German Automakers May Need To Take Notes To Compete With Tesla

SEP 7 2018 BY EVANNEX 55

GERMAN AUTOMAKERS FACE AN ‘EXISTENTIAL CHALLENGE’ FIGHTING TESLA

Congratulations are in order. Finally. Plans are starting to surface for German electric cars. But some are disappointed. Germany’s Handlesblatt reports, “Mercedes, Audi and BMW will present new electric cars… none of the models, however, is expected to be the much-hoped-for ‘Tesla killer.’” Why? Evercore ISI analyst, Arndt Ellinghorst says, “Germany’s first, real electric cars will be expensive compromises between the old and new world.”

*This article comes to us courtesy of EVANNEX (which also makes aftermarket Tesla accessories). Authored by Matt Pressman. The opinions expressed in these articles are not necessarily our own at InsideEVs.

Above: Slated for sale in the U.S. in 2020, Mercedes EQC’s press kit cites a 200-mile range for the SUV (Source: Jalopnik)

Patrick McGee (via Financial Times) takes a deeper look at disagreements plaguing German automakers. Factories are struggling with fractured electric vehicle strategies. McGee writes that “leading German manufacturers [continue to] grapple with how best to switch to greener vehicles.” Furthermore, he surmises that the switch to all-electric vehicles, like the cars that Tesla produces, could pose an “existential challenge” to the German automotive establishment.

McGee notes that “When Tesla started production of the Model S saloon in 2012, the start-up had fewer than 3,000 employees. Chief executive Elon Musk had the luxury of beginning with a blank page, to hire just the specialists he needed… [in order] to launch the first successful electric-only car brand.” One former Tesla executive said the company ethos, at the time, was: “There’s only one way, and it’s forward.”

In contrast, if legacy carmakers aggressively push forward with electric vehicles, they’ll need to give up the cash cows of the past — diesel and gas-guzzling cars powered by the internal combustion engine. For Germany’s automakers, according to the Ifo Institute, “up to 600,000 of their jobs would be at risk if the internal combustion engine died. However, all incumbent carmakers acknowledge that electric cars are the future.” That said, Germany’s legacy automakers are struggling to address this conundrum.

To make matters worse, the shift to electric, “will re-sort the carmakers in profitability,” says Christian Senger, head of the e-mobility line at the VW passenger car brand. “Those who [take] the hardest road will be more successful than the others.” But they’re nervous about “over-spending on a technology that may or may not upend existing facilities devoted to cars powered by internal combustion engines.”

Above: A look at the Tesla Model S and BMW i3 (Image: Drive Zero)

Meanwhile, “This is not a dilemma Tesla ever faced. Among its early competitive advantages was a vehicle architecture built specifically for an electric car. Its Model S saloon was designed to house large batteries that would give it the longest driving range possible. When it debuted in 2012, the middle-of-the-range Tesla model could drive for 335km— a range many rivals even in 2018 fail to match.” And now, “it sells variants with ranges greater than 500km.”

An analyst at Bernstein, Max Warburton, warns Germany’s carmakers, “If you have a dedicated EV platform and the demand doesn’t come, you’ve lost a lot of money.” BMW’s chief executive Harald Krueger says, “We can’t afford having two factories standing still.” He notes, “with a flexible [vehicle architecture] approach you can always manage the capacity of your plants. But if you have a specific EV architecture, what do you with the old one? What do you do with the people?”

Mercedes is also miffed. “We have hybrids, plug-in hybrids, electric cars and maybe robo-taxis tomorrow,” says Daimler production chief Markus Schaefer. “It’s hard to predict volumes for the best way in an uncertain world.” Meanwhile, Germany’s top auto suppliers continue to cling to fossil fuel tech. Recently, “Bosch claimed it reached a breakthrough to cut nitrogen oxide emissions from diesel-engine cars.”

The marketplace, however, is moving towards vehicle electrification. It’s reported that “Customer preferences are becoming greener and increasingly stringent regulations will make it necessary for electric cars to be a substantial part of [automaker] fleets in the coming decade.” Right in Germany’s own Frankfurt, courts just ruled to “ban polluting, older diesel and gasoline vehicles from the city center starting next February.”

