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Why the EV Boom Does Not End a Dependency but Exchanges It

Okt. 6, 2026

More than one in three new cars registered in Germany is now fully electric, and a widely read commentary sees this above all as a way out of a costly dependency on oil. But whoever replaces petrol with batteries exchanges one dependency for another. The new one is harder to grasp, because it is felt not at the petrol pump but in the factory. And it has a feature the old one never had: the supplier is also the competitor.

I. Three Lessons and a Blind Spo

A commentary published in the regional daily Westfalen-Blatt under the headline „Teure Öl-Abhängigkeit“ („Costly Oil Dependency“), drew „three lessons from the EV boom“. The occasion is substantial. In September 2026, according to Germany’s Federal Motor Transport Authority (Kraftfahrt-Bundesamt, KBA), battery electric vehicles reached 88,599 new registrations and a share of 34.5 percent, higher than ever before. The federal government’s purchase subsidy is having an effect, and fuel prices driven up by geopolitical crises supply, an additional and powerful argument: they show people how expensive dependency on fossil fuels can be.

Her three lessons are these. German carmakers must offer more affordable electric small cars rather than leave this business to Chinese manufacturers. The state wastes money when it subsidises plug-in hybrids, that is, vehicles that carry a battery chargeable from the grid alongside a combustion engine. And it is contradictory to support electric cars with billions while simultaneously spending billions on a rebate for diesel and petrol.

Each of these lessons has its merits. What they share is a tacit premise: that independence from oil amounts to independence as such. That premise does not hold.

II. What the Numbers Support

First, the empirical basis. The record is a monthly figure. Over the first nine months of the year, the share of battery electric vehicles stands at 27.2 percent. That is a considerable increase, but not yet a turning point from which the further course could be inferred. Part of the demand is likely due to a pull-forward effect: anyone planning to buy a new car anyway times the purchase to fall within the subsidy period. What happens once the subsidy expires remains open. The experience with the abrupt end of the earlier environmental bonus („Umweltbonus“) at the end of 2023 counsels caution.

More revealing than the size of the share is its composition. According to the Association of International Motor Vehicle Manufacturers (VDIK), 45.9 percent of all newly registered electric cars in September came from international manufacturers, whose registrations more than doubled compared with the same month of the previous year. The boom is therefore not primarily a success of the German manufacturers.

III. The Dependency That Remains

An electric car needs no oil, but it needs a battery and an electric motor. In both cases the supply chain leads to China.

Most electric cars are driven by permanent-magnet synchronous motors whose magnets contain rare earths. By some estimates, China controls up to 70 percent of global mining of these metals, around 85 percent of refining capacity and about 90 percent of the production of rare-earth alloys and magnets. In graphite, the raw material for the anode, i.e. the negative electrode of the battery cell, the concentration is even more pronounced: roughly four fifths of mining and more than 95 percent of anode processing take place in China. Germany sources its battery graphite almost entirely from imports, predominantly Chinese.

This dependency is not a theoretical risk. In recent years Beijing has repeatedly used export licences for rare earths and graphite as a means of pressure. The temporary easing of graphite export controls expires at the end of November 2026. While Höning writes about the price of oil, the next dependency already has a deadline.

IV. From the Petrol Pump to the Factory

One might object that one dependency is as good or as bad as another. That is not the case, because the two differ in kind.

Oil is an ongoing dependency. Every kilometre driven requires fresh supply. The risk is borne by the consumer, and it appears as a price at the pump. The dependency on battery materials and magnets, by contrast, sits in production. A finished electric car keeps running even if China curbs its exports. What would come to a standstill are the factories. The risk thus migrates from the household to industry and its workforce.

At the same time, the form of the risk changes. With oil, the price regulates scarcity: it becomes more expensive, but it remains available. With graphite and magnets, a licensing authority decides whether anything is delivered at all. A price risk becomes a quantity risk.

Added to this is the concentration of suppliers. Oil is supplied by many states with partly conflicting interests, from Norway via the United States to the Gulf states. In the processing of graphite and rare earths there is in effect a single state, which deliberately uses its export policy as an instrument. The exchange of dependencies is therefore not neutral. It shifts vulnerability to a more sensitive point.

V. The Supplier as Rival

The most important difference, however, lies elsewhere. Oil-exporting countries do not appear on the world market as competitors of German carmakers. Saudi Arabia or Norway earn money when many cars are driven and refuelled in Germany. Their interest in the oil price may run counter to that of German drivers, but their interest in the number of cars coincides with that of German manufacturers.

China, by contrast, controls the inputs of an industry in which it competes with its own manufacturers for the same customers. A supplier that is also a competitor has an incentive to manage access to inputs in a way that favours its own downstream production. Industrial economics calls this vertical foreclosure. In their 1983 article „Raising Rivals‘ Costs“, the economists Steven Salop and David Scheffman described the mechanism: a firm need not defeat its competitor in the product market; it is enough to make the competitor’s inputs more expensive or scarcer.

