E-mobility - a chance for further development of economic cooperation between Poland and Germany

Economic relations between the two countries

Data show that recent years have seen a systematic increase in both: export and import between Poland and Germany. In 2021, Polish exports to Germany grew significantly. The e-mobility sector contributed significantly to this increase, notably due to deliveries of battery packs from one of the factories. Thanks to this, in the first quarter of 2021, Poland jumped over the USA on the list of the largest exporters to Germany and is now in third place. Paradoxically, this dynamic is largely the result of the EU's accelerating climate policy and the associated decarbonisation of the transport sector. The automotive sector, which is extremely important for the economies of both countries, has begun the process of a historic technological shift towards emission-free propulsion systems. Both Poland and Germany can benefit from cooperation in this area.

The era of electromobility is coming

Transport as a sector currently accounts for around 25% of the EU's total emissions and different from other sectors, this trend continues to increase. The new reduction target means that an even greater effort is needed to meet it. The Strategy for Sustainable and Smart Mobility, which was published by the European Commission in December 2020, speaks of 30 million electric vehicles and 3 million charging points in 2030 in the Community countries, providing a clear target for electric mobility.

On 14th July 2021 the European Commission adopted the “fit for 55” package, a compilation of proposals to make the EU’s policies on climate, energy, land use, transport and taxation fit for reducing net greenhouse gas emissions by at least 55% by 2030, compared to 1990 levels. EU’s accelerating climate policy and the associated decarbonization of the transport sector brings a distinctive push to the sector, which can be seen both as a chance as well as a challenge. A chance for innovation, increased production and trade with long term improvement of livelihoods. A challenge, since immediate action is required in order to meet today’s demand for carbon neutrality and also not to lose out in a rapid global trend.

    

At the end of 2020, more than 595,000 electric vehicles powered by nearly 45,000 charging points were on Germany's roads (an increase of 142% and 13% compared to 2019). The scale of the acceleration of electromobility in Germany is demonstrated by the fact that more electric vehicles were registered there in 2020 than in 2019 in the entire European Union. This trend is being  continued - in November 2021, the market share of battery electric vehicles (BEVs) exceeded 20% and together with plug-in hybrids PHEVs (14,1%) and other hybrid vehicles HEVs (15,5%), electrified vehicles took over 50% of the German new registration market in the past month.

Poland also recorded a significant increase in the share of electric vehicles. At the end of 2020, there were over 18000 electric vehicles (BEVs +PHEVs) on Polish roads and the number of charging points was nearly 1,700 (an increase of 136% and 102% compared to 2019). Similar to Germany, the growing trend continues in 2021: at the end of October 2021, over 33 000 BEVs and PHEVs were registered and it is likely that by the end of the year then total number of such vehicles will be doubled comparing to 2020. It should be noted that e-automotive industry was resilient to pandemic market shocks - continuous year-on-year increases in the number of newly registered e-vehicles were recorded, despite the general crisis in the automotive industry.

These increases will become greater every year. Germany, as Europe's largest market and producer of motor vehicles, and Poland, as Europe's largest exporter of batteries for electric vehicles, working together and supplying each other with the necessary goods[1], can play a key role in this sector - not only in meeting the growing demand on the EU market, but also in terms of expanding overseas to third markets.

The automotive industry as a driving force for economies

The automotive sector has always been at the centre of the German authorities' attention as it is fundamental to the country's economy - it directly employs around 800,000 people and is also the locomotive of exports (18.4% of volume in 2017). [2] In Poland, the sector employs 314.7 thousand people (8% of the total number of people employed in industry) and generates EUR 25.2 billion in revenue, representing a 21.3% share of total exports in the industry sector.

Automotive is also one of the leaders in the Warsaw-Berlin trade exchange - automotive parts and accessories are the goods most frequently sold by Poland to Germany. Vehicles themselves, on the other hand, ranked 6th in 2019 among the products with the highest export value from Germany to Poland and 3rd in the opposite direction.

A strong position on the German market is held by Solaris (the leader among manufacturers supplying buses to the German market), which supplies electric and hydrogen buses to many German cities, and Ekoenergetyka S.A., which builds infrastructure for charging electric buses and appears on depots and streets in an increasing number of German cities. In 2020, the first position in terms of export value in the automotive sector in Poland was occupied by vehicle batteries, which went mainly to vehicles of the German VW AG Group. This is a good forecaster of the growing potential for the future cooperation.

Changes in transport are inevitable

It is certain that the automotive industry has already begun the process of huge changes related to the change of propulsion technology - the tightening climate policy at the EU level is accelerating, and failure to meet the increasingly restrictive emission standards will result in high penalties imposed on car manufacturers. It cannot be otherwise - the electrification of vehicles will be the dominant trend. This will affect not only consumers, today's drivers and passengers, but also the market for vehicle manufacturers and vehicle components.

