Can The Tesla Effect Send German Automakers Into A Frenzy?

Red Tesla Model 3 at handover event

AUG 17 2017 BY EVANNEX 48

Tesla Model 3

Tesla Model 3

THE TESLA EFFECT: GERMAN CARMAKERS FACE THEIR IPHONE MOMENT

After our overview yesterday about the allegations surrounding Germany’s top automakers, one has to wonder if Tesla may soon pose a deadly threat.

A recent article in the Financial Times ponders this further — reporting that: “The $35,000 Tesla 3 is seizing the halo from Germany’s iconic industry. The US industry never offered any real competition for its luxury driving machines: a Cadillac is no Mercedes. But Mr Musk has eagerly taken on the challenge that Detroit long ducked: he has more than 400,000 pre-orders for his creation, which went into production last month across the bay from Silicon Valley.”

Tesla

Tesla Vehicle Lineup Via Peisert Design

That said, can Tesla shake up the German automotive establishment?

“After decades of success, dominating the global luxury market with impeccably designed engineering marvels, Germany’s carmakers face their iPhone moment. Like BlackBerry and Nokia before, they are confronted with a US company selling an elegant device based on superior technology… Tesla’s strategy of being more integrated than other carmakers has echoes of Apple, which makes its own mobile chips and designs its own software.”

*This article comes to us courtesy of EVANNEX (which also makes aftermarket Tesla accessories). Authored by Matt Pressman.

Above: Top Fidelity fund manager talks Tesla, his iPhone moment, and comparisons with German carmakers (Youtube: Business Insider)

The Financial Times explains another core advantage for Tesla: “Making a car with a combustion engine is a fiendishly complex task and carmakers depend on intricate networks of suppliers. That is especially true when they need to wrap technology around diesel engines to make the emissions less noxious. Anything that makes this simpler, and by extension cheaper, is a godsend to the conventional carmaker. Considered in this light, Tesla has a crucial advantage over them. An electric car is easier to make than one with a combustion engine because it has many fewer parts: Mr Musk says that a Tesla 3 has between 6,000 and 7,000, while Goldman Sachs estimates that a traditional vehicle has 30,000.”

Tesla Competitors

Just a few of the thousands of parts that make up the complicated internal combustion engine gas-powered car (Image: Daum Blog)

Furthermore, with the deceit (and demonization) of diesel dragging down Germany’s automakers, their home turf in Europe may soon be in jeopardy. Tesla could be moving in:

“More than half the cars sold in western Europe before the VW crisis had diesel engines and diesel’s share of luxury cars with fuel-thirsty engines was even higher. As European cities clamp down on pollution, and companies whose cars emit illegal levels of pollutants in real-world driving face fines, sales are falling. Germany’s… halo has slipped and in Tesla they face a competitor without such legal liabilities and technological baggage.”

Tesla

Tesla poses threat to Germany’s top carmakers (Image: Car Magazine UK)

Nevertheless, it’s still possible that, “Carmakers could prove more adaptable than Nokia and BlackBerry were to technology disruption. They have accelerated their electric-vehicle initiatives, such as General Motors’ Chevrolet Bolt car. But the Tesla 3 is designed to lure buyers of luxury cars, not mass brands such as Chevrolet, and BMW, Audi and Daimler are now in a painfully vulnerable condition… Life is getting more complex for the bosses of BMW and Daimler as it gets simpler for Mr Musk. In this industry, simplicity is worth a lot.”

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Source: Financial Times

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

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48 Comments on "Can The Tesla Effect Send German Automakers Into A Frenzy?"

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True

My prediction is double digit losses in market share for Audi, BMW and Mercedes for the next three to five years. (Lexus and Infiniti too)

As the Model 3 comes out and solidifies EVs as the moral high ground, Model S and Model X will get boosts in growth.

Without battery factory’s that can produce 100,000’s of thousands per year, all will scramble for batteries.

I keep hearing this but Tesla built their battery factory in under two years with little money. Most of the other manufactures are using Samsung or LG which have money and factories already. So the real question is when are those factories going to expand more?

The first gigafactory in the US is an LG factory that makes batteries for the Volt, Pacifica, etc… in Holland, MI.

https://cleantechnica.com/2017/02/21/lg-chem-expand-battery-cell-manufacturing-us-china/

Things aren’t as static as Telsa and this site would have you believe. Others just aren’t having a parade every time they do something.

Others can build a factory, but without focusing on the machine making the machine they may not be able to make as many with the same foot print or amount spent. They may not be as cheap as they could be from a fully automated factory kicking out batteries faster than bullets from a machine gun.

