far behind Tesla which has 22% sales share.[20] In Germany, the largest European EV market, the second most (with 12%) registered electric cars are BMWs.[21] By 2025 BMW aims for a third of all its sales to be EVs and a half by 2030.[22] This suggests that the company is transforming to become a leader in EV market.


3. Daimler


As part of its approach to the environmental policies, Daimler stated that ‘Our future is electric’.[23] Daimler is pursuing to achieve carbon neutrality by 2039, with both carbon neutral vehicles and production lines.[24] Mercedes-Benz, which is part of the Daimler company, has adapted to the policy by investing ~€3 billion in the development of a new generation of diesel engines.[25] Vehicles equipped with the new engines display low NOX emissions in real driving operation, in line with the regulations. Overall, the company is aiming to develop electric model variants of all their models – from passenger cars to vans and trucks.


In 2021, Daimler’s electric cars sales tripled, reaching 9.5% in EV sales shares. However, the growth was not as rapid as the predicted 11%, with only a 2% increase from 2021.[26] Nevertheless, the increase is steady and expected to accelerate.[27]


Overall, the most common solution for car companies to reduce their pollution emission and comply with the regulations, appears to be investing in electric cars development. This includes new technologies, such as more efficient batteries and transforming diesel models into EVs. At the same time, all three companies recognize that the future is in electric cars. Ultimately, the environmental regulations forced the companies to adapt, by employing new business models with a redistribution of funds towards the electric sector. Nevertheless, the companies play a vital role in the transition towards the electric car market, as they provide the necessary technologies to attract customers towards the developing sector.


III. The role of government intervention


Germany plans to cut greenhouse gas emissions by 55% by the end of 2030 and up to 95% by the end of 2050, compared to 1990 levels.[28] To support this target, the German government provides subsidies to buyers to cover a part of the purchasing cost of EVs, which overall facilitates the progression to the EV market. Financial incentives are a common measure among the EU member states, that stimulate consumer behaviour towards EVs. Thus, it is not only the companies that are investing in EVs to comply with the EU regulations, but also the governments.


IV. The role of consumers


The change from diesel to electric is not only affecting companies (which must adapt their strategies), but also the customers, who become more aware of the emergency of the transition (given the climate crisis) and thus push for the change.


Consumer surveys show positive sentiments towards electric vehicles. At the same time the demand is rising, and it is expected to continue in the future. The evolving consumer mindset and environmental consciousness will, in a decade, make electric cars a standard worldwide[29] A study conducted by Deloitte (in 2020), highlights that the concerns over the cost have diminished in most countries except China.[30] Thus, consumers are becoming willing to make the change and there are multiple reasons for this choice. An example is that electric cars are perceived by some as a long-term investment, that can financially benefit the buyer with the ever-increasing diesel prices.


Moreover, a study on ‘Consumer attitude and perception towards electric vehicle’ (2022), concludes that customers who do not own an electric car would be willing to buy one in the future.[31] This emphasizes the positive perception towards EVs.


Overall, the development of EV market would not be possible without the support and existence of a customer demand. The environmental policies, governments and companies are not sufficient to finalize the transition. Nevertheless, there is a positive attitude coming from customers towards this change, but the question remains how fast it will occur.


Conclusion


The auto industry is drastically changing, or best said it is forced to change, pressured by environmental regulations, government agencies and consumers’ demands, as I identify these to be the main factors that push for the market shift.


The German automotive industry recovered from the diesel scandal, and it soon adapted to the electric car transition. As emphasized through the three company profiles (of VW, BMW, and Daimler), the German manufacturers became leaders in the European EV market. From this perspective, the market shift to electric cars seems to have already started, and its advancement is inevitable. Whereas its pace will be determined by the technological development, directed by the car manufacturing companies and their investments. Despite the unclear future, the ‘electric car revolution’ is underway.


References


[1] Jeff Dorsch, "Can Germany's Auto Industry Keep Pace?", Semiconductor Engineering, 2022, Available online: Can Germany's Auto Industry Keep Pace? (semiengineering.com)


[2] Research Markets, "European Electric Car Market Forecast Report 2021-2028: Rising Trend Of Shared Mobility & Growing Adoption Of Autonomous Driving Vehicles", Globenewswire.com, 2022, Available online: European Electric Car Market Forecast Report 2021-2028: (globenewswire.com)


[3] Ibid.


