Once the backbone of Germany's economy, the struggling automotive industry is watching the new government closely for any hints on how it will help carmakers green their industry. While the sector is pushing for less red tape to promote growth, industry groups say they support the green transition, despite concerns over penalties for missing emission reduction targets under EU law.
Germany's powerful automotive industry is keeping a close eye on what the next government will do to help it transition from fossil fuels to cleaner electricity, as it struggles to remain competitive amid tougher climate rules and expected US tariffs.The center-right Christian Democratic Union, along with its sister party the Christian Social Union from the region of Bavaria, won yesterday's elections, picking up 208 seats in the new parliament, based on official data. Lacking a majority in the 630-seat Bundestag, incoming Chancellor Friedrich Merz will now need to find a coalition partner to form a government.
The far-right Alternative for Germany came in second place with 152 seats, but are considered too extreme by mainstream parties to work together. This leaves Merz with the center-left Social Democrats, who won 120 seats, which could govern together. The Greens, which came in fourth with 85 seats, will also be in a position to help a conservative-socialist alliance pass legislation.
Carmakers have come under regulatory scrutiny in recent years as the EU pushes ahead with its plans to decarbonize its economy. They have struggled to shift from combustion engines to greener alternatives as energy and manufacturing costs have soared and demand for electric vehicles has been slower than expected (see here).
Volkswagen announced in October last year that it intended to shut at least three factories in Germany, citing the “slower-than-expected electric transition” as one reason for downsizing. Plant closures were avoided due to a deal with trade unions in December, but the company still plans to cut more than 35,000 jobs across the country by 2030.
— Tension ahead —
The possible coalition partners will have to address a main point of contention: the EU's plan to ban new combustion-engine vehicles by 2035.
The conservative CDU wants to see that law reversed, while the SPD and Greens are in favor of sticking to the EU law mandating all new cars to be zero-emission within the next 10 years.
It will likely take a few weeks before carmakers find out the new government's position on the law, as part of the general approach to helping one of the country's largest sectors succeed in the green transition.
But industry groups say they aren’t standing in the way of the green transition.
The industry is “fully committed to decarbonization and are already investing billions to turn this ambition into reality,” the European Automobile Manufacturers’ Association said this month.
Similarly, the German Association of the Automotive Industry, or VDA, said that its goal for 2025 is to offer the “world's best digital and climate-neutral products for the mobility of the future.”
Carmakers, however, are concerned about fines for missing intermediate emission reduction targets under EU law. They have called for flexibility on those penalties (see here and here).
“It does not help to demand transformation and then tie it to conditions almost impossible to fulfill,” said VDA president Hildegard Müller in a statement about the sector’s plans for 2025.
— Support measures —
The CDU-CSU alliance, SPD and Greens are in favor of preventing fines for carmakers that miss the EU's emission-reduction targets in the medium term.
Carmakers in Germany are likely to avoid hefty fines in 2025 if they can increase electric vehicle sales, according to clean energy advocacy group T&E. So while the government may be unable to stop fines, it can reduce the likelihood of penalties if they find a way to incentivize Germans to buy more electric cars.
A coalition agreement could include such measures, as all three parties included some form of support in their manifestos. The CDU-CSU alliance wants to reintroduce a subsidy for electric vehicles to encourage sales, according to German media reports.
The SPD proposes extending a vehicle tax exemption on electric cars until 2035, as well as a temporary tax relief on any new electric vehicles made in Germany. The Greens also want to see more measures to support and promote electric vehicles made in the EU.
The automotive sector is also keeping an eye on Brussels as the tension mounts in a possible trade war with US President Donald Trump.
“2025 must be the year of a new start in order to become the year of the turnaround," Müller said.
The EU will have to decide whether it is committed to its green targets, and what leeway national governments like Germany will have to help their hardest hit sectors.
In the meantime, German carmakers will need to keep waiting.
Please email editors@mlex.com to contact the editorial staff regarding this story, or to submit the names of lawyers and advisers.