Germany is the ‘sick man of Europe’ — and it’s causing a shift to the right, top economist says
Germany is once again the “sick man of Europe,” according to Hans-Werner Sinn, president emeritus at the Ifo institute, and the challenges that poses, particularly in terms of the country’s energy strategy, could serve to benefit increasingly popular right-wing parties.
The “sick man of Europe” moniker has resurfaced in recent weeks as manufacturing output continues to stutter in the region’s largest economy and the country grapples with high energy prices. The label was originally used to describe the German economy in 1998 as it navigated the costly challenges of a post-reunification economy.
“It is not a short-term phenomenon,” Sinn told CNBC’s Steve Sedgwick at the Ambrosetti Forum in Italy on Friday.
It “has to do with the automobile industry, which is the heart of the German industry and many things hinge on that,” he said. Cars were Germany’s main export product last year, accounting for 15.6% of the value of goods sold abroad, federal statistics office data shows.
Germany reported a foreign trade deficit for the first time in decades in May 2022, totaling 1 billion euros ($1.03 billion). The country had briefly shifted from a trade surplus to importing more than it exports.
Germany has since returned to a trade surplus, which came to 18.7 billion euros in June 2023, according to the federal statistics office, but exports remain sluggish.
Plunge in business sentiment
Sinn said investor doubts about the feasibility of Germany’s sustainability goals also play into the description of the country as the “sick man of Europe.”
One target currently in the sights of the German government is becoming carbon neutral by 2045. These plans came into sharp focus as Europe looked to detach itself from Russian gas supplies following the Kremlin’s full-scale invasion of Ukraine, and prices shot up.
Some described Germany’s ambitions to move away from Russian gas as “wildly optimistic,” particularly in light of the country’s climate targets.
Rain falls over the finance district and the European Central Bank (ECB) in Frankfurt, Germany.
Thomas Lohnes | Getty Images News | Getty Images
Speaking at the Ambrosetti Forum, Sinn said a reliance on renewable technologies such as wind and solar would cause a “volatility problem,” which could pose issues for businesses.
“You need to fill [those gaps] with conventional energy so it’s very difficult to have this double structure which we will have to sustain in the future. On the one hand the green volatile energy and on the other hand the conventional energy to fill the gaps,” he said.
“This is double cost. This is high energy cost and this is not good for industry. It is a difficult course.”
Germany could lose 2% to 3% of its current industrial capacity as companies move operations to countries where gas and electricity are cheaper, such as the U.S. or Saudi Arabia, according to a research note released in August by Berenberg.
Uncertainty about energy prices has likely contributed to a “plunge” in business sentiment, Holger Schmieding, chief economist at Berenberg, wrote in the note. He added that “the current policy uncertainty and the dismay about half-baked government plans are not structural factors that look set to hold back the German economy for long.”
There is a backlash clearly … The population is now moving to the right.
Hans-Werner Sinn
President emeritus at the Ifo institute
But there are growing signs of public disenchantment in the shift to a more sustainable Europe, with a so-called “greenlash” emerging as people feel the cost impacts.
Sinn suggested there would be political ramifications as a result of the focus on sustainability.
“There is a backlash clearly … The population is now moving to the right,” Sinn said, referring to the popularity of the right-leaning Alternative for Germany party, which won a district council election for the first time in June.
“I am not moving to evaluate anything here, but … the policies which were, for ideological reasons, completely overdrawn … Pragmatism is a little bit missing in current policy,” he added.
Germany’s Federal Ministry for Economic Affairs and Climate Action did not immediately respond to CNBC’s request for comment.
After a month off trying to wrap our heads around all the chaos surrounding EVs, solar, and everything else in Washington, we’re back with the biggest EV news stories of the day from Tesla, Ford, Volvo, and everyone else on today’s hiatus-busting episode of Quick Charge!
It just gets worse and worse for the Tesla true believers – especially those willing to put their money where Elon’s mouth is! One believer is set to lose nearly $50,000 betting on Tesla’s ability to deliver a Robotaxi service by the end of June (didn’t happen), and the controversial CEO’s most recent spat with President Trump had TSLA down nearly 5% in pre-morning trading.
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Hyundai is getting ready to shake things up. A new electric crossover SUV, likely the Hyundai IONIQ 2, is set to debut in the coming months. It will sit below the Kona Electric as Hyundai expands its entry-level EV lineup.
Is Hyundai launching the IONIQ 2 in 2026?
After launching the Inster late last year, Hyundai is already preparing to introduce a new entry-level EV in Europe.
