European Automakers Concerned Over Electric Car Costs, Margins, Profit

1 month ago by Steven Loveday 21

Electric Cars

The ~300 mile Mercedes-Benz EQ set to arrive in 2019 with more electric vehicles to follow

While European automotive companies are publicizing plans to release a multitude of electric cars in the coming years, brand bosses and market analysts have heavy concerns over costs, margins, profit, and jobs.

Daimler and Volkswagen Group have been especially forward with their plans to unleash a slew of electric vehicles into the market, but it seems they’re taking their time, and perhaps for good reason due to their concerns and analysts warnings. Now that 2019 and 2020 are around the corner — years that both companies, among others, are assuring these new models will begin to surface — CEOs are not hesitating to share their concerns.

If it wasn’t for the force of hand coming from more and more countries moving toward zero-emissions legislation, these automakers would likely steer clear of electrification altogether.

France and Britain have announced that they will completely ban gas and diesel vehicles by 2040.   A Chinese minister recently announced that Beijing will eventually follow suit, China itself looks for 10% fleet ZEV credits to be accumulated in 2019.  The Netherlands is done with petrol vehicles in 2030.  In the US, California has been working on laws that will push to make ICE cars a thing of the past.  The EU is about to implement a stringent CO2 standard for cars and vans beginning in 2020 through 2030.

Electric Cars

VW ID at Frankfurt Autoshow this month (InsideEVs/Tom Moloughney)

Daimler was the first European automaker to publicly admit that electrification is going to be problematic. The company has said that its upcoming EVs will only be half as profitable as their ICE alternatives and will require outsourcing, which could mean a loss of German jobs. CEO Dieter Zetsche said at the recent auto show in Frankfort:

“In-house production is almost irrelevant to the consumer.”

Essentially he’s saying that car buyers don’t really care where it’s made, where the parts come from, or how it gets from the manufacturing facility to their driveway. They just want the vehicle. In order to make this happen, Daimler has plans to save $4.8 billion by 2025. This means cutting corners now to fund electric cars for the future. Bernstein analyst Max Warburton told Reuters:

“Daimler is the first company to state explicitly how much electric vehicles are going to hurt margins. It was brave to go first – but of course it won’t be the last.”

Volkswagen Group in on the same path, however, the automaker is still dealing with the lasting implications of its Dieselgate scandal. If there’s any automaker that’s compelled to dive headfirst into cleaner, greener cars, VW is the prime candidate. CEO Matthias Mueller admitted:

“A company like Volkswagen must lead, not follow.”

At this point, VW is investing $60 billion to establish new global supplier contracts specifically related to electric cars. Like Daimler, this means potentially reaching out to suppliers outside of Europe and taking jobs away from people in the automakers’ native land.

PSA Group (Peugeot and Citroen) CEO Carlos Tavares has other worries. Aside from the cost associated with moving to electrification, he’s worried that the cars won’t catch on. He told reporters from German publication, Bild am Sonntag:

“If it doesn’t gain acceptance in the market, then everybody – industry, employees and politicians – has a big problem.” 

As we’ve mentioned before, electric car batteries comprise a substantial amount of the cost of the car as a whole. Over time, as EV market share increases and battery costs come down, the vehicles will reach price parity with ICE cars. However, this is not the only concern related to cars that run on batteries.

Consulting firm, AlixPartners, points out that electric drivetrains require 40 percent less labor to build. The firm estimates this will cost German automakers 112,000 jobs, and this is before factoring in all of the outsourcing that will be necessary.

Germany’s Ifo economic institute claims that if ICE cars are phased out by 2030, German automakers will lose 600,000 jobs.

Richard Windsor, an independent automotive analyst warned of the long-term damage that will be imposed on European automakers due to the fact that electric cars last much longer than ICE cars and don’t need very much maintenance. He concluded:

“Vehicle makers are queuing up to announce their commitment to electric vehicles but at the same time they may be cheering for their own demise.”

In the long run, it won’t matter really (at least not to use), the nimble will survive and grow, while the slow and weak will fade away.  Game on!

