German Auto Makers Are Pouring $406 Billion Into EVs. The Race Is On.
VW’s lineup sprawls from economy Skodas to luxury Audis and Porsches. Moves to focus and slim down could hit a governance roadblock: Unions hold half of the seats on its board, and the state government of Lower Saxony, 20% of shares. “VW is like a state-owned company,” Dudenhoeffer concludes. “It will become less important over time.”
Mercedes and BMW are rolling out electric luxury models that could challenge Tesla two or three years from now. Fat margins on their gas guzzlers give them deep pockets for the expensive electric transition, says Philippe Houchois, head of European and U.S. auto research at Jefferies.
“They can fund new technology and still pay a dividend, where some pure-play EV start-ups are hitting a funding wall,” he says. His stock pick is BMW, with a current dividend yield north of 8%.
German auto makers as a group have budgeted an impressive 380 billion euros ($406 billion) on research and development and factory construction over the next five years, chiefly focused on electromobility, says industry lobby VDA.
One thing that Germany’s Big Three have in common is heavy dependence on China—for sales and, increasingly, technology. Volkswagen spent $700 million for 5% of Guangzhou-based XPeng (XPEV) in July, hoping to collaborate on a better EV platform, Houchois says.
BMW opened its fifth Chinese R&D center in Shanghai this summer. “BMW believes that China is the place to be for future mobility,” a company release read.
That makes the European Union’s recent move to investigate Chinese EV imports, with an eye toward higher tariffs, a mixed blessing at best for Germany, says Dudenhoeffer. “This is a crazy idea that risks much more damaging Chinese retaliation,” he says. He sees a wily maneuver by France, whose car complex is much less China-exposed.