Above: An example of how European cities, like London, are beginning to transition to electric vehicles (Youtube: Financial Times)

With the pressure on, Germany’s latest EV investments could be “an acknowledgment that its current line-up of electric cars fall short of competing with Tesla on range, acceleration and other measures.” That said, Germany’s electrification efforts remain constrained by its allegiance to the internal combustion engine.

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Source: Financial TimesHandlesblattJalopnikAutomotive News Europe

*Editor’s Note: EVANNEX, which also sells aftermarket gear for Teslas, has kindly allowed us to share some of its content with our readers, free of charge. Our thanks go out to EVANNEX. Check out the site here.

Categories: Audi, BMW, Mercedes, Tesla

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55 Comments on "German Automakers May Need To Take Notes To Compete With Tesla"

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Bob Wilson

Exactly!

The victory of the last war poisons the ability to win the next battle. Institutional thinking strangles innovation.

Anozie

It’s not as easy as you think. What do they do with their ICE investments if they jump all in into EV?

Another Euro point of view

As long as one is making losses and the others (German brands) are making huge profits the jury is still out. This should be all debated again in about a year from now. Then we will see what will the steady demand be for Model 3 with reduced subsidies and whether the Tesla business model is sustainable or not (ZEV credits income not taken into account as those should dry up as OEM plug-in sales are slowly increasing). To my knowledge such a thing as working crystal ball to see the future is not yet available so let’s try not to make to many assumptions .

jasonb

Exactly. It is too early to predict who will win. There are too many unknowns. Tesla may have early start but the recent headwind is pretty bad. Chances of surviving are likely 50/50.

If Tesla goes to BK maybe some Chinese company will buy it and continues the operations. At least current Tesla owners would not have to suffer big time.

Chris O

The Tesla is losing money /will go bankrupt meme is running on its last legs with Model 3 deliveries increasing exponentially.

dam

increasing loss making vehicles and reducing high margin ones (X/S).You re going to have a (nasty) surprise this Q3

dam

By the way Dave Morton (Tesla Chief Accounting Officer) has just resigned effective immediately, this Q3 is going to be great for sure.5 weeks into the job and walking away form a $10M equity grant.Books must be incredible

Seven Electrics

The bonds are in free-fall. This affects the stock as bondholders may choose to short to hedge their long positions.

Pushmi-Pullyu

Oh, boo-hoo. Tesla’s stock is down again. And in another week or two, it will be back up again.

Nobody but stock shorters and day traders cares anymore, Eleventy Pretend Electrics. Tesla has won. You shorters have lost.

Get over it.

Pushmi-Pullyu

Indeed!

There was a time when it was reasonable to claim that Tesla had only a 50/50 chance of succeeding. But that was before the Model 3 became a runaway success. At least over the next several years, Tesla’s continued growth and continued success is assured… barring some bizarre and highly improbable catastrophe such as a giant sinkhole swallowing the Fremont assembly plant!

CDAVIS

@jasonb said: “…It is too early to predict who will win… If Tesla goes to BK maybe some Chinese company will buy it and continues the operations…”
———

If it’s as @jasonb says “to early to predict who will win” then the possible loss outcome scenario he lays out should logically apply both ways thus:

If GM goes to BK (or insert any traditional car maker here) maybe some Chinese company will buy it and continues the operations.

GM’s EVs are nowhere near unit sales of Tesla’s and that delta continues to widen seemingly exponentially. Is GM heading towards serious trouble? Does GM have the capacity to lon-haul compete against Tesla?

Perhaps anti-Tesla Shorter King Jim Chanos should also Short GM? Perhaps GM is heading towards BK???

It’s too early to predict…

CDAVIS

So is Jimmy Chanos correct to declare Tesla will not win therefore “[TSLA] is worthless” (Chanos’s words) or…

is @jasonb correct that:

“It’s too early to predict who will win…”?

They can’t both be correct.

Pushmi-Pullyu

Tesla has already won; the Model 3 is a runaway success.

The argument you’re referring to is as meaningless as two bald men arguing over a comb.

CDAVIS

@Pushmi-Pullyu said: “Tesla has already won; the Model 3 is a runaway success. The argument you’re referring to is as meaningless as two bald men arguing over a comb.”
—————-

Correct except one of the bald guys has great financial incentive to try and convince the investment market and prospective Tesla customers he has a full head of hair but that Tesla is bald .

