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German Auto Market: From a Devastating Crash to a Great Revival

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Germany’s automotive industry is the biggest industry sector in the country, with a turnover of 379.3 billion euros in 2020, which is around 20% of total German industry revenues.

In fact, per Germany Trade & Invest, Germany is Europe’s number one automotive market, accounting for approximately 25% of all passenger cars manufactured (3.5 million) and roughly 20% of all new car registrations (2.9 million) in 2020.

Germany shares space with the United States, China and Japan as one of the four biggest automotive manufacturers in the world. German auto industry’s reputation for quality, reliability, efficiency and innovation in world-leading car brands is globally unparalleled. The country’s leading R&D infrastructure, end-to-end value-chain integration and highly skilled workforce together create an undefeatable international automotive domain.

2020: A Look Back at German Auto Industry

The year 2020 has been a turbulent year for the global auto industry. The coronavirus mayhem wreaked havoc in the German auto industry in the latter half of the first, second and third quarters of 2020 amid factory closures, low footfall at dealerships and supply-chain distortions. In fact, in April 2020, nearly the entire production of passenger cars was at a standstill in the country.

Apart from the pandemic, other factors which caused catastrophe in the German automotive sector in 2020 include structural factors such as the transition to electric powertrains, an unfavorable segment mix and production site conditions, resulting in a further rollback in production. In fact, the rising frenzy of electric mobility worldwide hit the German auto sector hard due to its dominant position in diesel-powered vehicles.

Reportedly, new passenger-car registrations in Germany came in at 2.9 million in 2020, dipping 19% year on year, being the lowest since German reunification. Also, the domestic production of passenger cars of 3.5 million in 2020 marked a 25% plunge year on year, reaching the trough since 1975.

Moreover, the German automotive industry, which is highly dependent on exports, witnessed a decline of 24% year on year in passenger-car exports in 2020.

Nonetheless, the stimulus package enacted in Europe in June 2020, which included a temporary lowering of the VAT rate until the end of the year and an increase in the government's share of the environmental bonus, expedited the recovery of the German auto sector. This turned out to be a ray of hope in the otherwise gloomy scenario in the German auto industry. Resultantly, a positive result was achieved in the fourth quarter of 2020, with the month of December being the strongest December of all time for the German passenger-car market.

Moreover, last November, the German government offered Germany’s embattled auto industry 5 billion euros ($5.9 billion) in order to help wane the coronavirus crisis and foster the transition to electric cars. Also, the cash bonus for purchasing EVs was extended till 2025 in the country. This further accelerated the transition to electric powertrains in the economy. While new registrations of electric passenger cars (battery EVs, plug-in hybrid EVs and fuel-cell cars) jumped 97% in the first half of 2020, the metric skyrocketed 392% in the second half of the year.

Present State of Affairs

Bidding farewell to a year of unprecedented obstacles, Germany's auto industry managed to rebound in 2021.

Encouragingly, in May 2021, surging sales of plug-in hybrid and full-electric cars triggered momentum in German vehicle sales. Per the KBA federal motor transport authority, approximately 26,800 passenger cars with battery-powered electric vehicles (EVs) were newly registered, representing an astonishing 380% year-on-year rise, and roughly 27,200 new plug-in hybrids were sold, jumping 300%. New passenger car registrations in Germany totaled 230,635 during the month, up 37% from May 2020. Also, registrations grew 13% to 1.12 million in the first five months of 2021.

German carmakers, once world leaders in automotive innovation, have been lately revving up their electrification strides, taking cues from the EV behemoth Tesla TSLA. In March 2021, Volkswagen VWAGY unveiled its roadmap to longer range EVs, cheaper batteries, and better charging during its Power Day presentation. This highlighted the Zacks Rank #2 (Buy) company’s ambitious EV plans, and made clear that the company will leave no stone unturned in becoming the undisputed leader in the EV landscape. In fact, in April, Volkswagen’s ID.4 reached 7,565 registrations, topping the plug-in car sales in Europe for the month. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Recently, the German government issued a green signal to the use of fully autonomous robotaxis, allowing driverless vehicles to operate, without a human safety operator behind the wheel, on public roads by 2022. With this, Germany is set to become the world’s first major economy to legalize the commercial use of fully autonomous vehicles, beating the United States and China.

However, amid this improving scenario, the global upheaval of the pandemic prompted a supply-chain crisis in the economy, resulting in a worldwide crunch in the supply of semiconductor chips.

In fact, the massive shortage in semiconductors threatened to cripple production in one of Germany’s biggest industries— the auto industry. This forced major auto companies in the nation, such as Volkswagen, Daimler DDAIF and BMW AG BAMXF, to trim vehicle production in recent months. Moreover, the deficit in the semiconductor market delayed the economic rebound after the coronavirus pandemic.

As a major sigh of relief, German technology company, Bosch, opened a 1-billion-euro ($1.2 billion) chip factory in the city of Dresden, last week, to cater to the rising demand for semiconductors. The factory marks the largest single investment in Bosch’s130-year track record. The state-of-the-art plant, which received a 200-million-euro ($243million) aid under an EU investment scheme, will start making chips for power tools in July, with output of chips to begin from September. This, in turn, will support the revival of the European semiconductor industry.

Last Words

The automotive industry is the backbone of German industries. The year 2020 will be etched as a doomed year in the history of Germany’s automotive sector, with the pandemic-enforced shutdown taking its toll. In fact, the economic rebound in 2021 has also been shaky due to the supply-chain woes.

Nonetheless, as we look through the second half of 2021, the German auto sector remains cautiously optimistic, given the nation’s fueled transition to electric mobility, thanks to the government’s stimulus package.

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