Germany’s profitable automakers are being hit quicker than expected by the adoption of electric vehicles, diesel bans and the US-China trade war

The car industry in Germany is being pounded on multiple fronts and its plight could well be a precursor of what might happen elsewhere in the world. The problems are coming from four directions:

(a) In February, a federal court said that diesel car bans are an effective way of reducing air pollution. Next year, comprehensive bans will kick in on diesel engines in big cities like Frankfurt, Berlin and Stuttgart.

(b) In the escalating trade war between USA and China, German carmarkers are highly exposed because they invested heavily in building plants in America which export cars to China. These cars are now subject to a 40% tariff.

(c) The German car industry’s technological superiority is based around the combustion engine. It does not have an edge either in electric battery technology nor in the software that goes into electric cars. The Chinese and the Americas lead the world in these new technologies. Furthermore, the outsourcing of production for electric cars and their components is also happening in Asia, not Europe.

(d) Tesla now outsells both BMW and Mercedes in the US. Tesla’s non-US sales are now higher than Jaguar and Porsche. Tesla is gradually becoming a serious challenger in the global luxury car market. Time therefore seems to be running out for the German giants.

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Note: The above material is neither investment research, nor financial advice. Marcellus does not seek payment for or business from this publication in any shape or form. The information provided is intended for educational purposes only. Marcellus Investment Managers is regulated by the Securities and Exchange Board of India (SEBI) and is also an FME (Non-Retail) with the International Financial Services Centres Authority (IFSCA) as a provider of Portfolio Management Services. Additionally, Marcellus is also registered with US Securities and Exchange Commission (“US SEC”) as an Investment Advisor.