Source: Reuters

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21 responses to "European Automakers Concerned Over Electric Car Costs, Margins, Profit"

  1. Someone out there says:

    They are right to be worried. The margins and volumes aren’t there yet, much because of the costly battery. We absolutely need significant improvements in that area to push down price. Solid-state will do that, along with less weight, better safety and higher charging performance.

    1. Assaf says:

      The main reason they should be worried, is that all the automakers cited in the article have been dragging their feet towards EVs for years, while throwing poop at the very concept of EVs.

      Now that they’ve lost the battle over whether EVs will become a mainstream reality, they are moving to the whining phase, probably a foreplay to explicitly asking governments for compensation $$.

      Likewise the analysts, are probably of the same breed who’ve been trying to bury EVs for a decade.

      Note who’s *not* among the complainers and worriers:

      – Renault-Nissan, who’ve just launched 150-mile versions of their leading BEV products at a competitive price
      – Tesla, a company built from nothing, using labor and real estate in one of the most expensive locations in the world, and is now crashing into the mainstream market
      – BYD, who’s going to sell ~100k EVs of staggering variety and tens of thousands of e-Buses this year

      Speaking of electric buses, what’s the German automakers’ excuse for not making any? No complicated design issues, just chuck the battery at the bottom (at least for city buses). No finicky individual customers, just transit authorities to work with.
      Chinese automakers deployed a quarter-million e-buses in 2015-6. Mercedes, the world’s #3 largest bus makers, pretty much zero.

      1. Someone out there says:

        No, they have been dragging their feet because the market is miniscule and will be for some time. Only enthusiasts are willing to pay $40k+ for an 80 mile EV and there aren’t that many enthusiasts around.

        Nissan sold FAR fewer LEAFS than they expected to which is a testament to the small market. Tesla is bleeding money like there’s no tomorrow and is losing more money the more cars they sell. Hardly a positive example. BYD has the benefit of government sponsorship in a large and closed market. EVs sell well in China because ICE cars are heavily penalised.

        1. Mark.ca says:

          Amazing how you were able to pack so much crap into a post that short!
          The 80 mile evs are selling for about $20k net…i know, i have one.
          Tesla bleeding money comment is just not worth a reply…obviously you don’t understand how a business operates .
          ICE cars are “penalized” in China? That’s rich! So there should be no consequences for the dameges they cause? The good old American way of doing business, crap in someone’s pool and charge them after they clean it up.

          1. Someone out there says:

            Yes Tesla is bleeding money. They are reporting bigger and bigger losses every quarter, earnings per share is more and more negative every report. Those are cold, hard facts reported by Tesla itself. If you want to argue about it take it up with Musk instead. “Investment” has nothing to do with it. Investing means converting one asset (cash) into another asset. The asset is still there in one form or another.

            1. Mark.ca says:

              Do you volunteer at your work?

    2. eltosho says:

      That comment would be quite accurate in 2012…

  2. Magnus H says:

    As EVs will be more of a commodity than ICEs, it will be easier/cheaper to build and competitons will stiffen. POutsurcing also moves a lot of of profit to LG Chem and the likes.

  3. Benz says:

    “…. the nimble will survive and grow, while the slow and weak will fade away.”

    The longer they wait with the change towards EV’s, the harder it will get for them to compete to obtain a substantial marketshare.

    Fiat Chrysler is still waiting.

  4. Rich says:

    We need Tesla to announce and start construction on the next 3 to 4 Gigafactories. If Tesla can raise the potential loss of market share for these companies, it could help these companies justify a roadmap that’ll result in lower profit margins.

  5. Rich says:

    “Germany’s Ifo economic institute claims that if ICE cars are phased out by 2030, German automakers will lose 600,000 jobs.”

    This is an interesting stat. Even without EVs dominating the market, would increased automation of ICE vehicles cause similar losses?

    C-level execs don’t want to invest huge capital investments because it lowers their quarterly bonuses. C-level execs don’t want to invest in EVs because of lower profit margins resulting in their lower quarterly bonuses. We need executives with courage that prioritize the company’s long term viability over short term profits.

    Where’s the quote of how many German automaker jobs will be lost due to substantial market share loss? If they fail to shift with the market changes, they lose anyway.