Keep in mind that some of the “take down Tesla” gang have a wider agenda… their desire to take down Tesla extends to protecting other wider interests that Tesla is disrupting so in-part the “take down Tesla” effort is being underwritten by those actors that are wanting to stunt that disruption.

Cecil T

Chances of surviving on what time frame? Tesla has survived for a decade and a half. Creating jobs, creating American cars, changing the automotive landscape.

Any company’s future isn’t guaranteed. What were Pontiac’s “chances of surviving” in 2000? Oldsmobile’s? Mercury’s? Plymouth’s?

Bunny

Don’t forget about Saturn, it had a 25 year run. I always thought Saturn would have been a real solid way for GM to go hybrid then pure EV with.

Then I really wanted to see what Penske could have done with it, it just wasn’t meant to be.

Anozie

You think Tesla is going bankrupt? 😂🤣😂🤣

windbourne

ugh. give it a rest on BK. Tesla appears to be on target.

Chris O

Ah, the old oil+ICE=profit meme. What I see in my Crystal ball is markets putting deadlines on non-ZEV vehicle sales, huge demand for BEVs with the right concept, ever more stringent ZEV/emission /fuel economy mandates in many markets including market nr. 1: China. Why, I don’t even need a Crystal ball for that. Let’s see what happens to those “huge profits” you are touting if Tesla continues to eat into medium-high end ICE sales those Germans are so dependent on.

Will

That’s looks nice, but here in the US there’s 60% chance that Trump will win another term and get another anti liberal judge when RBG retires in 2021and force his policies by decrees until a dem congress senate and house and Dem President is elected

Pushmi-Pullyu

“…there’s 60% chance that Trump will win another term…”

Maybe that’s true in the MAGA bubble world of fake news and “alternative facts”, but not in the real world. Hopefully there is less than a 60% chance that the Orange Wannabe Dictator will finish his one term.

Peter

You mean a 60 % risk, not chance. 😜

CDAVIS

@Another Euro point of view said: “…This should be all debated again in about a year from now…”
——————-

Lol…

Yes the bright light is a fast moving train (electric locomotive by the way) headed your way. But to be absolutely certain stand there on the tracks till it has run you over… good plan!

Another Euro point of view

I do not think that car industry is as fast moving as you seem to imply.

CDAVIS

@Another Euro point of view said: “I do not think that car industry is as fast moving as you seem to imply.”
————

What I’m implying is that if a competitor enters a market and causes a disruptive event (which is what Tesla has created in the automotive space) that the traditional car makers will get run over by that disruption if they don’t adapt accordingly… that adaptation requires address at a rate of speed commensurate to the uptake rate of the disruptive event… which means adapting at a rate of speed outside of the traditional rate of change… that’s why they call it a “disruptive event”

Another Euro point of view

Understood, now it is maybe not as easy to assess the uptake rate of the disruptive event you mention. For example, Tesla sold 18k Model 3 in August.This is a huge amount of cars for an EV sedan. This is all very good but we also have a perfect storm scenario here. Tesla piling up some production before June 30 to avoid reaching the 200k mark to soon, orders accumulating for several years needing to be addressed as fast as possible, incentives starting to phase out in 2019. So we don’t know what will the steady demand be and therefor the increase of the EV market share as a result of introduction of Model 3. This is why I say that we need to wait and see what the steady demand will be and I am not saying that we won’t be happily surprised by how strong the steady demand for Tesla EVs will be.

Jason

If Tesla make their US$35k model then I’d say demand will be very healthy. Unless they really strip that model back too far and make it unappealing, it should do very well. People know Tesla, people aspire to own a Tesla, even if it is the basic model.
If they can’t make the US$35k model profitable then there is a real problem. They claim $160/kWh at the pack Level, so $35k – $9k, $26k build for the vehicle minus the drive train should be very doable (or whatever that cost is before margin).
Model 3 you pay for your SC, so not the same as Model S/X with free charging. Uses traditional materials, so not as high cost as the aluminium Model S/X.
And you can be sure people will add options. Can’t wait, get the RHD into production already!

antrik

To the best of my knowledge, Tesla never made a 160 $/kWh claim. The most recent — and in fact most specific claim they every made — is 100 $/kWh at cell level by the end of this year; which should translate to something like 130 or maybe 140 $/kWh at pack level.

