German automakers endangered by country’s energy policy image

Germany and its export led auto manufacturers like VW, BMW and Mercedes are the envy of the world. But Germany’s energy policy threatens to become a self-inflicted wound by pricing auto companies out of world markets and could even force factories to move to low energy cost economies like the U.S.

The green agenda has taken hold in Germany, and politicians of all parties are signed up to a long-term future of power generation with zero emissions of carbon dioxide (CO2). The trouble is, the country has also forsaken nuclear power so the route to zero emissions is being led by wind and solar power and both these technologies are in their early stages of development and therefore expensive and inefficient.

According to the Denver, Colorado based IHS consultancy firm, German industrial gas prices are now more than three times higher than those in the U.S., where an embrace of new fracking techniques for oil and gas recovery has boosted supply and slashed costs.

“Solving that problem was key to enabling Germany’s formidable export performance in the years since. Today, a rigid and inefficiently organized energy market with rising costs puts Germany’s international competitiveness, and thus its economy, at risk. Rising electricity prices in Germany – and strikingly lower energy prices in North America – are making German products less competitive and forcing firms to relocate to other countries, a problem known as ‘investment leakage’”, a HIS report said.

Peter Fuss, partner at consultants EY’s Global Automotive Center in Frankfurt, Germany said the high price of energy is a key challenge facing not just automotive manufacturers. Some manufacturers might want to move out, and the U.S. would be a favored destination.

“The German (auto makers) are continuing to localize more production, mainly to the Americas because the market there is growing and they need natural hedging to cut foreign currency risk. And energy costs, especially in the U.S., are expected to stay low because of fracking. So China is not as attractive from an energy cost perspective like the U.S. because China has not that much of natural energy resources,” Fuss said.

Professor Ferdinand Dudenhoeffer of the Center for Automotive Research at Germany’s University of Duisberg-Essen said the goal of zero emissions might have short-term problems, but is a long-term winner for Germany’s automakers. Energy only amounts to between 3 and 5 % of the total cost for the big assemblers, although it is a much bigger concern for certain specialists.

Via Forbes