    1. john Doe says:

      This is an interesting stat. Even without EVs dominating the market, would increased automation of ICE vehicles cause similar loses?

      Yes, more or less. I work for a company that do automation (integration), for good and worse.

      The ever increasing integration of steps, the level of software control of processes – and the increased “skills” of the machines results in more automated steps (even if some of those steps would be done faster with a person doing the job). A machine can work 24/7 with perfect results. No paychecks.

      It it the total package with smarter software, and so called intelligent feedback.
      This is not something new, it has been a process being more and more automated over the years.
      My first techincal job was in the semiconductor industry, as a wafer manufacturing production technician, and that industry is highly automatic – the feedback system was kind of unique to that industry. Years ahead of most industries. After the chemical processes, application of the photoresist, lithography, plasme etching and so on.. there were testing, and several of these processes was made to be adustable automatically based on feedback from testing – to improve yield.

      A similar factory system is now more and more common in the auto industy. Some way more then others – but they will all end up with an industry 4.0 solution of some kind.

      If you look at the production of an EV like the BMW i3, it is easy to see the level of automation they have integrated in the production line. Check out this video.

      https://www.youtube.com/watch?v=f9KK6BPjs3c

      Apart from the carbon stuff, that is replaced with an automated stamping press in a regualt factory – they are more or less the same.
      They still have a few manual steps, but they are the last few steps that is gradually automated. It is worth a look, and it shows the job it is to get a modern factory up and running. There is a lot of stuff that has to work together.
      Some car factories even have 3-4 parallell production lines, where many of the steps are the same, but others are unique for that model/type.

      In many industies there are more and more automated steps. In the end, there will be fewer and fewer manual jobs.
      Yes, there will be some jobs for programmers, system designers, automation technicians and service personell. But not the same number… not even close.
      Those jobs were supposed to be the middle class jobs. . a middle class that buys stuff and keeps the wheels rolling.
      Now there will be more people working either fewer hours, of a less paying jobb. And some that makes a lof of money..
      When there is too big of a difference between rich and poore there will be problems of some kind.

      We also delivers automation equipment to the printing industry. That is an industry that has been under a lot of pressure, and ever changing systems, with more automation.
      Last year I was working on a system for a small printing company. There were about 30 employees. After the new machines was installed, and the automation was finished they were 5.
      The customers used the net to order their stuff (and acutally doing most of the pre production work themselves). Then the job was paid online, and imported to a job que. One person in the production area made sure the right paper was in the machine, at the right time. Then the machine printed the job, ran some of the pages through a glossing unit and then if was creased, folded and stapled. Then the finished product was placed in boxes, palleted, and the logistics company was contacted. All automatically.
      The had one sheet fed machine, and one web fed machine. They produced about 3 times as much, at lower prices, with far fewer mechanical steps, and much lower wage costs, with about 1/6th of the manpower.

      So I go to work with mixed emotions, because I know many are loosing their job.
      If they are young (and in a country where education is free) they have a chance to change their profession. For older employees many will end up with a lower paying job, in a non related business. . or no job at all.

      You see the same in the oil industry. 10-15 years ago, there were roughnecks on the drilling deck – doing physical labour.
      That’s not how it’s done now – unless it is small scale, with low cost employees.
      Now a roboticed system do all the work. Less people working in the platform and drilling deck. All controlled by Siemens and their process control system SIMATIC PCS 7 , an integral component of Totally Integrated Automation (TIA).

      Add new 3D printing technologies, and so on – and we’re heading for a future where business is changing.

      At the same time, there will be chanses for people to use new technology to make a living. But it will usually be for resource strong people that handle changes well.
      Not that all jobs can be done by a computer – but changes will be fairly huge.
      Children now, will not get an education, and then get a job and work until they retire.
      They may have to study more, and change directions a few times more then what was common before.