rey

Tesla has not even released the Mod Y Crossover,when it does look for the Reservations to go thru the ROOF Credits aren’t going to matter .There is no substitute for a Tesla .GM is going to run out of credits too ,You think someone will pick a BOLT over a Base Mod 3 at the same price?

dam

They dont care, they have time on their side (more adequate tech are coming (Solid State Batteries/Lidar)) , they want to make them profitable ,mostly for the Chinese market (and Europe).Telsa is irrelevant

jelloslug

Kodak, Blockbuster, and Sears all had time on their side. Look at where that got them.

dam

Tesla = Saab

Pushmi-Pullyu

Took the words right out of my keyboard. No, legacy auto makers very much do not have time on their side… and most of them know it. That’s why they are saying the things quoted in this article; they are not just burying their heads in the sand like Kodak and BlackBerry did.

windbourne

lol. How much sales are German car makers doing in CHina relative to Chinese companies? Taking western tech there and giving it to china will guarantee the end of most of western car makers.

Bruce Sanders

You might find this article of interest. Speaks about Chevy Bolt production increase (to 2880 per month) and GM’s EV investment in vehicles and 10-Minute chargers: https://www.wardsauto.com/technology/gm-s-barra-rd-begun-10-minute-ev-charger

jelloslug

GM could start make 10000 Bolts a month if they wanted to. That does not change the fact that they cannot sell that many of them.

TM3x2 Chris

No so sure they can make 10k Bolts a month. Do they have the battery supply necessary to produce that many?

Pushmi-Pullyu

Of course they don’t. I am continually surprised at how so many EV advocates completely ignore the reality of very limited near-term battery cell supply.

https://insideevs.com/lithium-ion-battery-shortage-looming/

Joe

The key battle for European manufacturers (not only Germans) is to be able to build a Golf size (or Peugeot 308) kind of successful electric car (VW ID is that kind of vehicle. Enough trunk space to support the needs of a small family. 500km (300 miles) real life per charge will make electric car reassuring enough for normal people who don’t just want a city car. 4m20 would be perfect size for Europe and other regions where space is constrained. Even model 3 is too big for many cities in the world (just ok when you live in suburbs) with your own bigger garage.

Another Euro point of view

Agreed.

Johan M

German automakers seems to become BEV leaders within the next 5 years if the Koreans and Japanese don’t hurry up soon!

Pushmi-Pullyu

Not unless they first build out production for EV battery cell supply the way that BYD and Tesla/Panasonic have done. Volkswagen has at least acknowledged the problem of very limited battery cell supply. Other German auto makers haven’t even done that.

antrik

There is no “first” there. Building battery factories happens much faster than designing new car models. Plenty of time to order the batteries on time, if they don’t underestimate demand for the cars.

The fact that the other makers aren’t trumpeting it like VW did, doesn’t mean they aren’t securing supplies too.

windbourne

I seriously doubt that Germany can overtake Tesla.

And CHina is simply going to dump low-end junk on the market and will learn to build in quality from the idiot western car makers that transfer their tech to them.

Tran-rapid and GE are 2 excellent companies to study on this.

viriato

It’s a marathon, not a 100 m sprint. Tesla strikes first, has advantage and probably, better electric performance and today is the MAKER for EVs. But has a lot of finantial problems, has a lack of quality and the mass fabrication is still a problem. I can’t see what will be happen in the future, but the sure is that until now, Tesla was alone in a small market, and this is not going to happen in a next future. If Tesla will be capable to get a solid position to be a global competitive fighter or not when for example, the EV sales will be 5 million cars a year and VAG, Daimler, BMW, Jaguar-Land Rover, Volvo-Geely, PSA, Renault-Nissan, Ford, FCA, Hyundai-Kia, Toyota… and China will become in serious contenders.

CDAVIS

@viriato said: [Tesla] has a lot of finantial problems, has a lack of quality and the mass fabrication is still a problem…”
———-

So considering Tesla is today selling more EVs in North America and Western Europe than any other car maker by a wide margin and Tesla has accomplished that with all those debatable stated issues:

“finantial problems, has a lack of quality and the mass fabrication is still a problem”…

@viriato is basically saying the traditional car makers have to-date been beaten in the EV space by a higly handicapped competitor…

It seems to me that Tesla gaining the EV lead it has over its competitors despite whatever headwind challenges it currently has represents a bigger threat to traditional car makers than if Tesla gained that lead position by operating with full green lights.