But yes, they can do it. I think the downside for them is that they will probably outsource them (since they are not battery experts) and there will be markup and profit that they have to pay LG or Samsung, or whoever for.

You seem to be needing a long and intense kool-aid detox. ?

The first “GigaFactory” was the Nissan Smyrna, Tenn. battery factory with a capacity for 250,000 Leaf cars.
It Never produced on full capacity, because the sales numbers did not reach the expected levels.

Maybe they can. So why haven’t they. Why is Tesla eating their lunch, despite having ‘no money’? Maybe they lack the leadership.

It’s more like the fact that the Nissan Leaf is useless for the average American. The genius of Tesla (hey all you people that think I’m a Tesla hater take note) is that their S and X weren’t for the average American. And then they can back down into the mass market with the model 3, but it still isn’t the average American. It’s the average BMW and Audi purchaser. The Leaf is a car approximately as cool and luxurious and sporty as a Nissan Versa….which costs $15,000. Only it can only drive for one hour in any direction on the interstate before you have to pull over. And they came out with it for $35,000. That’s a tough sell to a mass market. It’s only going to sell to the true believer. It’s the vegan menu of vehicles. Tasteless, bland food that will have you slowly starving to death for lack of nutrients that people eat because they have guilt and believe it is doing something good, even though they can’t really afford it.

LG Chem’s new plant in Poland at peak production will be 4GWh. The Ochang plant in Korea is going from 3.2GWh to around 6 GWh. Holland Michigan is 2 GWh and is expanding to 3GWh. Samsung SDI in Hungary is 2-3GWh. Between them all they’d only be able to supply batteries for a few percent of european car production to go EV.

With the sole exceptions of Tesla and Daimler nobody is investing in battery plants at the scale required.

Yeah, and by the time the European market is at 3% EV penetration, LG’s global battery capacity will be ready for 6%, and so on. This is how it works.

Model 3 will disrupt the lower luxury class, the bread and butter models of the German premium brands. It does look like they have identified the problem though and are in the process of formulating and answer to the Tesla challenge.

No reports of rivalling Gigafactories and Supercharger networks though so far, apparently the base concepts of doing successful EVs are still puzzling for the German heroes of internal combustion.

Come on. TM3 is no luxury car. It is technologically advanced but does not come close to what is felt in à German car.

The comparaison with iPhone falls short as the investment in an iPhone is quite small compared to a car.

There is still a need for a solid after sale network.

Prior to iPhone, smartphones were really badly designed.

Apart from the technique (ICE vs Electric) they are very good.

Never under-estimate German industry to come back. Once the Panzerdivizionen are ready to go, they are quite unstoppable.

No.

The question is whether Tesla will still exist in 5 years. Tesla is tacking on more and more debt and it is nowhere near profitability. It is also highly doubtful that it will sell anywhere as many model 3’s as it claims and what the gross margin on those cars really is. Tesla claims a gross margin of 25% but that would at best be on the $60k car. Not that many people are going to buy that one and soon the federal incentive runs out for Tesla, making their cars even harder to sell.

Tesla is leading the EV revolution right now for sure but that doesn’t mean it will come out as the winner of it.

I don’t think so. For one thing that is what they were saying 5, 4, 3,… years ago.
!. Tesla has a big lead.
2. Response has been tepid and ineffectual.
3. Tesla has a Supercharger network.
4. Tesla is building a Gigafactory.
5. Tesla is now producing it’s mass market product, only the Bolt is any competition but it’s the ugly sister of that pairing.

Your argument seems more wishful thinking than a thoughtful appraisal of the situation, but that is what I have come to expect, from you.

@Someone-out-there said: “…Tesla is leading the EV revolution right now for sure but that doesn’t mean it will come out as the winner of it.”
———-

Your correct about Tesla (or any company) taking an early lead is not a guarantee it will long-run come out a winner.

It seems to me that some of the traditional car makers are now starting to realize they are today caught up in an EV automotive revolution (lead by Tesla) which like Apple/iPhone will likely result in the loss (as in dirt nap) of 70%+ of the traditional players and leave only a handfull of traditional players left that are capable to adapt quickly enough to compete against the new kid on the block.

And like in the past there will always be traditional players and arm-chair critics that will declare the new kid does not have what it takes to play with the big boys.

No mention of the superiority of Teslas product.

Build a better mousetrap and the world will beat a path of 455,000 reservations to your door.

What sometrolloutthere either conveniently ignores or is himself ignorant of is that Tesla is more then just an EV company.

