German Chancellor Angela Merkel in a VW ID.3 electric car at the 2019 International Motor Show Germany, September 12 2019. Picture: GETTY IMAGES/SEAN GALLUP
German Chancellor Angela Merkel in a VW ID.3 electric car at the 2019 International Motor Show Germany,  September 12 2019. Picture: GETTY IMAGES/SEAN GALLUP

Frankfurt/Berlin — Chancellor Angela Merkel wants to help offset the higher costs of cleaner vehicles by putting a price on carbon dioxide (CO2) emissions, potentially offering a lift to Germany’s vital automotive industry as it grapples with the high-risk transition away from the combustion engine.

Germany and its car makers are facing a “Herculean task”, Merkel said on Thursday at a ceremony opening the Frankfurt car show to the public. While short on specifics, the German leader backed efforts to encourage consumers to buy more environmentally friendly products such as battery-powered cars fueled by renewable power.

“We want to direct the behaviour of people in a certain direction,” she said. “The pricing of CO2 is the right way to make clear that all innovations should follow the goal of emitting less CO2. If we do this in a long-term and accountable way, there will be the incentives to move innovation in the right direction.”

Tough times

Volkswagen (VW), Daimler and BMW are facing tough times. Pollution concerns — intensified by VW’s 2015 diesel cheating scandal — have tarnished the industry’s image and triggered massive investment in electric vehicles. Those costs had already started squeezing earnings when almost a decade of uninterrupted industry growth led by China came to a halt. The consequence is Germany’s car production slumping to the lowest level since at least 2010.

The looming end of the combustion-engine era and the dramatically increasing importance of digital technologies in cars, pose an unprecedented threat to the industry’s traditional business model. A slew of profit warnings from manufacturers such as Mercedes-Benz maker Daimler to parts makers such as Continental provided fresh evidence that times have become rough.

Merkel spoke after John Krafcik, the CEO of Waymo. The Alphabet unit is widely regarded as the global leader in self-driving technology and represents a risk to the country’s car brands, which are largely focused on motoring thrills. Krafcik offered a co-operative tone, even though German manufacturers are wary of allowing the Google parent access to sensitive customer data.

“It’s not about competing with car companies. It’s to enable, not disrupt companies in the automotive space,” said Krafcik. “Developing self-driving technology takes a lot of time. There are no shortcuts. We can’t do this on our own.”

Germany is teetering on the brink of recession, and the automotive industry is pivotal to the economy’s health. Car makers such as VW, Daimler and BMW, as well as parts suppliers such as Robert Bosch and Continental employ about 830,000 people in the country and support everything from machine makers to advertising agencies and cleaning services.

Germany’s motor industry is trying to respond. Electric cars, such as the flashy Porsche Taycan and more affordable VW ID.3, dominated media presentations this week at the Frankfurt trade fair and more models are in the pipeline.

Daimler CEO Ola Källenius backed Merkel’s CO2 pricing plan, saying at a panel discussion in Frankfurt that there are costs related to fossil fuels and it would make sense for a global plan to help fight climate change.

For the motor industry, any signs of support would be welcome. Demand for electric cars has been sluggish, and Merkel has had to surrender her goal to have 1-million electric cars on German roads by 2020. Sales of hybrid and electric cars in the country in 2918 totaled a mere 55,000 vehicles, or 1.6% of the market.

In addition to boosting efficient technologies, the country needs to accelerate the roll-out of charging stations to ease consumer concerns, Merkel said. “If one believes that climate protection is a task for mankind, and I believe it is, then we must pay this price because otherwise we will have to pay a totally different price.”