Germany’s auto industry could get billions in funding to go green

November 2, 2020, 3:51 PM UTC

The German government may give the country’s crucial auto industry billions more euros to shift to a future of self-driving cars that don’t burn fossil fuels.

On Monday, as Germany reentered partial lockdown, both Reuters and Handelsblatt reported a plan by the economy ministry to give €2 billion ($2.33 billion) to automakers and their local suppliers by 2024, to promote research and development around the industry’s reinvention and to fund the necessary retraining of staff.

The cash would reportedly come from Germany’s pandemic recovery funds.

According to Reuters, the ministry’s proposal—which now needs to be thrashed out with other ministries under a standard consultation process—argues that German car factories will need to change their methods as, with electric vehicles, “faster innovation cycles demand more flexible production facilities.”

Thomas Puls, a senior economist at the German Economic Institute in Cologne, told Fortune that €2 billion distributed over several years does not amount to the massive bailout that many in the pandemic-struck industry have been hoping for—with little success. However, he said, it could be useful for parts suppliers in particular.

“It should help especially concerning transition costs, but it’s not a big program that will solve the problem [of financing the overall transition],” Puls said. He added that it would also be important for the federal government to build out Germany’s charging infrastructure and to bear in mind that decarbonization will require “several technologies” in the vehicular space, including synthetic fuels that could greenify existing cars.

Indeed, Handelsblatt quoted the economy ministry’s proposal as saying the €2 billion fund should “initiate a sustainable, rapid and technology-neutral transformation of the vehicle industry.”

The economy ministry did not respond to a request for more information about the proposal.

Germany’s big auto industry association, the Verband der Automobilindustrie (VDA), is waiting to learn more about the proposal before coming to any conclusions.

“It’s very important to look at the details of what they do with this €2 billion, to get the money efficiently and helpfully to these companies,” said VDA spokesman Eckehart Rotter.

That will no doubt be a main topic of discussion at the next Autogipfel summit in mid-November between the industry’s big players and the administration of Chancellor Angela Merkel. The auto sector accounts for around 5% of German GDP, so it has traditionally had great influence with the government, though this was seriously dented by the Dieselgate scandal.

Following the reports early Monday, the shares of Daimler, BMW, and Volkswagen all rose, as did those of Continental, one of the industry’s biggest component suppliers. However, that was likely part of a generalized recovery in the German markets from last week’s selloff.