Basically Tesla is winning with one hand tied behind its back.

What happens when Tesla swings to profit and has fully exited “Production Hell”? …when Model Y goes live? … when China factory goes online?

Another Euro point of view

“Basically Tesla is winning with one hand tied behind its back”.
Until Tesla aligns 3 consecutive profitable quarters I would say that the main winners are the OEMs marketing dept. that can watch for free a large scale marketing experiment about selling premium EVs.

Pushmi-Pullyu

I don’t think any reasonable person is going to allow a serial Tesla basher like you, “Another Euro…”, to define what is or isn’t a “win” for Tesla.

In the real world, Tesla has already won, with the Model 3 being a runaway success. The Model Y will very likely sell even more. Tesla’s ongoing growth — not merely success — is practically a lead-pipe cinch at least in the near term. Long term, of course, any auto maker can fail… even GM!

Andy

They become a profitable small automobile manufacturer, in line with with Fiat and Skoda, and then a few years later perhaps in line with BMW and MB. The market is plenty big enough for all the established players to still be around, and a smaller player like Tesla to join them successfully. It’s not an either/or scenario.

“Gaining the EV lead” means little in the grand scheme of things, when the transition phase is measured over decades and car sales are in the 10’s of millions worldwide.

Pushmi-Pullyu

The transition phase won’t be measured in decades from now. The Model 3 is pretty obviously the start of the real “S-curve” of adoption of a new tech.

As a reminder, New York City went from being a city almost entirely served by horse-drawn vehicles, to one served almost entirely by motorized vehicles, within 13 years. With the modern faster pace of manufacturing, do you think it will take longer for the EV revolution to make gasmobiles obsolete?

Hauer

The EQC proves one of 2 points:
1. Daimler does not get it.
2. Daimler just can‘t do it (for now).

Your choice.

Andy

Or Daimler are trying to market an EV to their mainstream buyers by making it look and feel like their ICE vehicles, evolution rather than revolution.

That’s not to say they aren’t technologically behind Tesla, but tech specs don’t sell most vehicles.

Lou Grinzo
Again, this brings me back to the issue of what did each legacy car company start doing years ago to prepare for our electrified future? It’s painfully clear that nearly all of them didn’t do enough, unless, for example, Toyota has a fully developed, 250-mile EV in its back pocket and is just waiting for what it sees as sufficient incentive (like other companies’ US federal tax breaks expiring) before bringing it to market. In general, I think we’re seeing too many car companies get caught leaning the wrong way due to nothing more than arrogance. They saw this brash startup, plus some minor sales from some in the club (like Nissan), and assumed they could throw resources at the problem and get an electrified version of one of their ICE offerings on the market very quickly. But even then, it’s clear they didn’t see what a threat the rise of EVs were to their preferred business; I’d wager some of them STILL don’t see it and feel an appropriate sense of urgency. If I found myself at the head of one of these companies, the very first thing I’d do on the job is call a meeting of my… Read more »
Pushmi-Pullyu

The comments from various legacy auto makers here underscore just how wrong it is to claim that legacy auto makers can easily out-compete Tesla any time they want to, as many keep claiming.

The reality is that market leaders are locked into the tech of the market they dominate, and find it very difficult to transition to a new technology. I think this is best expressed as The Innovator’s Dilemma. That term ought to become well known to EV advocates, or to anyone discussing a disruptive tech revolution.

https://en.wikipedia.org/wiki/The_Innovator%27s_Dilemma

TomN

““We have hybrids, plug-in hybrids, electric cars and maybe robo-taxis tomorrow,” says Daimler production chief Markus Schaefer. ”

A friend of mine has a Mercedes SUV plug in hybrid. He gets maybe 14 miles on the battery. Although I think it is great that Mercedes has an SUV that gets improved mileage and lower pollution, 14 miles is, to put it politely, very unimpressive. My friend only got one so he could get the sticker that lets him drive in the commuter lane (which California offers to plug-ins). He doesn’t even consider it a real electric car.

I remember Toyota’s first attempt at a plug in hybrid that could only go 15 miles on battery power. No one took those cars seriously, and no one should take Mercedes seriously.