Many smart people think that their energy side will actually become an even bigger profit center then the automotive side:

https://cleantechnica.com/2017/08/16/morgan-stanley-predicts-market-grid-storage-will-explode-next-3-years/

This article completely ignores BMW’s long-standing plans for electrification. They stood the i-series for EVs. Yes, they move slowly and Tesla is moving at warp speed. But Tesla’s future depends on growth whereas BMW built their business on slow, methodical engineering.

You are correct. The question is how much marketshare will tesla gobble by moving at warp speed. And also, how much will this hurt the traditional auto manufacturer’s bottom lines in the meantime.

Your comment makes me *more* concerned for BMW instead of less.

Bmw fêtait il y a un an son centenaire à Munchen.
Mais à aucun moment BMW nous présentait des propositions électriques sérieuses pour les prochaines années. La politique de BMW avait tourner dans le mauvais sens. Un mauvais génie était tomber sur BMW Ils nous parlait de gadgets inutiles mais à aucum moment il n’y avait une vision crédible de ce qui se passe un an apres. J’en avais mal pour eux. Seul des hybrides rechargeables proposer avec une autonomie dérisoire semblait avoir un avenir à leurs yeux. Il en ait sorti maintenant la serie5 e et la Mini Contryman e . Pitoyable, que c’est-il passé pour que la dynamique très bien construite avec l’i3 et l’i8 soit soudainement dégringolé? Les Germanique sont-ils trop souvent sûre de leur suprématie?

Translation courtesy of Google:

Bmw celebrated his centenary a year ago in Munchen.
But at no time did BMW present us with serious electrical proposals for the next few years. BMW’s policy had turned in the wrong direction. A bad genius was falling on BMW They spoke to us of useless gadgets but at no moment there was a credible vision of what happens a year later. I was in pain for them. Only rechargeable hybrids proposed with derisory autonomy seemed to have a future in their eyes. He has now released the series and the Mini Contryman e. Pitiful, what happened to the dynamics very well built with the i3 and i8 suddenly tumbled down? Are the Germans too often sure of their supremacy?

Brian ,or getting together with the other german car co fora cheating strategy6

I think it already has.
They are running around like chickens with their heads cut off. But only like that, for they continue to squawk about their coming products, as more law suits are coming in.

They’re a bit slow to react, but they’ll make decent EVs judging from their recents investments and product plans. Also many ultra fast CCS networks arriving in Western Europe. I’d be very interested in that Mission e with 800 V charging for instance.

That’s good for the EU.

Can the luxury makers survive if they lose out significantly in the US? They are being added, but there’s nothing yet I’d call a significant CCS rollout, even of the measly old 50kW type.

Traditional car companies are in the lose-lose situation

Except China, the global car sales are declining, the more EVs they sell, the less ICE car they can sell, but ICE car is more profitable.

I believe this is the reason they are not fully committed to produce EVs.

At first I could recognize an Evannex article from the lead-in paragraph. Now I just need the headline……

There’s an awful term in technology – eating your own children. It means killing off your existing products to position yourself in the market of tomorrow. It’s extremely hard to do. Most companies fail.

The picture of car parts is a little silly. EVs also have most of those parts. Engines and automatic transmissions do have tons of tiny parts, but they’ve become sealed black boxes that last 20 years/200k miles with minimal maintenance. A Model S has 8000 batteries, with a less stellar reliability record so far.

80 thousand battery cells come in one box, that you don’t touch for 20 years. No fluid changes, no flush. An engine…not so much. Then there is the water pump, the timimg belt, the alternator, the radiator fluid, the…….

And then there is the dealership network they are stuck with, who will not go willingly into EVs. Where is the service profit?

I don’t think we have enough data yet to accurately predict the calendar life of batteries introduced in first Gen EVs. They certainly weren’t designed to last 20 years Why would a battery be designed to outlast the car?

Do you count one battery cell as a “part” ? Why/why not?

I would. A key distinction however, is that battery cells are not unique parts.

Issue about Detroit losing to European car company is simple, USA did not have any regulation about car efficient, and GAS prices is expensive in EU, I just means that US car company’s was only marking for there own marked. (this might fell warm in the beginning but soon you will start to fell the cold). Tesla approach to Electric was a top down model, expensive luxury first, later less expensive big volume car. Tesla made it sexy not an apology to have an electric car. All other big Auto company’s has uppersit approach first small volume, no luxury, small range and not very cool design, you almost have to excuse that you are driving car like this, it is clear they did not what to change there technology! I Germany now the Kansler Merkel are talking about, this electrification of the auto industry, the way I see it, is just a reason to give some additional money for this transformation, that will be taken from the German tax payers, to keep the industry going, They now are losing costumers on there prestige product, If the German auto marker had made a BEV, and a supercharger network, I would have… Read more »

“Until it gets as easy to charge your car as with Tesla supercharger, they will continue to lose marked share!”

