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German Election Sunday Shouldn’t Spook Auto Investors Too Much

Investors in big German auto manufacturers like Volkswagen, BMW, and Mercedes have little to fear from the nation’s general election Sunday, with most pollsters declaring the contest too close to call and the likely outcome a broad but weak coalition unlikely to frighten the horses.

But as the election approaches, the polls are tightening, and an unprecedented number of votes remain undecided.

According to a recent survey by the Allensbach research institute for the conservative newspaper Frankfurter Allgemeine Zeitung, quoted by Reuters a week ago, 40% of voters are still undecided, up from 35% at that point of the election campaign in 2017 and from just 24% in 2013.

Election issues facing the auto industry include setting a date to end the sale of internal combustion engines (ICE) in the name of climate change, a schedule for net zero carbon dioxide emissions, and carbon taxes. The Green Party wants to impose a speed-limit on some of Germany’s unlimited intercity highways.

And don’t expect long-serving Chancellor Angela Merkel from the Christian Democratic Union (CDU) (center-right) to disappear overnight, even though she has announced her retirement. She will remain Chancellor until a government is formed. Because of Germany’s proportional representation voting system, after the last election in 2017 it took 6 months to hammer out a government. The election Sunday may throw up a similar scenario.

Investment bank UBS said Wednesday recent German elections have rarely led to radical change, although politics are on the move.

“Historically, Germany’s elections have not been a major concern for investors, as the electoral system favors stability and evolution. While this remains the case, the balance of political power in German politics is shifting,” UBS said in a report.

UBS said opinion polls make the contest too close to call with no party holding a convincing lead. The next government will probably be a 3-party coalition “for the first time in decades. The polls show a Social Democrat Party (SPD) (left-leaning) led coalition the most likely.

“However, with the number of undecided voters its highest in recent memory, other outcomes are very possible,” UBS said.

The main points contending parties are supporting concerning the auto industry are –

CDU – wants technology, not politics to lead the race to curb CO2 (carbon dioxide) emissions (EU rules favor battery electric), doesn’t want to set a date to ban sales of ICE cars, more highway building to prevent traffic jams, supports the development of synthetic fuels and hydrogen.

SPD – Continue support for tax-payer money to buy electric cars, subsidize charging networks, no end date for ICE sales, end of unlimited speed highways.

Green – Stop making ICE cars by 2030, end unlimited speed, no more new highways, spend €100 billion ($117 billion) on rail.

Free Democrat Party (FDP–conservative) – Opposes end to unlimited speed, opposes European Union (EU) CO2 targets for 2030, end subsidies for new electric vehicles now reaching €9,000 ($10,500) in some cases.

Director of Germany’s Center for Automotive Research (CAR) Professor Ferdinand Dudenhoeffer said in theory a win by the CDU would be best for the auto industry because this would leave more time for transformation from ICE to electric, while the party also wants to water down some EU CO2 regulations. But Dudenhoeffer said if Germany’s auto industry speeds up its embrace of electric cars it would be able to compete sooner with the leader Tesla
TSLA
, and he wants a quicker route to autonomous cars and the IT framework that goes with it.

According to Daily Telegraph of London columnist Roger Bootle, the German auto industry is coming under pressure.

“As well as tougher competition, its traditional excellence in motor manufacturing has recently been undermined by scandals about diesel testing (VW’s dieselgate). And now the German motor industry faces a complete change of environment with the switch to electric vehicles and possibly, in time, driverless vehicles,” Bootle said.

Bootle also expects little change from the election, particularly if the CDU wins.

“My suspicion is that nothing much will change. This is Germany, after all,” Bootle said.

The UBS report said the next German government will likely push for more digitalization, more decarbonization and increasing focus on environmental and social goals.

“Under this scenario, we would see renewable developers, automotive companies tilting towards electric vehicles, semiconductors, renewable operators and industrials as the sectors most likely to benefit,” the report said.

Does Professor Dudenhoeffer expect the election to produce a government with a radical agenda?

“I don’t believe that. The next Federal Chancellor will probably come from the SPD, perhaps with a smaller chance from the CDU. Both are very conservative and cautious. The SPD is afraid of the unions, which rather want to preserve the status quo and the CDU protects today’s entrepreneurs, i.e. the faction of the internal combustion engines. So the election doesn’t make Germany any faster,” Dudenhoeffer said in an interview.

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