      It is also a question, that if a factory is highly automated, with few employees. The owners will be rich, those with a job will be OK – and then there will be many with no job at all. How are they going to survive, and have an OK life? They can not all serve the rich, and make products the rich buys. There is a limmit on how many pants a rich person can buy. It does not mather if he buys 1000 dollar pants, because the numbers he will buy is so low – compared to the combines purchaces of the middle class.
      With no middle class there will be less products for the factories to make. Nobody can afford their products if they don’t have a wage they can live of.
      And who is going to pay for the people with no jobs? No money will end in a riot.

      I work as mentions in the automation industry, and I travell a lot. There is no 9-5 job for me in one location (unless it was in a major Chinese city maybe).
      But i work for three companies, and manage to have a fairly steady paycheck. My situation is mostly by choise, as I’m a technophile person. I love to learn new stuff, and with the different jobs, I do just that.

      I see that in a company we do some work with in New York, they have started to implemt a hot seat business.
      They have an office at the right location in New York. They have a large reception area, a large conferance room, and the rest is filled with cubicles where 3 people share the same desk, chair, PC and so on. By having a 3 shift system, they save a lot of space, and they utilise their equipment and office space much better.
      At the same time, they are open 24/7, that is something the customers love. They could also drop two foreigh locations, since their main office is always open for business.
      I think we will see more of that too. Maybe even more home office solutins too. No need to rent an office for the employee at all.
      They have a few that quit the job, because they were not interested in working at night. They wanted a normal sosial life, and hang out with friends when they were awake.
      There would be less trafic rush in the morning and after normal working hours, if most people worked in a 3 shift job. But if people want to do that, I’m not so sure.

      At the same time, there is no need to panic. Full automation will take decades, and will be a gradual process.

  6. pjwood1 says:

    Their rent-seeking needs to be exposed. It has been profitable to make cars that break, for a long, long time.

    I’m glad the lithium breakthrough has arrived.

    1. Assaf says:

      +1

      Of course the rent-seeking isn’t over. Now they will just switch to demanding direct government compensation for their mostly self-inflicted losses, in lieu of the customer $$ they’ve been fleecing by forcing a stagnant technology on us, when a better and more sustainable one has been available.

  7. Assaf says:

    Oh, cry me a river for those poor, poor automakers, who’ve been laughing at Tesla, Renault-Nissan and other EV pioneers, and actively sabotaging the advent of EVs, until they were caught with their pants down.

    It’s all foreplay to asking for compensation handouts.

    1. And, in the USA, they still have access to the first stage development boost, in the form of the Federal Tax Credits of $7,500 too 200,000 plus buyers of their cars! While Norway charges massive fees to ICE Vehicles!

      They should maybe get off the pot, before fees go even higher in Norway, and the US drops their Tax Credits program for PEV’s!

      Other countries will make it even tougher, the longer they wait! Like China, who already gave them a Break, for next year, but not for 2019!

  8. Sladjo says:

    Bull**it… IMHO, they just worry that, EV’s being easier to build and mantain, and potentially getting broke much harder, they will loose money from currently (overpriced, IMHO) german ICE’s and spare parts market. And from the fact that they will need to move from ICE production lines to EV production lines. Companies like Tesla don’t have any of the problems above.

  9. Jim J Fox says:

    Looks like “acceptance” won’t be a problem- Governments everywhere are legislating against ICE’s. EV’s will replace ICE’s in all but the most specialised markets & eventually ALL mainstream applications.
    So the ‘acceptance’ argument would appear to be desperation…

  10. Jim J Fox says:

    Job losses– happen across all industries, eventually; what happened to all the farriers, blacksmiths, saddle makers, carriage builders, when the horse was replaced?
    They died out or transferred skills somewhere else- which is what will happen with legacy ICE automakers, mechanics, service centers, etc.

    1. john Doe says:

      There is still need for parts changes on EVs.
      They have to change brake discs, brake pads, breaking fluid, repair damages from crashes, change ball bearings, CV joints, suspention, springs, and so on. AC may need a maintenance. Later on batteries need minor replacements, there may be electrical problems and so on.
      But there will be changes for sure.

  11. Priusmaniac says:

    Frankly, will there be anybody to regret the pollution, the cancer, the oil dependence on rogue nations, the smog, the ever increasing global warming. Once EV are mainstream we will find it hard to believe it took so long to make such an obvious change.

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