Germany's coalition collapses dramatically. Scholz plans to lead with a minority government

BERLIN (AP) — After Germany’s government coalition collapsed in a dramatic fashion when Chancellor Olaf Scholz fired Finance Minister Christian Lindner of the pro-business Free Democrats, Scholz said he would lead the country with a minority government, despite calls from opposition leaders on Thursday for early elections.

The chancellor said the minority government would be made up of his Social Democrats and the Greens until early next year — even as the leader of the biggest opposition bloc in parliament, Friedrich Merz from the center-right Christian Democrats, called for an immediate no-confidence vote and new elections.

Scholz stressed again on Thursday, that he does not want to call a vote of confidence before Jan. 15.

“The citizens will soon have the opportunity to decide anew how to proceed," the chancellor said, according to the German news agency dpa. "That is their right. I will therefore put the vote of confidence to the Bundestag at the beginning of next year.”

A meeting with Merz and Scholz at the chancellery around noontime Thursday about a possible date for the next election ended after less than an hour with Merz leaving without commenting on the talks.

Later on Thursday, President Frank-Walter Steinmeier gave fired Finance Minister Lindner and two other Free Democrats officials who had resigned — Research Minister Bettina Stark-Watzinger and Justice Minister Marco Buschmann — their certificates of dismissal.

Transport Minister Volker Wissing, who is also with the Free Democrats, said that after talks with Scholz, he had decided to stay in office and instead leave the party. Scholz asked him to add the justice ministry to his portfolio.

Steinmeier also appointed Jörg Kukies, an economic adviser to Scholz, as finance minister. Agriculture Minister Cem Özdemir from the Greens agreed to take on the research ministry.

Scholz had announced late Wednesday that he would seek a vote of confidence on Jan. 15 that he said might lead to an early election, perhaps as soon as March. The vote had otherwise been due next September.

After firing his finance minister, the chancellor had accused Lindner of breaching his trust and publicly calling for a fundamentally different economic policy, including what Scholz said would be tax cuts worth billions for a few top earners while at the same time cutting pensions for all retirees.

“That is not decent,” Scholz said.

The chancellor hopes that his minority government — Scholz’s left-leaning Social Democrats with the remaining coalition partner, the environmentalist Greens — will get the support from Merz's Christian Democrats in parliament in the coming weeks, to pass important legislation and plugging the billion-euro hole in the 2025 budget.

However, Merz on Thursday vehemently rejected Scholz's plan to wait to hold a vote of confidence until January.

“The coalition no longer has a majority in the German Bundestag, and we therefore call on the chancellor ... to call a vote of confidence immediately, or at the latest by the beginning of next week,” Merz said.

“We simply cannot afford to have a government without a majority in Germany for several months now, and then campaign for several more months, and then possibly conduct coalition negotiations for several weeks," Merz added.

Since Scholz's government doesn't have a majority in parliament any longer, he would likely lose the vote. In that scenario, Germany's president could dissolve parliament within 21 days and an early election could then be held as soon as January.

“During these 21 days, we will have enough time to find out whether there are any issues that we may have to decide on together,” Merz said, offering his party's cooperation with the minority government. "We are, of course, prepared to hold talks ... we are also prepared to take responsibility for our country.”

Achim Wambach from the Leibniz Center for European Economic Research cast doubt that a prolonged period with a minority government would help Germany's economy get back on track.

“Germany’s problems are too big to tolerate political gridlock," the analyst said.

“The government set out to reconcile the transformation towards climate neutrality with economic growth and social security,” Wambach added. “It has not lived up to this claim. The economy is stagnating and investments are failing to materialize.”

“This daunting task was compounded by geo-economic tensions: wars in Europe and the Middle East as well as economically damaging interventions through tariffs and national subsidy policies,” he added. “ The election of Donald Trump has exacerbated these problems. Europe must do more for its security and will have to reckon with increased tariffs.”

The collapse of the coalition came after weeks of disputes among the coalition partners over ways to boost the country’s ailing economy.

Lindner's pro-business Free Democrats had rejected tax increases or changes to Germany’s strict self-imposed limits on running up debt. Scholz’s Social Democrats and the Greens wanted to see major state investment and rejected the Free Democrats’ proposals to cut welfare programs.

