German Auto Market: From a Devastating Crash to a Great Revival
With a turnover of 379.3 billion euros in 2020, the German automotive industry is the largest branch of industry in the country, which corresponds to around 20% of total German industrial turnover.
In fact, according to Germany Trade & Invest, Germany is Europe's number one automotive market with a share of around 25% of all passenger cars manufactured (3.5 million) and around 20% of all new registrations (2.9 million) in 2020.
Germany shares the spot with the USA, China and Japan as one of the four largest automobile manufacturers in the world. The reputation of the German automotive industry for quality, reliability, efficiency and innovation among the world's leading car brands is unique in the world. The leading R&D infrastructure in the country, the continuous integration of the value chain and a highly qualified workforce together form an unbeatable international automotive domain.
2020: A look back at the German auto industry
2020 was a turbulent year for the global auto industry. The coronavirus chaos wreaked havoc on the German auto industry in the second half of the first, second and third quarters of 2020 amid factory closures, low customer frequency at dealerships and distortions in the supply chain. In fact, almost all car production in the country came to a standstill in April 2020.
In addition to the pandemic, the causes of catastrophes in the German automotive sector in 2020 also include structural factors such as the switch to electric drives, an unfavorable segment mix and production site conditions, which will lead to a further decline in production. In fact, the worldwide increase in electromobility has hit the German auto industry hard due to its dominant position in diesel vehicles.
In 2020, new car registrations in Germany are expected to have risen by 19% to 2.9 million, the lowest level since German reunification. The domestic production of passenger cars of 3.5 million in 2020 also marked a decline of 25% compared to the previous year and reached the lowest point since 1975.
In addition, the German automotive industry, which is heavily dependent on exports, recorded a decline in car exports of 24% compared to the previous year.
Nevertheless, the stimulus package adopted in Europe in June 2020, which included a temporary reduction in the VAT rate by the end of the year and an increase in the state share of the environmental bonus, accelerated the recovery in the German auto industry. This turned out to be a ray of hope in the otherwise gloomy scenario of the German auto industry. This enabled a positive result to be achieved in the fourth quarter of 2020, with December being the strongest December of all time for the German car market.
In addition, last November the federal government offered the ailing German auto industry € 5 billion (US $ 5.9 billion) to mitigate the coronavirus crisis and promote the transition to electric cars. In addition, the cash bonus for buying electric vehicles in the country has been extended until 2025. This further accelerated the transition to electric drives in the economy. While new registrations of electric cars (battery EVs, plug-in hybrid EVs and fuel cell cars) rose by 97% in the first half of 2020, the figure rose by 392% in the second half of the year.
After a year of unprecedented obstacles, the German auto industry said goodbye again in 2021.
Fortunately, in May 2021, increasing sales of plug-in hybrid and fully electric cars generated momentum in German vehicle sales. According to the Federal Motor Transport Authority (KBA), around 26,800 passenger cars with battery-operated electric vehicles (EV) were newly registered, which corresponds to an astonishing 380% increase over the previous year, and around 27,200 plug-in hybrids were newly sold, an increase of 300%. New car registrations in Germany over the course of the month amounted to 230,635, an increase of 37% compared to May 2020. In addition, registrations rose by 13% to 1.12 million in the first five months of 2021.
The German automobile manufacturers, once world leaders in automobile innovation, have recently accelerated their electrification steps, orienting themselves towards the EV giant Tesla TSLA. In March 2021, during its Power Day presentation, Volkswagen VWAGY presented its timetable for electric vehicles with longer range, cheaper batteries and better charging. This underscored the Zacks Rank # 2 (Buy) company's ambitious EV plans and made it clear that the company will leave no stone unturned to become the undisputed leader in the EV landscape. In fact, Volkswagen's ID.4 reached 7,565 registrations in April, topping the list of plug-in car sales in Europe for the month. You can view the full list of current Zacks # 1 Rank (Strong Buy) stocks here.
The federal government recently gave a green signal for the use of fully autonomous robotic taxis, which will allow driverless vehicles to operate on public roads without a human security guard at the wheel until 2022. This will make Germany the world's first major economy to legalize the commercial use of fully autonomous vehicles and beat the US and China.
Amid this improving scenario, however, the global upheaval of the pandemic created a supply chain crisis in the economy that resulted in a global shortage in the supply of semiconductor chips.
In fact, the massive shortage of semiconductors threatened to paralyze production in one of Germany's largest industries - the automotive industry. This has forced the country's large car companies, such as Volkswagen, Daimler DDAIF and BMW AG BAMXF, to cut back vehicle production in recent months. In addition, the deficit in the semiconductor market delayed economic recovery after the coronavirus pandemic.
As a big sigh of relief, the German technology company Bosch opened a 1 billion euro chip factory in Dresden last week to meet the rising demand for semiconductors. The plant is the largest single investment in Bosch's 130-year success story. The state-of-the-art facility, which has received € 200 million (US $ 243 million) in aid under an EU investment scheme, will begin production of power tool chips in July, with production scheduled to begin in September. This in turn will help revitalize the European semiconductor industry.
The automotive industry is the backbone of German industry. 2020 will go down in the history of the German automotive industry as a doomed year, with the shutdown forced by a pandemic taking its toll. In fact, the economic recovery in 2021 was also shaky due to supply chain issues.
With a view to the second half of 2021, however, the German auto industry remains cautiously optimistic in view of the switch to electromobility forced by the government's economic stimulus package.
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