Dear Reader,
The Internationale Automobil Ausstellung (IAA), one of the world’s largest auto shows, began in Munich this week amid a funereal mood surrounding the German car industry.
US tariffs, state-funded competition from China, and design flaws in the first generation of German-built EVs are making life hard in global markets. At home, high energy prices, sluggish demand, and strict EU fines on companies that sell too many combustion engines add further pressure.
Job losses in the industry, the backbone of German wealth for most of the post-war period, reached over 50,000 last year alone. Tens of thousands more are predicted by the end of the decade. With their share of world markets shrinking by a fifth over the past ten years, Germany’s big brands have all reported falling profits. Porsche even suffered the ignominy of being booted out of the DAX, Germany’s index of most valuable publicly traded companies.
With the patient seemingly in terminal decline, German politicians have now set the date when the country’s grand old car industry will be put out of its misery. On January 1st, 2035, less than a decade from now, no new combustion engines will be sold in the EU.
Two years ago, the European Commission decreed that from that year onwards, all new cars would have to drive emission-free. The technology invented by Karl Benz in the 1880s — and refined by German engineers for 140 years — will be no more. At least not in Europe.
But a rebellion against the deadline is growing. Many in Germany believe there is still life in the Verbrenner.
Ahead of the IAA, business-friendly newspaper Die Welt called on Chancellor Friedrich Merz to stop the “prohibition fetishist” in Brussels. EU bureaucrats, it lamented, were forcing German carmakers to abandon their “market-leading, efficient and melodious” combustion engines for battery-powered vehicles that barely turn a profit.
Anger is also rising inside Merz’s CDU, where governors of states with major car plants lined up this week to demand an end to the Verbrenner-Aus.
“The combustion engine ban is misguided and ideologically driven. It jeopardizes our competitiveness and destroys industrial value creation in Germany,” complained Michael Kretschmer, Saxony’s state leader. Markus Söder, Bavaria’s conservative governor, added: “The EU ban on combustion engines in 2035 jeopardizes hundreds of thousands of jobs.”
According to both men, the combustion engine has a future — as long as the EU allows synthetic fuels that don’t emit CO2.
Mercedes CEO Ola Källenius also warned that the EU must “move away from absolutist targets and draconian penalties” and embrace market dynamics.
Opening the IAA on Tuesday, Merz voiced disdain for bureaucrats who decide which technologies have a future and which ones belong in museums. “Unilateral political commitments to specific technologies are fundamentally the wrong economic policy approach — not only for this industry,” he said.
According to German press reports, Merz and his cabinet are planning to pressure the EU to relax its strict ban and allow hybrid engines beyond 2035.
The debate over reviving combustion engines wasn’t widely celebrated, however. Even in the business press, audible groans met the news that conservatives were once again questioning whether EVs truly are the future of automobility.
“Germany still seems to be figuring out the rules of the game, even though the tournament has long been underway,” groaned Handelsblatt. China, it added, isn’t waiting: “it is implementing its industrial policy with relentless discipline,” noting that the number of Chinese companies at the IAA had risen by 40 percent in two years.
Ironically, this debate comes just as German carmakers may be about to prove the critics wrong. VW, BMW, and Mercedes are all presenting new EVs at the IAA. And, according to trade journalists, they could turn a few heads. With its ID.Polo, Volkswagen has at last built an electric vehicle that is (just about) affordable for the average earner, while the luxury brands of Stuttgart and Munich are showing cars that may ease German anxieties about too many roadside Bratwurst breaks while waiting to recharge.
There is hope, then, that this new generation of German cars will “make the controversial ban on combustion engines superfluous, simply because in a decade only classic car enthusiasts will still want them,” claims trade journalist Christoph Kapalschinski.
But, even if VW and others succeed in building competitive EVs, the industry’s troubles are far from over. The combustion engine made Germany rich because almost the entire production chain was domestic. Even world-class German EVs will still rely on Chinese batteries for the foreseeable future.
So whichever way you look at it, China still wins.
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Last week’s poll: Can Germany afford the welfare state in its current form?
Yes - 25%
No - 75%
News in brief
⚰️ Rest in regulated peace - Think death will finally free you from the minutiae of German bureaucracy? Think again. Funeral laws, set at the state level, regulate everything from where a body may be buried, to whether mourners can look inside the coffin, to where ashes may be stored or scattered. Generally, keeping a loved one’s urn on the mantelpiece is forbidden, coffins must remain sealed, and remains must go to state-sanctioned burial sites. Now Rhineland-Palatinate is planning to loosen these rules. Families would be allowed to cast ashes into the Rhine or other rivers, keep caskets open during farewells, and even divide remains into separate urns. But after the opposition CDU denounced the “impious reforms,” the state government compromised: only licensed funeral directors may scatter or divide ashes. One can only assume the funeral director lobby has friends in the CDU.
💶 Dog ate my federal budget - Germany is finally on the cusp of passing a federal budget for 2025 - almost certainly the most delayed budget in the history of the Federal Republic. If all goes to plan, the Bundestag will approve it by mid-month, giving the government just over three months to spend the tens of billions in new debt unleashed by Friedrich Merz’s Damascene conversion to Keynesianism. Government lawmakers hail the budget as a “gamechanger” that will spur domestic growth and prepare Germany for geopolitical headwinds. The opposition, meanwhile, says it is riddled with accounting tricks, disguising old spending as new investment to dodge debt limits.
🗳️ Outright AfD majority? - A new poll has given the AfD a shock lead of 39% ahead of next year’s state election in Saxony-Anhalt. The CDU, which currently heads the governing coalition, is projected to take just 27% if the numbers hold. Local AfD leader Ulrich Siegmund says his party is aiming for an outright majority to govern alone. “We want to provide a stable and reliable government. That’s why we need a secure majority, not one that depends on one or two votes in parliament,” he told Stern. Saxony-Anhalt, a rural state in eastern Germany, is one of the AfD’s strongholds. Last year, the party also topped the polls in neighbouring Thuringia — but remains in opposition there because all other parties refuse to work with them.
Members’ corner
The 'political prisoner' the German media would prefer to forget
This newsletter is about a case that reveals something striking — how blind much of the German media remains to the depth of public discontent around them.
‘We won't surrender to fear’: Inside the Israeli-Palestinian restaurant struggling to survive in Berlin
Kanaan co-founders Oz Ben David and Jalil Dabit sharing their signature dish outside of Kanaan last year. Photo courtesy of Kanaan.
Sincerely,
Jörg Luyken