The current strong position of vehicle and parts manufacturers in Poland and Germany may mean that, for many companies in the supply chain, the coming changes may seem too distant to take decisions today. However, without action by the automotive industry and a conscious government industrial policy, the situation may change in a short time. The same changes await the service sector - a significantly reduced number of servicing activities, combined with the elimination of e.g. oil changes, coolant changes, filter changes, etc., will result in a decreasing number of service and repair points, which may have a negative impact on employment levels in the sector.

The German automotive industry has belatedly recognised the shift towards electromobility, having for years focused its efforts on maintaining its dominance in combustion technology. This has led to some technological backwardness compared to foreign competitors. However, the last three years have seen Germany sharp rise from its role as a European middleweight follower in electromobility to become one of its leaders. This is the result of both a change in strategy by German manufacturers, who have finally recognised electromobility as the direction of the future and invested huge sums in new technologies and the development of new models of electric vehicles, as well as the conscious policy of the federal government, which strongly supports the demand for electric vehicles through an extensive system of subsidies for their purchase and financing the development of charging infrastructure. The newly-elected German federal government in the coalition agreement has presented a comprehensive list of activities, plans and ramifications for the transport industry to make it cleaner, smarter and more sustainable definitely faster. However, the decarbonisation of road transport involves a profound restructuring of the sector, entailing the need to retrain the workforce, as well as the need to invest in new technologies and production lines. Further huge investments will be involved.

The situation is similar in Poland, which, despite not having its own car brands, as one of the largest suppliers of car parts, components and accessories in Europe, must adapt quickly to changing market conditions if it wants to remain an important part of the economic landscape of the automotive industry in Europe and a strategic partner for Germany. This is particularly important in a situation where the value chain for the production of an electric vehicle is much shorter due to the much smaller number of components needed to produce such a car. It is worth noting that with the development of electromobility and autonomous vehicles, the digital component will become increasingly important and valuable, related to the development of software that manages the vehicle's main systems and commercial applications (infotainment).     

The actions of the governments of both countries should focus on creating appropriate conditions for effective development of the electromobility ecosystem - from stimulating demand for vehicles (which will make electric models more attractive) and ensuring its stable growth and certainty of investment planning, through a series of actions to accelerate the development of charging infrastructure. This will allow for further development of the industry, following megatrends in the market, but also using the opportunity resulting from the changes taking place to maintain competitive advantage in the market.

Potential areas of cooperation

There are several potential areas for Polish-German cooperation in the field of electromobility.

1. Value chain

The first is a closer relationship in the context of creating new value chains. A battery pack is a component of an electric car that is usually produced separately, outside the factories of car manufacturers. Batteries manufactured in Poland are high quality products that can be delivered to German factories on time, due to the geographical proximity of the two countries - especially in the context of the rapid shift of German concerns to the production of electric cars. The area of their recycling is also promising. The closed-cycle economy model is already becoming an economic paradigm for reducing pressure on the environment and limiting the consumption of raw materials. The New Batteries Directive currently being drafted will impose ambitious requirements both in terms of energy intensity of battery production and mandatory levels of recovery of raw materials such as lithium, cobalt and nickel.  

2. Charging infrastructure

Another area is cooperation in the development of charging infrastructure for heavy trucks along the main TEN-T routes between the countries. Cargo transport between Poland and Germany is the second most important direction of road freight transport in the European Union - in 2018 more was transported only between Germany and the Netherlands. Poland is the main transit route for goods exported to Eastern European markets - to Russia, Belarus or Ukraine. Cooperation in the area of building charging hubs along motorways would allow faster electrification of the fleet of passenger cars and trucks, and thus faster reduction of GHG emissions in the transport sector. An important element of cooperation could also be the exchange of experience in the context of creating a central entity to coordinate and ensure effective development of charging infrastructure, following the example of the German NOW, which could also work in Poland.

3. R&D

The area of research and development (R&D) should not be forgotten either. The changing paradigm of the energy sector, as well as the drive towards increasing electrification/hydrogenisation of all sectors of the economy (including transport), will lead to closer dependencies and cooperation between all sectors. The increasing number of connected RES has an increasing impact on the power system. Appropriate integration of electric vehicles into the grid, which can play the role of active energy storage, will optimise the operation of the entire power system. The key here will be the exchange of experience/good practices from pilot projects already taking place in both countries with TSOs, DSOs and automotive companies and further initiation of similar joint projects.

Electromobility and decarbonisation of road transport are areas with great potential for cooperation and strengthening of economic relations between Poland and Germany. They have a chance to become a source of great benefits and be a driving force for stimulating investment and trade exchange between the two countries. It is extremely important to create and build joint projects/cooperation platforms, which by bringing together key stakeholders from the transport sector will allow its effective further development (the example of such a platform is the Polish-German Int-E-Grid project; https://www.int-e-grid.eu/). What is extremely important, new areas of cooperation include advanced, future-oriented technologies, without which achieving the common goal of climate neutrality in 2050 will not be possible.

Authors: Michał Borkowski, Jacek Mizak - FPPE
Cooperation: Joanna Maćkowiak-Pandera, Klaudia Wojciechowska
Date of publication: 20 December 2021