German opposition leader and Christian Union parties floor leader Friedrich Merz arrives for a meeting with German Chancellor Olaf Scholz at the chancellery in Berlin, Thursday, Nov.7, 2024. (AP Photo/Markus Schreiber)

German Chancellor Olaf Scholz leaves Bellevue Palace in Berlin Thursday, Nov. 7, 2024. (Kay Nietfeld/dpa via AP)

German opposition leader and Christian Union parties floor leader Friedrich Merz arrives for a meeting with German Chancellor Olaf Scholz at the chancellery in Berlin, Thursday, Nov.7, 2024. (AP Photo/Markus Schreiber)

Germany's Federal President Frank-Walter Steinmeier, center, presents Christian Lindner, former Federal Minister of Finance, right, with his certificate of dismissal with German Chancellor Olaf Scholz, at left, at Bellevue Palace, in Berlin, Thursday, Nov. 7, 2024. (Kay Nietfeld/dpa via AP)

Christian Lindner, center, outgoing Federal Minister of Finance, speaks during a press conference at the FDP party headquarters, in Berlin, Thursday, Nov. 7, 2024. (Christoph Soeder/dpa via AP)

Christian Lindner Germany's former Federal Minister of Finance, Marco Buschmann, former Federal Minister of Justice, Bettina Stark-Watzinger, former Federal Minister of Education and Research, and Volker Wissing, Federal Minister of Digital Affairs and Transport, walk at Bellevue Palace, in Berlin, Thursday, Nov. 7, 2024. (Kay Nietfeld/dpa via AP)

Christian Lindner , former Federal Minister of Finance, Marco Buschmann, former Federal Minister of Justice, Bettina Stark-Watzinger former Federal Minister of Education and Research, Volker Wissing, Federal Minister of Digital Affairs and Transport and Joerg Kukies (SPD), new Federal Minister of Finance, from left, stand together, as German Chancellor Olaf Scholz, right, looks on in the Bellevue Palace in Berlin, Germany, Thursday, Nov.7, 2024. (AP Photo/Ebrahim Noroozi)

German Chancellor Olaf Scholz leaves Bellevue Palace in Berlin Thursday, Nov. 7, 2024. (Kay Nietfeld/dpa via AP)

German Chancellor Olaf Scholz leaves after making a statement after a meeting with government leaders in Berlin, Germany, Wednesday, Nov. 6, 2024. (AP Photo/Markus Schreiber)

German Chancellor Olaf Scholz speaks to participants at the Deutsche Telekom AG forum, in Berlin, Thursday, Nov. 7, 2024. (Carsten Koall/dpa via AP)

German Chancellor Olaf Scholz speaks to participants at the Deutsche Telekom AG forum, in Berlin, Thursday, Nov. 7, 2024. (Carsten Koall/dpa via AP)

German Chancellor Olaf Scholz speaks to participants at the Deutsche Telekom AG forum, in Berlin, Thursday, Nov. 7, 2024. (Carsten Koall/dpa via AP)

German Chancellor Olaf Scholz speaks to participants at the Deutsche Telekom AG forum, in Berlin, Thursday, Nov. 7, 2024. (Carsten Koall/dpa via AP)

Federal Minister of Finance Christian Lindner, from left, joins Bijan Djir-Sarai, Free Democratic Party Secretary General, and Christian Dürr, Chairman of the Free Democratic Party parliamentary group, for a press statement after his dismissal by the Federal Chancellor Olaf Scholz, in Berlin, Wednesday, Nov. 6, 2024. (Christoph Soeder/dpa via AP)

Parts of the Reichstag building with the Bundestag and the Paul Löbe House in Berlin's government district are reflected in the Spree at night, early Thursday, Nov. 7, 2024. (Kay Nietfeld/dpa via AP)

Federal Minister of Finance Christian Lindner, right, gets into his limousine in front of the Reichstag building after his dismissal by the Federal Chancellor Olaf Scholz and a parliamentary group meeting in Berlin, Wednesday, Nov. 6, 2024. (Christoph Soeder/dpa via AP)

Federal Minister of Finance Christian Lindner makes a press statement following his dismissal by the Federal Chancellor in Berlin, Wednesday Nov. 6, 2024. (Kay Nietfeld/dpa via AP)

Federal Minister of Finance Christian Lindner makes a press statement following his dismissal by the Federal Chancellor in Berlin, Wednesday Nov. 6, 2024. (Kay Nietfeld/dpa via AP)

German Chancellor Olaf Scholz gives a statement after a meeting with government leaders in Berlin, Germany, Wednesday, Nov. 6, 2024. (AP Photo/Markus Schreiber)

Germany's Federal Chancellor Olaf Scholz speaks in Berlin, Wednesday Nov. 6, 2024. (Michael Kappeler/dpa via AP)

German Chancellor Olaf Scholz leaves a statement after a meeting with government leaders in Berlin, Germany, Wednesday, Nov. 6, 2024. (AP Photo/Markus Schreiber)

DETROIT (AP) — Tesla posted its first annual sales drop in more than a dozen years Thursday, sinking a stock that has soared since Donald Trump’s victory on optimism Elon Musk’s close relationship to the president-elect will help the company.

Tesla’s global vehicle sales rose 2.3% in the final quarter thanks to 0% financing, free charging and low-priced leases. But that was not enough for billionaire Musk's most valuable holding to overcome a sluggish start to 2024.

