How the German Automobile Industry Benefits from an Electric Car Quota in the Chinese Market.
A Commentary by Peter E. Rasenberger
Even Germany’s chancellor Angela Merkel provided support when China brought up the topic of an obligatory electric car quota for every automobile manufacturer in the Chinese market. The access to the Chinese market, the most important key market for the prestigious German automobile industry, was threatened to be closed or at least become significantly more expensive if the idea turned into reality. The proposal stated that, starting from 2018, at least 8% of each automaker’s sales have to be made up of electric vehicles. Only then they would be allowed to continue selling cars with traditional combustion engines – if else, they would face penalties. Being the nation’s most important economic sector, the German automobile industry felt threatened and pressured Chancellor Merkel. The proposed quota considerably exceeds the target figures of German automakers in the production of electric vehicles. Measurements had to be taken in China to delay the electric revolution further. The impact on German employment had to be emphasized. Obligatorily, Chancellor Merkel conducted a conversation with Xi Jinping – to no avail.
In Beijing, the Ministry of Industry and Information Technology of China recently announced an obligatory minimum amount of alternative drives in the production and sale of automobiles. In 2019, the output will have to make up at least 10% while in 2020, the number will be raised to 12%. Now, the quota has finally arrived – albeit being a year late and even higher. Well then – the forthcoming comments of the usual suspects amongst the experts in politics and economics are easily predictable: From unjustifiable market intervention, protectionism for the Chinese electrical industry to the point of economic warfare in the automobile industry – everything will be represented in one way or another.
A calm and objective examination of the new regulations in China is highly necessary. This new regulation neither came unexpected nor is it a case of monstrous, overweening bureaucracy, as some critics like to claim. For decades, China has been making great experiences with using quotas to control failures and excess in national production. In view of thick smog clouds above Beijing, the ambition to become an ecological leader in a short amount of time may seem absurd to German spectators. But is it really that unusual for a country to be so strongly interested in tackling the colossal ecological challenges they face? How are German spectators not more intrigued in how boldly the Chinese government is engaged in their problem-solving?
What Were the Actual Regulations?
All automakers with an annual production of more than 30,000 vehicles are obliged to possess a certain amount of points which they gain by selling electric vehicles. The total score dictates how many combustion engine cars they are allowed to sell. The highest amount of points can be achieved with an all-electric car (e.g. the current Teslas or the battery-only version of the BMW i3). Fewer points will be given for hybrid engines. Driving range is another important factor. The newcomers in the automobile industry will be ranking high at the top. The scoring system will be balanced to reach a quota of 10% in all newly registered vehicles in 2019; in 2020, the number will already be at 12%.
Buying and selling those ‘ecological points’ is allowed. Volkswagen would then be able to buy missing points from Tesla to raise their score for the continuation of their combustion engines. It would be condemnable to think that the stubborn resistance against the new regulations is caused by the ego of the managers in the German automobile industry.
Why Persist on Electric Drives When the Issues of a Clean Power Supply and Storage Have not Been Solved Yet?
To critics, it appears premature to settle for electric drives instead of hydrogen propulsion, which would be realizable with modified combustion engines. One may want to know what the use of a new regulation is at this point if electric vehicles ran on dirty power supplies from lignite-fired power plants. The extent and complexity of the issues we are facing is undeniable. Since divide et impera, it is also undeniable that splitting problems into smaller pieces is a plausible way to master challenges that may seem overpowering – step-by-step. Separating the “conversion of energy into motion” from the issue of ecological energy production is a worthwhile utilization of this principle. Even when we are still at a point where there are too many lignite-fired power plants and the energy revolution is far from being finished. Banning combustion engines from all major cities objectively produces a better quality of breathable air. Waiting for a perfect solution benefits the millions of people in Chinese cities as little as the politicians in Stuttgart who are obliged to meet the emission quota.
The future of electric mobility will be set in China – the founders of Grantiro have been supporting this proposition for years. Conversations with Chinese government representatives quickly point out the obvious: The upcoming quota is merely the first step of many more to take. Completely stripping major Chinese cities of combustion engines was and is the goal. The process will take longer than some Chinese government representatives may expect – but it will happen much quicker than the German automobile industry and its pretentious apparatus lobby is making us believe.
Upper echelons of German companies that still believe that the masters of the universe are residing in Stuttgart, Munich and Wolfsburg will soon realize how wrong this notion is for the automobile universe. Acting carelessly are producers who deliver automobiles or manufacture traditional drives but fail to display a legitimate plan B that shows a clear independence from the combustion engine before the year of 2030. As of today, forward-looking German banks which provide financing to automotive suppliers will already call their clients’ future into question. The loss of a company’s business foundation very likely equals their bankruptcy.
Deniers of Innovation are Financing New Innovators
If the new regulations in China will actually be implemented in a way in which new electric-only automakers in the market are selling their points to traditional manufacturers, everyone would benefit from them. Essentially, all deniers of innovation amongst the established automakers will finance the electric newcomers on the long run. With an objective look on the difficult financing situation for innovative German start-ups and their miserable German venture-capital market, the Chinese regulations for an “alternative drive scoring system” appears intelligent, innovative and worthy of imitation. Would this all not be a suitable model for Germany?
The developments in China discipline a whole industry. We should be thankful. The Chinese quota is worthwhile.
for the world: because those resisting progression and innovation are funding the real innovators, thus leading us to an ecological way of public transport on this planet even quicker.
for Germany: because the automobile industry is too significant for Germany to risk its downfall. Stipulating a breather for German automakers in the race for domination in the market of electric mobility is foolish and will inevitably lead to further relapse. International competition knows no sleep.
for the automobile/motive industry: because it is helping the industry and its managers to focus on the important questions for the future, away from lamenting the status quo.
for Chancellor Merkel: because she attempted to delay the start of the quota regulations in China by officially representing the interests of German automakers but now achieved the best for her country by obtaining the exact opposite result.
A Commentary by Peter E. Rasenberger
Peter E. Rasenberger is an entrepreneur and the founder of multiple businesses. As a co-founder and current executive partner, he is in charge of the ventures of the merchant banking boutique Rasenberger Toschek. He provides advice to international investors in cross-border investments and devotedly negotiates special situations in the field of corporate rescues. The graduate businessman and certified IT business engineer studied at the European Business School in Oestrich-Winkel (Germany), London (UK) and San Diego (California, USA) and is now residing in Lausanne (Switzerland) and Beijing (China).