Dusseldorf The European car industry is threatened with losing its competitiveness due to the drastic increase in energy prices. The strategy consultancy Berylls warns of this in a current study. “An approximation of the differences in the world regions is not to be expected in the medium term either, which makes Europe the clear loser in the development and vehicles from European production are likely to become more expensive,” write the energy experts Alexander Timmer and Stefan Schneeberger in it.
Car manufacturers like Volkswagen take this advice very seriously. VW brand boss Thomas Schäfer also sees the competitiveness of the high energy prices in danger. “I’m deeply concerned,” the manager said recently.
The Berylls experts point out that although energy prices in North America and China have also risen, they have not been nearly as strong. Energy costs made it increasingly difficult to implement new construction projects in Europe. This is shown, for example, by the discussion about the planned battery plant of the Swedish manufacturer Northvolt in Schleswig-Holstein, which has been put on hold due to rising energy prices.
Electricity costs are likely to continue to rise sharply in Europe
The study focuses on the development of electricity prices in Europe, North America and Asia. The authors conclude that the extreme increase this year “marks a change of times”. Electricity is the dominant form of energy in the automotive industry. Natural gas is mainly used for heating and only plays a minor role.
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In 2022, the share of electricity costs in the European automotive industry was around 800 euros per vehicle produced. In 2023 it could be up to 1200 euros, according to the Berylls analysis. Last year, the average electricity costs were significantly lower at 300 euros.
In Japan, too, electricity prices have risen significantly this year. A manufacturer like Toyota has to reckon with the fact that the costs per car have roughly doubled from 250 to 500 euros. When it comes to power generation, Europe and Japan have a comparable energy mix – and both pay correspondingly high price premiums.
Automakers in the US will get away with significantly cheaper electricity bills this year and next. As the Berylls analysis shows, companies such as General Motors (GM) or Ford will then have to reckon with average electricity costs per vehicle produced of around 250 euros. China is also roughly at this level. In South Korea, spending is about 100 euros more.
The entire European car industry is expected to receive an electricity bill of around twelve billion euros this year. For North America, the analysts calculate less than three billion euros and in China not quite seven billion euros. European manufacturers have tried to recoup these higher expenses, at least in part, through price increases.
At peak times, the price difference for a megawatt hour of electricity (MWh) between the USA and Europe was around 800 euros this year. Currently, the prices have converged again somewhat. However, the megawatt hour is still between 200 and 300 euros cheaper in the USA.
No quick alignment expected
A rapid reduction in energy costs cannot be assumed, as the analysis goes on to say. It is true that a slow fall in electricity prices in Europe can be expected. However, the Berylls authors write that an alignment of the three world regions is not to be expected in the long term. They expect, for example, that the electricity costs per vehicle in Europe will still be around 200 euros higher than the US level in 2028.
The different competitive conditions could only be abolished to a very limited extent with state intervention. According to the analysis, no country in the world can afford to completely compensate for the differences. Interventions such as the German electricity price brake were also introduced for a limited period of time and are therefore not sustainable. In Germany, the price brake is to apply until spring 2024.
Volkswagen finds clear words for the current energy situation. “Europe is not price-competitive in many areas. In particular, when it comes to the costs of electricity and gas, we are falling behind more and more,” said VW brand boss Schäfer.
If it is not possible to reduce energy prices in Europe and Germany quickly and reliably, investments in energy-intensive production such as for battery cells are “practically no longer feasible”. “The added value in this area will take place elsewhere,” explained Schäfer.
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Originally, the carmaker had announced that it wanted to build six so-called gigafactories in Europe by 2030 for an estimated 20 billion euros. These will then produce the battery cells required for the group’s future electric vehicles to be built on the continent.
Volkswagen plans more cautiously
In the meantime, VW is cautiously distancing itself from its own investment projects. According to company circles in Wolfsburg, the high energy costs could mean that plans for new cell factories will soon be approached more cautiously.
An exact number of factories is not decisive, but rather the capacities required in the ramping up production of electric cars. According to Volkswagen, the board of directors is currently examining where new cell factories should be located and in which order they would have to be built.
The group thus ultimately confirms the assumptions of the Berylls investigation. “The sustained changes in the energy price level will lead to a reconsideration of location decisions in the global production network,” the two authors expect. Investments in the automotive industry would have to be reassessed along the entire value chain.
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