[4] Ibid.


[5] Statista, "Electric Vehicle Market Share in Germany 2014-2022", Statista.com, 2022, Available online: <https://www.statista.com/statistics/1166826/electric-vehicles-market-share-germany/>


[6] Council of the European Union, Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions - a Clean Air Programme for Europe, December 2013.


[7] The European Comission, "Emissions In The Automotive Sector", Internal Market, Industry, Entrepreneurship And SMEs, 2022, Available online: Emissions in the automotive sector (europa.eu)


[8]Bryn Walton, Jamie Hamilton, et al., ‘Electric vehicles Setting a course for 2030’, Deloitte Insight, 2020, Available online: Electric vehicle trends | Deloitte Insights


[9] Anmar Frangoul, ‘Daimler’s Mercedes-Benz triples its electric car sales as CEO predicts a ‘transformative’ decade’, CNBC, 2021, Available online: Daimler's Mercedes-Benz triples electric car sales (cnbc.com)


[10] Volkswagen Group, "Environment | Volkswagen Group Sustainability", Volkswagenag.Com, 2022, Available online: <https://www.volkswagenag.com/en/sustainability/environment.html>


[11] The European Council, "The Clean Air Package: Improving Europe's Air Quality", Consilium.Europa.Eu, 2022, Available online: <https://www.consilium.europa.eu/en/policies/clean-air/>


[12] Volkswagen Group, "Vehicle", Volkswagenag.Com, 2022, Available online: <https://www.volkswagenag.com/en/sustainability/environment/vehicle.html>


[13] Vivienne Walt, ‘VW is making an $180 billion bet to dominate EVs and catch Tesla’, Fortune.com, 2022, Available online: VW is making an $180 billion bet to dominate EVs and catch Tesla | Fortune


[14] Ibid.


[15] Mark Kane, ‘Volkswagen Group more than doubled electric cars sales in Q3 2021’, InsideEVs.com, 2021, Available online: Volkswagen Group More Than Doubled Electric Car Sales In Q3 2021 (insideevs.com)


[16] BMW Group, ‘Sustainability in every car BMW builds’, bmw.com, 2021, Available online: BMW: sustainability and responsibility | BMW.com


[17] BMW Group, ‘Electric cars and plug-in hybrids explained’, bmw.com, 2019, Available online: Plug-in hybrid and other electric vehicles | BMW.com


[18] Ibid.


[19] Horatiu Boeriu, ‘7.9% of total BMW Group car sales in 2020 were electric vehicles’, bmwblog.com, 2020, Available online: 7.9% of total BMW Group car sales in 2020 were electrified vehicles (bmwblog.com)


[20] Ibid.


[21] Ibid.


[22] Ibid.


[23] Daimler Group, ‘On the road to CO2- neutral mobility’, sustainabilityreport.daimler.com, 2019, Available online: Climate protection & air quality - Daimler Sustainability Report 2019


[24] Daimler Group, ‘Sustinability Management’, sustainabilityreport.daimler.com, 2020, Available online: Sustainability management - Daimler Sustainability Report 2020


[25] Ibid.


[26] Chris Randall, ‘Mercedes increases plug-in car sales by almost 70%’, electrive.com, 2022, Available online: Mercedes increases plug-in car sales by almost 70% - electrive.com


[27] Mercedes-Benz Group, ‘Mercedes-Benz sees strong demand as high-end and electrified vehicle sales surge’, group.mercedes-benz.com, 2022, Available online: Mercedes-Benz sees strong demand as high-end and electrified vehicle sales surge | Mercedes-Benz Group > Company > News


[28] Federal Ministry for the Environment, Nature Conservation and Nuclear Safety, “Climate Action Plan 2050 – Germany’s long-term emission development strategy”, bmuv.de, 2022, Available online: https://www.bmu.de/en/topics/climate-energy/climate/national-climate-policy/greenhouse-gas-neutral-germany-2050/


[29] Shino P. Jose, et al, ‘Consumer Attitude and Perception Towards Electric Vehicles’, Academy of Marketing Studies Journal, 26.1 (2022), Available online: Consumer Attitude and Perception Towards Electric Vehicles (abacademies.org)


[30] Bryn Walton, ‘Electric Vehicle trends’.


[31] Shino P. Jose, et al, ‘Consumer Attitude and Perception Towards Electric Vehicles’

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