The impact of the federal election on the xEV market won´t stop at Germany´s borders

Munich, October 2021

The impact of the federal election on xEV market won´t stop at Germany´s borders

Munich/Detroit, October 2021

hether Germany’s federal election results in a traffic light or a Jamaica coalition, the country’s biggest industry will change in ways that will have an impact across Europe – and in China.

Since the last federal elections in 2017, Germany has been through an ecological metamorphosis. Public sentiment, particularly among younger people, has shifted decisively in favor of strong action to reduce carbon emissions and prevent a climate emergency. Even before the damaging floods in the summer of 2021, the rising commitment to green issues could be seen in the level of popular support for the “Fridays for Future” movement started by Greta Thunberg.

The Green Party has achieved its best-ever election results, taking a 14.8 per cent share of the vote, up 5.8 percentage points on 2017. As a result, the party is now a key player in coalition negotiations that we believe are most likely to result in either a so-called “traffic light” coalition of the SPD, the Green Party and the economically liberal FDP, or the “Jamaica” coalition made up of the CDU/CSU, the FDP and the Greens. We assume that if either of these three-party groups succeeds, and the country avoids falling back on the “grand coalition” of the SPD and CDU/CSU, then the Green Party will claim the Ministry of Transport as its price for agreeing to other compromises.

Of course, OEMs operate on far longer timescales than the four-year government term: planning cycles span 10 years, and models are in production for five years. However, decisions made on green transport policy will undoubtedly have an impact on the country’s dominant car industry. In turn, the size of Germany’s car market, which generates €400 billion a year in sales, means it will pioneer change across Europe and even influence the automotive industry in China.

As we noted at last month’s IAA event in Munich, German OEMs are now making e-mobility their priority, with affordable battery electric vehicles (BEVs) in the best-selling B and C categories planned for the middle of this decade, plus support for the full EV ecosystem, including the all-important charging network. This puts the industry in alignment with the wishes of voters on September 26, and the course is therefore set for transformation on both the product and the market side. But how will the choices of the eventual coalition government affect the plans OEMs and suppliers already have in motion?

Impact of a traffic light coalition

The auto sector is the largest industry in Germany, employing 1.8 million people. However, the role of cars in the life of the nation also goes far beyond their industrial and economic contribution. Cars have been dubbed the “favourite child” of Germans, the majority of who remain committed to keeping their individual mobility.

With this in mind, we expect the full focus of the traffic light coalition will be on getting more BEVs on the roads. This will drive lower emissions in line with the Green Party’s goals. It will also support the SPD’s priorities of preserving private car ownership, particularly among lower income groups, and protecting jobs in the car industry, given the close links between the SPD and the labor unions.

BEVs will therefore benefit from government support out to 2025, and this will also help keep Germany on track to meet its EU emissions obligations under the “Fit for 55” program. To achieve the Fit for 55 targets, around 14 million vehicles, or 30 per cent of the cars on Germany’s roads, would have to be electric by 2030.
As well as government support for BEVs, we would also expect a gradual withdrawal of support for plug-in hybrid electric vehicles (PHEVs) and higher taxes on internal combustion engine (ICE) cars. However, the Green Party’s call for ban on new ICE cars from 2030 will not happen in a traffic light coalition, because of the scale of the impact on German jobs.

Impact of a Jamaica coalition

The combination of the yellow and black strands of this group – the economically liberal and car-friendly FDP, and the CDU/CSU – are likely to be less focused on the BEV, and to maintain a more open position when it comes to alternative technologies for reducing emissions. That would keep PHEV and ICE vehicles, as well as hydrogen-powered fuel cell electric vehicles (FCEVs), in the mix, and would be particularly applicable to commercial vehicles. We would also expect this coalition group to support further research into synthetic fuels (e-fuels) as an alternative to gasoline and diesel.

Maintaining openness on which technology will supersede ICE in the long-term does mean that the right solution would be driven by industry, rather than by politics. However, given the significant investments OEMs have already made in BEVs, it is not clear why the next government would want to undermine their progress. From the perspective of the auto industry, it will be important that maintaining an open mind on which engine technology will “win” in future, and support for research into e-fuels and hydrogen technologies, does not slow down the roll out of the charging infrastructure and other investments needed to ensure Germany and German carmakers meet EU-wide emissions targets.

What about carbon taxes?

We expect fuel prices to go up, whether the traffic light or the Jamaica coalition wins. The Green Party are seeking to increase the carbon dioxide tax from €25 per tonne of CO2 to €60 per tonne by 2023. Doing so would increase the additional cost of the CO2 tax on a liter of diesel from around 8 cents to around 20 cents.

However, if the traffic light coalition with the SPD forms the next government, we do not expect the CO2 tax to increase by such an amount. This is because the SPD does not want the cost of the xEV transition to be borne equally by all drivers, when higher income groups currently buy the majority of xEVs. We expect a Jamaica coalition would agree to a gradual increase to close to €60 per tonne, in line with the Green Party’s pledge, by 2023/34.

Subsidies for China?

The scale of Germany’s car industry and its leading position in Europe means the policies taken by the next government will impact the transition away from gasoline and diesel engines across the continent. However, another important point to note is the possible impact in China. The country is the world’s biggest BEV market, and to date, most of the country’s EVs have been made by Chinese OEMs (see chart below). However, the government is scaling back subsidies for BEVs and PHEVs. If growth in the Chinese market slows as a result, BEV subsidies in Germany will make the market more appealing for Chinese OEMs, which are already increasing their sales in this country.

Dr. Alexander Timmer


Dr. Alexander Timmer

Dr. Alexander Timmer (1981) joined the Berylls Group, an international strategy consultancy specializing in the automotive industry, as a partner in May 2021. He is an expert in innovation and market entry strategies and can look back on many years of experience in the operations environment.
Dr. Alexander Timmer has been advising automotive manufacturers and suppliers in a global context since 2012. He has in-depth expert knowledge in the areas of portfolio planning, development and production. His other areas of expertise include digitalization and the complex of topics surrounding electromobility.
Prior to joining Berylls Strategy Advisors, he worked for Booz & Company and PwC Strategy&, among others, as a member of the management team in North America, Asia and Europe.
After studying mechanical engineering at RWTH Aachen University and Chalmers University in Gothenburg, he earned his doctorate in manufacturing technologies at the Machine Tool Laboratory of RWTH Aachen University.