The world’s energy economy is beginning to undergo a massive shift away from fossil fuels. One of the consequences is that internal combustion engines, which are powered by gasoline and have been used to power everything from cruise ships to commuter cars, are set to be replaced by electric motors and batteries. In Europe, 15 percent of 2021’s new car sales were for electric vehicles compared to only five percent a year before, and this number is only expected to grow all over the world.

This entails great changes for the car manufacturing giant at the heart of the European Union, Germany. Evan Zimmerman has published a new article that looks at the implications of the EV transition for the country where the automotive industry accounts for 10 percent of its GDP and 24 percent of its domestic revenue. One would assume that Germany’s engineering prowess and tradition of car manufacturing would guarantee a smooth transition away from internal combustion vehicles:

Germany’s reputation for automotive engineering prowess is so potent that it is widely assumed that German engineering can be applied to any domain. German companies cultivate this assumption with promises like BMW’s commitment to spend $34 billion dollars on “future-oriented” technologies.

But this is not always the case—manufacturing is not a generic input into a production function. Building battery electric vehicles (BEVs) is vastly different from building internal combustion engine (ICE) vehicles. The reason is that BEVs and ICE cars are built around highly distinct—and incompatible—propulsion systems.

The supply chains for specialized components, parts, and chemicals often come from small or mid-sized businesses called Mittelstands. They are usually family-owned and make up the backbone of the German economy, employing 70 percent of workforce—for reference, small businesses employ only 46.4 percent of Americans.

Given the importance of the automotive industry in Germany, these businesses are often tailored toward producing a few of the moving parts that go into internal combustion engines, of which there are more than 200. Electric vehicles only have 17.

So if the electric drive train is “simpler” than an internal combustion engine, won’t it also be simple to retool the automotive supply chain and make the German economy more efficient? Not quite:

The batteries themselves introduce their own supply chain complexities for car manufacturers. Batteries are a specialized branch of chemical engineering; Bayer can’t just transition its skills in, say, fertilizer to lithium-ion. New BEV factories now commonly involve a co-located joint venture with a battery company for this reason, also helping to reduce batteries’ high shipping costs. 

Even the basic car platforms are different. BEV chassis are designed around placing the extremely large and heavy battery on the bottom of the car, under its floor. This change in basic form factor will obsolete the billions of dollars invested in current vehicle platforms with different design assumptions. The Economist reports that Volkswagen will have to create an entirely new chassis platform, and it will not fully roll out until 2030. That means that much of Germany’s nearly century-old investments in expertise and refinement must be replaced, reducing Germany’s otherwise huge first-mover advantage.

All this together upends decades of German factory floor design and supply chain relationships. It creates a new manufacturing line where the core competency is diluted away from the original equipment manufacturers (OEMs) to the battery partner. After all, the largest battery facilities in Germany are not German—they are American and East Asian. If the German automotive industry will try to naturalize battery production, they will have a lot of catching up to do.

The performance of German BEVs underlines how behind their industry is. Consider the example of “core efficiency,” a BEV metric that adjusts range to take into account weight class and battery size, isolating efficiency improvements due to engineering. Setting aside Tesla, which is in a league of its own when it comes to core efficiency, the best-performing manufacturers are American and East Asian; German manufacturers are completely at the bottom. BMW and Porsche are among the absolute worst in their weight class. Mercedes does better than the other German manufacturers but is still less efficient than Ford or Hyundai. It is staggering how absent German technology is in this mix.

This forebodes knockon effects for Mittelstands that will not be able to retool and retrain for the production of electric vehicles in a market where German car companies are already behind the rest of the world. The centrality of the automotive industry to the German economy means that this could spell serious trouble for the future of its education system, welfare programs, and entire economic model.

Here’s what’s been on the front page lately:

Germany Is Losing the Electric Vehicle Transition by Evan Zimmerman. Germany is renowned for its automotive engineering. But its historic car industry is getting left behind in the electric vehicle transition, calling the country’s entire economic model into question.

Yamagami Tetsuya’s Revenge by Dylan Levi King. In 2022, Yamagami Tetsuya assassinated Japan’s former leader in revenge for his ties to the Unification Church. But Japan’s cults look to become more powerful as its social order decays.

The Censor Who Ended the Soviet Union by Alexander Gelland. After learning the truth about Stalin in 1956, Soviet propagandist Alexander Yakovlev became disillusioned with the communist project. Decades later, he helped end it.

How America Lost the Atomic Age by Benjamin Leopardo. Seventy years ago, nuclear power was poised to launch us into an energy-rich future. Why didn’t that happen?

Vietnam’s Red Napoleon by Avetis Muradyan. The early years of Vietnam’s legendary general Võ Nguyên Giáp show the power of a competent lieutenant working in close trust with a sovereign leader.

That’s all for now.