History offers an instructive contrast. The oil price shock of 1973 hit all carmakers worldwide, including the competitors. The main beneficiaries at the time were the Japanese manufacturers with their fuel-efficient small cars, not the oil states as car producers. Supplier and beneficiary were different actors. With graphite, magnets and battery cells, they coincide. A Chinese export restriction would hit European factories while domestic manufacturers continued to be supplied. The disruption does not act symmetrically; it shifts competitive advantages in a targeted way.

The distinction is not entirely clear-cut, however. Gulf states now invest in electric mobility themselves, Saudi Arabia for instance through its sovereign wealth fund in the US manufacturer Lucid. These are marginal positions without significant market power in Europe. Conversely, not every Chinese supplier builds cars itself. The battery maker CATL is not a carmaker, but it is part of a state-coordinated industrial structure in which raw material processing, cell production and vehicle manufacturing are promoted together. The competitive relationship therefore runs through this structure, not in every case through the individual company.

VI. Where the Subsidy Flows

This calls for a refinement of the widespread criticism that the subsidy benefits mainly Chinese manufacturers. In that form it is easily rebutted by the official figures. According to the federal government’s answer to a parliamentary question, 91 percent of the 52,473 subsidies approved by 1 September went to battery electric vehicles. Of these, 87 percent came from manufacturers headquartered outside China. The Volkswagen Group received the most approvals with 11,680; BYD accounted for 2,831.

Measured against their market share, Chinese brands are nonetheless clearly overrepresented. According to one analysis, BYD, MG, Leapmotor and Xpeng together hold just under 5 percent of the market but account for around 15 percent of subsidy applications.

The real objection, however, lies not with the badge but one level deeper. Even a subsidised electric car built in Germany usually carries cells, anode material and magnets whose value added lies to a significant extent in China. Whoever counts only which brand receives the subsidy overlooks where the money flows along the supply chain. The balance by brand is reassuring; the balance by component is not.

VII. Why the Small Car Is No Answer

The demand that German manufacturers should simply build affordable electric small cars underestimates the cost structure of this segment. The smaller and cheaper the car, the larger the battery’s share of its total cost. It is precisely there that the cost advantage of Chinese cell and materials producers has the greatest impact, and precisely there that margins are thinnest.

A German manufacturer without its own cell and materials chain that builds electric small cars in large numbers ends up selling more vehicles with Chinese cells at a margin that leaves little over. The dependency grows instead of shrinking. And the manufacturer enters a segment into which Chinese overcapacity is pushing anyway. It buys the cost-determining component from the very industrial structure it is supposed to compete against, thereby letting the competitor co-determine its own cost base. Höning’s lesson addresses the product; the problem lies in the value chain.

The second lesson is also more complicated than it sounds. The criticism of subsidising plug-in hybrids is factually justified, and the market is already penalising these vehicles: their registrations stagnated in September at a share of 10.8 percent. But anyone who sees the hybrid subsidy as favouring German manufacturers overlooks the fact that BYD has generated more than 60 percent of its German sales since the start of the year with plug-in hybrids. Lessons one and two do not run as parallel as their enumeration suggests.

VIII. The Overlooked Contradiction

That leaves the third lesson, the contradiction between the EV subsidy and the fuel rebate. The rebate is real: from 1 October to 31 December 2026, the energy tax on petrol and diesel is reduced by 14 cents per litre, or around 17 cents including VAT. The federal government and the states expect costs of about 2.5 billion euros.

That this rebate „cements“ the dependency on oil, as Höning writes, is, however, overstated. A three-month tax cut mainly relieves the owners of combustion cars already on the road. Hardly anyone will buy a petrol car instead of an electric one because of it. The two instruments act on different quantities: the subsidy on new registrations, the rebate on the existing vehicle stock.

A genuine contradiction is emerging elsewhere. The Ministry for Economic Affairs is to present a draft law for a permanent fuel price cap, modelled on Luxembourg and Belgium, by early 2027 at the latest. Such a cap would dampen precisely the price signal that the commentary cites as a powerful argument for the electric car. Only then would policy shore up the old dependency while financing the transition into the new one.

Conclusion: Independence from What?

The commentary answers a question that no longer arises in this form. The question is not whether Germany will become less dependent on oil. It will, slowly and with subsidies. The question is what it will become dependent on instead, and on what terms.

The findings so far suggest that the exchange turns out unfavourably in three respects: an ongoing dependency of the consumer is replaced by a dependency of production, a market with many suppliers by a dominant state, and a supplier that profits from German sales by a supplier that profits from the decline of German manufacturers. This thesis is provisionally corroborated; it rests on concentration data and on Beijing’s previous conduct with export licences, not on a systematic examination of all supply chains. Its test case is obvious: whether it holds up will become apparent when the graphite easing expires at the end of November.

It is this last point that is almost entirely missing from the debate on the EV subsidy. As long as it is missing, every lesson drawn from the boom remains incomplete. The subsidy accelerates the farewell to oil. Where the journey leads, it does not determine.

Ralf Keuper

Sources

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