Dusseldorf The balance of power is currently shifting at all levels in the automotive industry. With the replacement of the internal combustion engine by electric drives, supply chains that have been established over decades – and which German manufacturers in particular have perfected for themselves – are changing. German car manufacturers are therefore losing importance in the age of electromobility. Your market power is crumbling.
“Chinese manufacturers have advantages over European manufacturers in the electromobility value chain,” said Helena Sophie Wisbert, director of the Center Automotive Research, in the Handelsblatt Auto-Gipfel. Volkswagen, BMW and Mercedes have to find their way in a completely new terrain where Tesla and Chinese manufacturers are already years ahead.
On the first day of the industry meeting, managers from the automotive industry, industry experts and analysts discussed the transformation of the automotive industry, which is currently in a critical phase.
According to Wisbert, manufacturers from China have achieved a high degree of integration in the supply chain, especially with the battery, which is the largest cost factor in an electric car. This ranges from the extraction of raw materials, processing to the production of battery cells and modules.
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German manufacturers, on the other hand, are heavily dependent on China and other resource-rich countries in this area. According to figures from the CAR Institute, around 66 percent of all battery cells and modules come from China.
According to Wisbert, the German auto industry must invest even more in future technologies in order to escape this dependency. “Volkswagen is on the right track here with its own gigafactories,” she says.
VW competitor Stellantis is also investing in its own gigafactories, as Uwe Hochschurtz, Chief Operating Officer at Stellantis, said. Initially, five battery cell plants are planned. One of these factories is built in Kaiserslautern. It is intended to supply Opel in Germany and French Stellantis brands with battery cells.
BMW and Mercedes are still hesitant in this area. So far, the two premium manufacturers have not planned to get into battery cell production themselves.
>> Read also: “The next two decades belong to the battery car” – Stellantis rejects electric alternatives
Volkswagen and Stellantis are also negotiating with mine operators that extract important battery raw materials such as lithium. Stellantis has taken a stake in the German company Vulcan Energy, which wants to build its own lithium production in the Oberrhein Graben near Freiburg. Lithium is the most important raw material needed for the production of battery cells. The VW Group had also decided to get involved with Vulcan.
Hochschurtz considers its own lithium production in Germany and Europe to be indispensable in order to become less dependent on imports. “We have to mine raw materials in Germany ourselves. We may also see fracking in natural gas and oil,” he said. According to Hochschurtz, the extraction of such raw materials is now also possible in an environmentally friendly way.
Auto industry must diversify more
It would be a first step towards becoming more independent from China. Because the dependency on the world’s largest car market is becoming an ever greater problem for the German car industry. China continues to be an important lifeline for Volkswagen, BMW and Mercedes. Figures from the Ifo Institute in Munich prove this, as Lisandra Flach, head of the Ifo Center for Foreign Trade, showed in her presentation. Accordingly, the German manufacturers would obtain seven of the nine most important raw materials for the construction of electric cars from China – even though alternatives would be possible.
“There is untapped potential for diversification in terms of sourcing raw materials outside of China,” said Flach. Companies from Germany and above all the car industry should do more here. There is a chance. Because under the impression of the corona-related supply bottlenecks for important raw materials and components for the automotive industry, the priorities of the automotive industry in the supply chains have changed, believes Stefan Penthin, global head of automotive at the consulting firm Bearing Point. “We are witnessing a turning point in supply chain management,” he said. “Instead of costs, availability now plays a much more important role.”
Dependence on China for critical raw materials is problematic for political reasons alone. In the course of the corona pandemic, the communist central government under head of state Xi Jinping has increasingly isolated itself economically and politically from western industrialized countries.
After the Russian war of aggression against Ukraine, there are also growing concerns that China could assert territorial claims against Taiwan. The Asian island state, from which the most important chip manufacturers supply the world with semiconductors in gigantic factories, is facing increasingly aggressive policies on the part of China.
“With regard to China, the high concentration of power in a single person worries me,” says Carlo Lazzarini, head of the automotive supplier PWO. Just recently, at a party conference, Xi paved the way for becoming Chinese leader for life.
However, Lazzarini does not believe that China’s raison d’etat can be corrected by Western companies’ commitment to human rights. You have to address the critical human rights situation in China. “But can we really change them?” asks the PWO boss in a discussion on the subject of “Supply chains in transition”.
From the perspective of the automotive industry, decoupling from China is not a solution
In the Xinjiang region, China operates camps where Uyghur minorities are forced to work. Volkswagen’s joint venture partner SAIC operates a plant in Xinjiang. For VW boss Oliver Blume, that’s no reason to withdraw from the region.
According to Lazzarini, one cannot only concentrate on flawless democracies. Decoupling, i.e. decoupling from the Chinese market, cannot be a solution. “It would be better for us to play along with our own values in such an important market than to ignore it.”
However, in the long term, human rights could become an important factor from the customer’s perspective, Penthin believes. In a survey, Bearing Point found that around 70 percent of those questioned would prefer a product that was produced under human rights-worthy conditions. More than 50 percent would even be prepared to accept a surcharge for this. “That gives production in Germany a chance compared to China,” believes Penthin.
More: How Western industries can make themselves less dependent on raw material imports