The new king of electro!
This newsletter is a six-minute read
Dear reader,
Today we are talking about how the Bundeskanzlerin yanked down her beloved ‘emergency brake’ before performing a screeching U-turn.
Regards,
Jörg & Axel
Four Things
Our last newsletter ended on a cliff hanger. Although we stayed up until midnight, we couldn’t keep up with Germany’s 66-year-old Chancellor, who finally addressed the press about her lockdown plans in the early hours of Tuesday morning. And she had quite the announcement to make: the country would go into a complete shutdown over Easter. From Maundy Thursday until Easter Monday, Germany would have five consecutive Ruhetage (days of rest). Unfortunately, this bleary-eyed attempt to bust a hole in the recent rise in infections only created a whole lot of confusion. Was Chancellor Merkel just talking about closing shops, or would everyone stay at home? In the end Ms Merkel didn’t seem to know either. After 36 hours of wailing and lamentation from business, church and political leaders, she stepped in front of the press for a second time. “This mistake is mine and mine alone,” she said, as she admitted there was too much legal complication in trying to instate a one-off national holiday within a week. Her U-turn proved to be an unusual humiliation in a career characterized by the outward appearance of calm and control. One news agency even reported that she was not contemplating resigning. It was a strange day indeed.
One of our best read newsletters dates from late September 2020, when Axel commented on the fact that the relative weakness of Germany’s far-right on the political stage disguises a deeper societal problem - extremist networks in Germany’s police forces. Throughout the summer internal investigations uncovered police officers in several states sharing Nazi symbols and racist propaganda in WhatsApp groups. What came of the investigations into these officers? Public broadcaster ARD reported his week that the criminal investigations were dropped, as it is not illegal to share Nazi symbols in private. Because the chat groups were invite only, the officers were not committing a crime. That doesn't mean that they’re off the hook though. State officials must be dismissed for demonstrating anti-constitutional behaviour - and it doesn’t get much more unconstitutional than venerating Hitler. In Baden-Württemberg seven trainee cops have been sacked so far; internal inquiries in other states are ongoing.
If a report in Berlin daily Tagesspiegel is to be believed, 1 million Berliners have already been invited for a first dose of their Covid vaccine, but only 700,000 have shown up. (We don’t quite trust this number, as that represents about a quarter of the population and would thus put the chaotic capital way ahead of the national curve). But, if it is true, some 30 percent have not made use of their “vaccine codes”. Why so many people are not making appointments isn’t completely clear. It could have something to do with the hotlines being under-staffed. But Tagesspiegel speculates that the main reason is that younger people who have been put at the front of the queue (carers, teachers, police) don’t want to have the AstraZeneca vaccine. Given that the Robert Koch Institute estimates that 80 percent of the population needs to be vaccinated for herd immunity to be achieved, Berliners’ current hesitancy doesn’t bode well for that target being reached any time soon.
Watch out folks, Bild Zeitung boss Julian Reichelt has been allowed back into the building. After he’d been put on gardening in the middle of the month (See newsletter March 16), an internal investigation has cleared the 40 year old of suspicion of abusing his power to gain sexual favours from female staff, and of taking drugs in the workplace. The editor-in-chief of Germany’s biggest paper has had his wings clipped though. He’ll now have to share the role with Bild am Sonntag editor Alexandra Würzbach. In the end, Reichelt’s effect on the paper’s bottom line made him indispensable, publisher Axel Springer conceded as much in their statement. But he was forced to eat humble pie, apologizing for “the injury I did to the people I was responsible for.” Just what that injury was remains a mystery.
The new king of electro!
Last Monday the automaker hosted its Power Day and announced not one, but six new battery factories. Analyst and Investor Day followed on Tuesday where 1 million electric vehicle deliveries were promised for 2021 - a fivefold increase over 2020.
The markets took notice and the stock, already up by 20 percent since the start of the year, surged another 30 percent in just two days, before falling back and ending the week at a 16 percent gain. This week has been quieter, but Volkswagen, (yes, we’re not talking Tesla here) is still up by another 2.5 percent.