The Austin, Texas, company sold 495,570 vehicles from October through December, boosting deliveries to 1.79 million for the full year. That was 1.1% below 2023 sales of 1.81 million as overall demand for electric vehicles in the U.S. and elsewhere slowed.

The year-over-year global sales drop is Tesla’s first since 2011, according to figures from analytics firm Global Data. The company sold 1,306 vehicles in 2010, but that dropped slightly to 1,129 the following year.

The fourth-quarter boost came with a cost. Analysts polled by FactSet expected Tesla’s average sales price to fall to just over $41,000 in the quarter, the lowest in at least four years.

That doesn’t bode well for Tesla’s fourth-quarter earnings on Jan. 29.

Tesla stock fell about 5% in midday trading.

Musk donated more than $250 million to Trump’s campaign and is a regular guest at Trump’s Mar-a-Lago resort in Florida. Tesla investors have pushed the stock up more than 50% since the election on hopes the new administration will streamline electric vehicle regulations and address other Musk policy priorities.

In 2022, Tesla predicted that its sales would grow 50% most years, but the prediction ran into an aging model lineup and increased competition in China, Europe and the U.S. In the U.S., analysts say most early adopters of technology already own electric vehicles, and more mainstream buyers have concerns about range, price and the ability to find charging stations on longer trips.

The fourth-quarter deliveries fell thousands short of Wall Street expectations. Analysts polled by data provider FactSet expected sales of 498,000 vehicles.

Falling sales early in the year led to once-unheard of discounts for the automaker, cutting into its industry leading profit margins.

Competition from legacy and startup automakers is also growing as they try to nibble away at the company’s market share.

Daniel Ives, a financial analyst at Wedbush, said he thinks the stock is still worth buying despite the sales drop.

“We have never viewed Tesla simply as a car company...instead we have always viewed Musk and Tesla as a leading disruptive technology global player,” wrote Ives. “And the first part of this grand strategic vision has taken shape.”

The fourth-quarter sales, while a record for Tesla, show that the company’s aging model lineup is reaching saturation in the entry level luxury vehicle market, said Morningstar Analyst Seth Goldstein.

Aside from the Cybertruck, which has had limited appeal, Tesla’s newest consumer model is the Y small SUV which first went on sale in 2020.

To meet Tesla management’s guidance of 20% to 30% annual sales growth this year, the company will need to come out with a vehicle priced in the mid $30,000s to appeal to more mainstream buyers who might be considering gas, electric or hybrid vehicles, Goldstein said.

Tesla has floated the possibility of a new version of the Model Y that would cost in the mid $30,000s that may be smaller inside than the current Y with fewer features, Goldstein said.

“At that point you’re comparable to some Hondas and Fords and GMs,” Goldstein said. “It takes you out of the luxury market to the more affordable vehicle market.”

Jeff Schuster, vice president of automotive research Global Data, said Tesla faces intense competition worldwide from EV makers in China, the U.S. and elsewhere, many of which are selling EVs to more mainstream buyers. “If they want to continue to see the growth they had, they need to expand to other sizes and price points,” he said.

Also, Musk’s support of Trump for U.S. president also could be turning off some buyers who may be more environmentally conscious and lean toward Democrats, Schuster said. A broader, less costly lineup would appeal to a larger group of buyers, he said. “I suppose the choices that he’s made on the political front don’t line up with a good portion of his buyers’ profile,” Schuster said.

Industry experts say that Tesla used to be the only automaker with credible electric vehicles, but now others such as China’s BYD now have more to offer.

At present, automakers have 75 electric vehicle models for sale in the U.S. Through the first nine months of last year, electric vehicle sales slowed in the U.S., but they are still growing.

Through September, new EV sales rose 7.2% to about 936,000 in the U.S., according to Motorintelligence.com. That’s slower growth than the 47% increase in 2023. But EV sales this year still are likely to surpass last year’s record of 1.19 million. Most other automakers will report full-year sales on Friday.

Nearly all of Tesla’s sales last quarter came from the smaller and less-expensive Models 3 and Y, with the company selling only 23,640 of its more expensive models that include X and S, as well as the new Cybertruck.

Tesla's global electric vehicle sales edged out Chinese rival BYD, which announced Thursday that total soared 41% last year including 1.77 million EVs. The company is vying with Tesla for the world’s top selling EV maker.

Fourth quarter production of 459,445 vehicles was below total deliveries for the quarter, and full year production of 1.77 million was less than the year’s sales.

AP reporter Bernard Condon reported from New York City.

FILE - A Tesla level three Electric vehicle charger is visible, Feb. 2, 2024, in Kennesaw, Ga., near Atlanta. (AP Photo/Mike Stewart, File)

FILE - The logo of Tesla car is pictured at the Paris Auto Show, in Paris, Oct. 14, 2024. (AP Photo/Michel Euler, File)