Xavier Martinet, President and CEO of Hyundai Europe, confirmed that the new EV will be revealed “in the next few months.” It will be built in Europe and scheduled to go on sale in mid-2026.
Hyundai’s new electric crossover is expected to be a twin to the Kia EV2, which will likely arrive just ahead of it next year.
It will be underpinned by the same E-GMP platform, which powers all IONIQ and Kia EV models (EV3, EV4, EV5, EV6, and EV9).
Like the Kia EV3, it will likely be available with either a 58.3 kWh or 81.4 kWh battery pack option. The former provides a WLTP range of 267 miles while the latter is rated with up to 372 miles. All trims are powered by a single electric motor at the front, producing 201 hp and 209 lb-ft of torque.
Although it may share the same underpinnings as the EV2, Hyundai’s new entry-level EV will feature an advanced new software and infotainment system.
According to Autocar, the interior will represent a “step change” in terms of usability and features. The new system enables new functions, such as ambient lighting and sounds that adjust depending on the drive mode.
It’s expected to showcase Hyundai’s powerful new Pleos software and infotainment system. As an end-to-end software platform, Pleos connects everything from the infotainment system (Pleos Connect) to the Vehicle Operating System (OS) and the cloud.
Pleos is set to power Hyundai’s upcoming software-defined vehicles (SDVs) with new features like autonomous driving and real-time data analysis.
As an Android-based system, Pleos Connect features a “smartphone-like UI” with new functions including multi-window viewing and an AI voice assistant.
The new electric crossover is expected to start at around €30,000 ($35,400), or slightly less than the Kia EV3, priced from €35,990 ($42,500). It will sit between the Inster and Kona Electric in Hyundai’s lineup.
Hyundai said that it would launch the first EV with its next-gen infotainment system in Q2 2026. Will it be the IONIQ 2? Hyundai is expected to unveil the new entry-level EV at IAA Mobility in September. Stay tuned for more info. We’ll keep you updated with the latest.
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Tesla has unveiled its lithium-iron-phosphate (LFP) battery cell factory in Nevada and claims that it is nearly ready to start production.
Like several other automakers using LFP cells, Tesla relies heavily on Chinese manufacturers for its battery cell supply.
Tesla’s cheapest electric vehicles all utilize LFP cells, and its entire range of energy storage products, Megapacks and Powerwalls, also employ the more affordable LFP cell chemistry from Chinese manufacturers.
This reliance on Chinese manufacturers is less than ideal and particularly complicated for US automakers and battery pack manufacturers like Tesla, amid an ongoing trade war between the US and virtually the entire world, including China.
As of last year, a 25% tariff already applied to battery cells from China, but this increased to more than 80% under Trump before he paused some tariffs on China. It remains unclear where they will end up by the time negotiations are complete and the trade war is resolved, but many expect it to be higher.
Prior to Trump taking power, Tesla had already planned to build a small LFP battery factory in the US to avoid the 25% tariffs.
The automaker had secured older manufacturing equipment from one of its battery cell suppliers, CATL, and planned to deploy it in the US for small-scale production.
Tesla has now released new images of the factory in Nevada and claimed that it is “nearing completion”:
Here are a few images from inside the factory (via Tesla):
Previous reporting stated that Tesla aims to produce about 10 GWh of LFP battery cells per year at the new factory.
The cells are expected to be used in Tesla’s Megapack, produced in the US. Tesla currently has a capacity to produce 40 GWh of Megapacks annually at its factory in California. The company is also working on a new Megapack factory in Texas.
Ford is also developing its own LFP battery cell factory in Michigan, but this facility is significantly larger, with a planned production capacity of 35 GWh.
Electrek’s Take
It’s nice to see this in the US. LFP was a US/Canada invention, with Arumugam Manthiram and John B. Goodenough doing much of the early work, and researchers in Quebec making several contributions to help with commercialization.
But China saw the potential early and invested heavily in volume manufacturing of LFP cells and it now dominates the market.
Tesla is now producing most of its vehicles with LFP cells and all its stationary energy storage products.
It makes sense to invest in your own production. However, Tesla is unlikely to catch up to BYD and CATL, which dominate LFP cell production.
The move will help Tesla avoid tariffs on a small percentage of its Megapacks produced in the US. Ford’s effort is more ambitious.
It’s worth noting that both Ford’s and Tesla’s LFP plants were planned before Trump’s tariffs, which have had limited success in bringing manufacturing back to the US.
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