The stock market is suddenly seeing the 84-year old Wolfsburg car manufacturer in a different light - not as a clunky old OEM stuck in the past, but as a forerunner in the booming electric vehicle market.
The irony is that Volkswagen started out as a laggard.
Dailmer’s former CEO Dieter Zetsche partnered with Tesla in 2007 and even bought a 10% stake in the company two years later, and BMW brought the first purpose made German EV, the i3, to market just a year after Tesla’s Model-S. At that time Volkswagen was still playing around with a retrofitted model of the Golf, not fit for mass markets.
But BMW’s i3 was a flop, leading the Bavarian company to thwart further investments into EV technology. Daimler was equally unimpressed by the sluggish demand for electric cars and, in what will go down in history as one of the worst investment decisions ever made, sold it’s Tesla shares in 2014...
Ironically, it was the 2015 diesel emissions scandal that put the world’s largest car maker onto the right track.
Dieselgate rocked Volkswagen to its core and the then newly appointed CEO Herbert Diess used the crisis as a catalyst for reinvention, setting out on a bold strategy to turn the erstwhile villain of the automotive industry into the world’s largest manufacturer of electric vehicles.
Fierce headwinds from the unions and a sceptical stock market almost cost him his job several times over. Between 2016 and 2020 Volkswagen’s share price barely moved and last summer the board of directors, under pressure from the union representative Bernd Oesterloh, dealt the Austrian born CEO a severe blow - Mr Diess had to give up control of the VW brand, leadership over which normally goes hand in hand with being CEO of the Volkswagen group.
But Diess has ridden out the storm. Since then the share price is up by over 150 percent.
Timing is everything. BMW and Daimler were too early, the demand wasn’t there. VWs massive investments are bearing fruit just as demand is booming.
Volkswagen is predicted to overtake Tesla as the world’s largest manufacturer of EVs already this year. The ID.3, which was launched in September 2019 was a milestone. The first modestly priced EV with a range that makes it a serious alternative to combustion engine models is already Europe’s second most sold vehicle.
A large part of the demand is coming from the German domestic market. In 2019, 200,000 new electric vehicles were sold in Germany. That was a 200% increase on the year before and catapulted Germany into second place in the world in terms of total electric vehicles on the road.
No one is better positioned to profit from the German’s newfound love for electric propulsion than Volkswagen.
The company is a strange beast. Founded by the Nazis, it is controlled by the Austrian-German industrial dynasty Porsche-Piëch that descends from automotive pioneer Ferdinand Porsche. But the State of Lower Saxony also controls 20 percent of the voting shares and nowhere in German industry is the Mitbestimmungsgesetz, which grants workers representative equal board rights, as prevalent as at Volkswagen, where union boss Bernd Oesterloh has called the shots for decades.
The reason for the union man’s dislike for Mr Diess is simple - the production of EVs requires less labour than combustion engine cars and Mr Osterloh represents labour. Surely he understands that petrol has no future but his workforce is old, over 40 percent will retire in the next two decades. He’s fighting for jobs today not in twenty years time.
Much to Mr Oesterloh dismay, the real regent of VW as he’s often called, will have to admit that he’s lost the battle. Herbert Diess is on track to go down in German industrial history as the saviour of the country’s most prized jewel and strategically important company.
His ambition is to turn Volkswagen into the world’s most valuable company.
A.B.B.
Who we are:
Jörg Luyken: Journalist based in Berlin since 2014. His work has been published by German and English outlets including der Spiegel, die Welt, the Daily Telegraph. Formerly in the Middle East. Classicist; Masters in International Politics & Arabic from St Andrews.
Axel Bard Bringéus: Started his career as a journalist for the leading Swedish daily Svenska Dagbladet and has spent the last decade in senior roles at Spotify and as a venture capital investor. In Berlin since 2011.