European Automakers Concerned Over Electric Car Costs, Margins, Profit

vw Electric Cars

OCT 14 2017 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

Categories: General

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21 Comments on "European Automakers Concerned Over Electric Car Costs, Margins, Profit"

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Someone out there

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.

Assaf
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… Read more »
Someone out there

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.

Mark.ca

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.

Someone out there

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.

Mark.ca

Do you volunteer at your work?

eltosho

That comment would be quite accurate in 2012…

Magnus H

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.

Benz

“…. 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.

Rich

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.

Rich

“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.

john Doe
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… Read more »
pjwood1

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.

Assaf

+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.

Assaf

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.

Robert Weekley

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!

Sladjo

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.

Jim J Fox

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…

Jim J Fox

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.

john Doe

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.

Priusmaniac

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.