Con­cerns mount over mak­ing prof­its from elec­tric ve­hi­cles

IN­DUS­TRY NEWS

Business Day - Motor News - - MOTOR NEWS - Lau­rence Frost

Elec­tric cars are poised to ar­rive en masse in Euro­pean show­rooms af­ter years of hyped con­cept-car launches and bil­lions in in­vest­ment by car mak­ers and sup­pli­ers. Now comes the hard part: sell­ing them at a profit.

Bat­tery mod­els mak­ing their car-show de­but in Paris this week, from Re­nault’s elec­tric KZE to the Mercedes EQC, will erode prof­itabil­ity as they strug­gle to stay in the black, ex­ec­u­tives gen­er­ally ac­knowl­edge. But con­cerns are mount­ing that the im­pact could be worse, as con­sumers re­sist pay­ing more for elec­tri­fied ve­hi­cles — forc­ing car mak­ers to sell them at a big­ger loss to meet emis­sions goals.

“What ev­ery­one needs to re­alise is that clean mo­bil­ity is like or­ganic food — it’s more ex­pen­sive,” said Car­los Tavares, CEO of Peu­geot, Citroen and Opel man­u­fac­turer PSA.

A profit warn­ing by BMW on Septem­ber 25, blamed in part on elec­tri­fi­ca­tion costs and tight­en­ing emis­sions rules, was “a first alarm sig­nal”, Tavares said in a ra­dio in­ter­view. “Ei­ther we ac­cept pay­ing more for clean mo­bil­ity, or we put the Euro­pean auto in­dus­try in jeop­ardy.”

The Euro­pean Par­lia­ment is due to vote on plans to cut car­bon diox­ide car emis­sions by as much as 45% by 2030 from an av­er­age 95g per kilo­me­tre in 2021 — a goal many car mak­ers are al­ready in dan­ger of miss­ing, on pain of fines run­ning to hun­dreds of mil­lions of eu­ros.

Af­ter de­clin­ing for a decade, new-ve­hi­cle car­bon emis­sions are ris­ing as cus­tomers flock from cars to SUVs, and from diesel to petrol en­gines. Diesels emit more ni­tro­gen ox­ides and par­tic­u­lates, but less CO2.

Early signs sug­gest elec­tric­car prices may fall sooner and faster than pro­duc­tion costs, as car mak­ers ad­just for stalled emis­sions progress and weak con­sumer ap­petite. That prom­ises more red ink, as dis­counted bat­tery car sales finally take off.

Volk­swa­gen has said the ID hatch­back, due to open the brand’s elec­tric on­slaught next year, will be priced close to con­ven­tion­ally pow­ered ver­sions of the Golf com­pact.

“VW is about to launch a load of elec­tric ve­hi­cles at the same price as gaso­lines, and there­fore at a loss,” said Lau­rent Pe­ti­zon, MD at con­sult­ing firm AlixPart­ners. “Our in­ter­pre­ta­tion is that the 2021 fines have al­ready been fac­tored into their sales strat­egy,” he said. “Rather than pay penal­ties they pre­fer to lose money on ve­hi­cles and get the mar­ket go­ing.”

Volk­swa­gen de­clined to dis­cuss pric­ing in de­tail. “We want our elec­tric cars to be a real al­ter­na­tive to a rea­son­ably equipped Golf Diesel,“a spokesper­son said.

Volk­swa­gen and Mercedes par­ent Daim­ler, which be­tween them have an­nounced à30bn ($35bn) in elec­tri­fi­ca­tion in­vest­ment, both warned last month that it would not be enough. They and other car mak­ers are also man­dated to sell more elec­tric cars in China and a group of US states led by Cal­i­for­nia.

More than 200 elec­tric and plug-in model launches are al­ready sched­uled glob­ally over the next three years.

Elec­tric cars still cost à7,800 more to pro­duce on av­er­age than con­ven­tional ones, AlixPart­ners cal­cu­lates. Plug-in hy­brids, which com­bine a smaller recharge­able bat­tery with a com­bus­tion en­gine, over­shoot by à5,000. When that cost gap is re­flected in the price, few are sold.

Mass-mar­ket electrics such as the Re­nault Zoe and Nis­san Leaf have been on sale for most of the decade, and sub­sidised in Europe, while Tesla has made in­roads into the pre­mium busi­ness. Yet pure-elec­tric cars claim just 1% of the mar­ket.

De­spite their higher cost, BMW plug-in mod­els are al­ready priced broadly on a par with diesels. The lux­ury car maker ac­knowl­edges that their mar­gins are thin­ner.

Mercedes also says the EQC elec­tric SUV will be priced close to its GLC cousin to tackle Tesla’s $49,000 Model 3.

“It ab­so­lutely is im­pact­ing the prof­itabil­ity of the in­dus­try,” said Re­becca Lind­land, a se­nior an­a­lyst at Kel­ley Blue Book, which tracks ve­hi­cle pric­ing. “De­mand doesn’t jus­tify in­vest­ment at all — it’s all reg­u­la­tion.”

Which is why, on this sub­ject more than most, Euro­pean car mak­ers talk from both sides of their mouths. While ex­ec­u­tives ex­ude con­fi­dence for in­vestors’ and cus­tomers’ ben­e­fit, their Brus­sels lobby group ACEA warns of an im­mi­nent threat to the re­gion’s 3.4-mil­lion au­to­mo­tive man­u­fac­tur­ing jobs.

“The con­di­tions for such a sys­temic change clearly aren’t met, and con­sumers just aren’t ready for full-elec­tric,” ACEA sec­re­tary-gen­eral Erik Jon­naert said re­cently.

Au­to­mo­tive sup­pli­ers also feel­ing exposed.

TAKEN RISKS

are “We’ve taken risks as a com­pany,” said Jac­ques Aschen­broich, CEO of Va­leo, a ma­jor man­u­fac­turer of elec­tri­fi­ca­tion com­po­nents and sys­tems. “We have in­vested a lot even though the mar­ket doesn’t ex­ist.”

Car mak­ers are de­mand­ing in­creased pub­lic in­vest­ment in recharg­ing net­works, which may yet awaken mass de­mand.

Economies of scale should also bring some re­lief. But lithium-ion bat­ter­ies, which claim 40% of an elec­tric car’s value, face cobalt and nickel short­ages.

“In elec­tro­mo­bil­ity you have to be a cost leader,” BMW re­search and de­vel­op­ment chief Klaus Froehlich told Reuters. “If you are not a cost leader you will not sur­vive.”

THE EURO­PEAN PAR­LIA­MENT IS TO VOTE ON PLANS TO CUT CAR­BON DIOX­IDE CAR EMIS­SIONS BY AS MUCH AS 45%

The Re­nault K-ZE un­veiled in Paris is one of a raft of new elec­tric ve­hi­cles about to reach the mar­ket.

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