Yep. They had better figure this out. If they don’t, they are just going to continue bleeding market share.

I’ve seen no sign so far that any CCS-supporting manufacturer gets this, German or not.

GM went as far as actively saying they will NOT support CCS which is a real kick in the teeth for those interested in the Bolt.

The first “GigaFactory” was the Nissan Smyrna, Tenn. battery factory with a capacity for 250,000 Leaf cars. It Never produced on full capacity, because the sales numbers did not reach the expected levels.

“Can The Tesla Effect Send German Automakers Into A Frenzy?”

Oh, they ALREADY are in a frenzy. Tesla has been swallowing up a huge chunk of their sports sedan market and that’s where they make the big profits. They’ve all accelerated the plug-in programs. But it will be a while before they have better EVs on the market.

I test drove a BMW 330e last weekend and mentioned that one of the other cars I was looking to buy was a Tesla. He nodded and admitted that they hear that a lot now.

I don’t think they would be issuing all these press releases about future cars being “Tesla killers” if Tesla didn’t already have them in a frenzy. They’ve already tipped their hat.

The only question is where will Tesla be with their cars in 2020-25 when all these cars designed to kill the 2012 Model S are finally brought to market a decade later?

Will they be good designs? I hope so.

Even if they are good designs, will they have an affordable source of batteries. I hope so.

Even if they are good & affordable, they better shore up a DC fast-charge network.

So many hurdles.

I think the bigger question is whether they are willing to build EV’s that will compete with their best gas cars, or will they intentionally cripple their EV’s to be second best. (first of losers)

Indeed When the sun rises in the west and sets in the east, americans will make better cars than germans.
But I’m sure some chinese investor will save tesla when the germans start producing EVs

“When the sun rises in the west and sets in the east, americans will make better cars than germans.”

LOL. Tesla is blowing away the Germans NOW.

“But I’m sure some chinese investor will save tesla when the germans start producing EVs”

HA! It is not like the Germans haven’t tried. BMW, VW, Porsche, Mercedes, and Audi all have plug-in cars on the market. They are lame and sell poorly. Click on the “Monthly Plug-In Sales Scorecard” in the upper-right to see for yourself.

They are all now way behind and prospects are not good for them catching up anytime soon. They need good EV designs, they need a big supply of affordable batteries, and they need a good DC fast-charge network. All of those are going to take years. I wish them luck because the more EVs, the better. But they have been disappointing.

Too early to say that the Germans are way behind Tesla, in all areas.

I am very concerned about Tesla quality with the rushed development and launch of the Model 3. I’m not a cautious person but am skeptical of problems that will occur on the car between 50K-100K miles…especially for Models built during 2017/2018.

I can’t be the only one out there with this perception/concern; especially when the car, optioned as I’d like it, would be near $50K. At that price point, I want ROCK SOLID reliability and top notch fit and finish.

Agree.
The reason is simple.
If German car makers switched to EV overnight (If they only could … ha) then the whole German economy is kaput.
Why? The work force would dramatically shrink with building EV’s
So far the Germans are know for over priced, under powered and non durable product. In fact they don’t even have efficient petrol engines, that goes to people like Mazda with Skyactive and the next announced Skyactive X. Germans can’t even make brakes that last or design them so the discs don’t need to be re machined or more likely replaced so they can grab more of your money later in serving charges. England and France plus America with Tesla is leading the way. The Germans Auto tech is now yesterdays, pardon BMW that at least tried to put products out there for people to buy. VW group, Mercedes etc. is just a disgraceful attempt at living on past brands images of days long gone by.
Welcome Tesla, Nissan Renault and others as taking over. Even BYD has sold 100 EV buses to London where were the Europeans? I hear crickets.

If the Germans are so good at making the best EV’s, why didn’t they bring their Model S killer to market in 2012, instead of Tesla beating them to market?

It isn’t like Tesla didn’t give them enough time. They announced the Model S in 2008. Tesla gave them 4 years warning, more than plenty of time for the Germans to act.

Here we are nearly a decade out, and still nothing on the level of the Model S. Some may argue the could have if they wanted to.

Will they really ever want to?

How long will they continue to put EV’s in the corner as second class citizens behind their ICE offerings?