VW leads elec­tric tech­nol­ogy drive

World’s lead­ing car man­u­fac­tur­ers pool re­search and de­vel­op­ment re­sources into non­fuel ve­hi­cles, with China be­ing the hub

Business Day - - FRONT PAGE - Paul Lienert, Nori­hiko Shi­rouzu and Ed­ward Tay­lor Frank­furt/Bei­jing

Global ve­hi­cle mak­ers are plan­ning a $300bn surge in spend­ing on elec­tric ve­hi­cle tech­nol­ogy over the next five to 10 years, with nearly half of the money tar­geted at China, ac­cel­er­at­ing the in­dus­try’s tran­si­tion from fos­sil fu­els and shift­ing power to Asian bat­tery and elec­tric ve­hi­cle tech­nol­ogy sup­pli­ers.

Global ve­hi­cle mak­ers are plan­ning a $300bn surge in spend­ing on elec­tric ve­hi­cle tech­nol­ogy over the next five to 10 years, with nearly half of the money tar­geted at China, ac­cel­er­at­ing the tran­si­tion from fos­sil fu­els and shift­ing power to Asian bat­tery and elec­tric ve­hi­cle tech­nol­ogy sup­pli­ers.

The un­prece­dented level of spend­ing — much of it by Ger­many’s Volk­swa­gen — is driven in large mea­sure by gov­ern­ment poli­cies adopted to cut car­bon diox­ide emis­sions and will ex­tend tech­no­log­i­cal ad­vances that have im­proved bat­tery cost, range and charg­ing time to make elec­tric ve­hi­cles more ap­peal­ing to con­sumers, ac­cord­ing to an ex­clu­sive Reuters anal­y­sis of pub­lic data re­leased by those com­pa­nies.

China has for decades played catch-up to Ger­man, Ja­pa­nese and US ve­hi­cle mak­ers, which dom­i­nated in­ter­nal com­bus­tion ve­hi­cle tech­nol­ogy. Now, China is po­si­tioned to lead de­vel­op­ment, in­dus­try ex­ec­u­tives say.

“The fu­ture of Volk­swa­gen will be de­cided in the Chi­nese mar­ket,” said Her­bert Diess, CEO of VW, which has decades­old joint ven­tures with two of China’s largest ve­hi­cle mak­ers, SAIC Mo­tor and FAW Car. Diess told re­porters in Bei­jing China will be­come one of the au­to­mo­tive pow­er­houses in the world.

“What we find is re­ally the right en­vi­ron­ment to de­velop the next gen­er­a­tion of cars and we find the right skills, which we only par­tially have in Europe or other places,” he said.

“We have very clear poli­cies es­tab­lished here in China,” he said, adding that pol­i­cy­mak­ers and reg­u­la­tors re­quire a shift to elec­tric ve­hi­cles.

As China and oth­ers place more re­stric­tions on con­ven­tional petrol and diesel en­gines, com­pa­nies have ac­cel­er­ated the shift to elec­tri­fi­ca­tion. A year ago global ve­hi­cle mak­ers said they planned to spend $90bn on elec­tric ve­hi­cle de­vel­op­ment.

The $300bn that ve­hi­cle mak­ers have ear­marked is to put elec­tric ve­hi­cles into mass pro­duc­tion in China, Europe and North Amer­ica .

Al­most one-third of the in­dus­try’s elec­tric ve­hi­cle spend­ing — about $91bn — is be­ing com­mit­ted by the Volk­swa­gen Group, which is ag­gres­sively try­ing to dis­tance it­self from the diesel-gate scan­dal, which has cost it bil­lions in penal­ties and le­gal set­tle­ments.

VW’s sweep­ing elec­tri­fi­ca­tion plan en­vi­sions ca­pac­ity on three con­ti­nents to build up to 15-mil­lion elec­tric ve­hi­cles by 2025, in­clud­ing 50 pure elec­tric and 30 hy­brid elec­tric models. VW plans to of­fer elec­tri­fied ver­sions of all 300 models in its 12-brand global port­fo­lio, which in­cludes Audi and Porsche.

VW’s stag­ger­ing elec­tric ve­hi­cle bud­get dwarfs that of its clos­est com­peti­tor, Daim­ler, which has com­mit­ted $42bn. Lead­ing US ve­hi­cle maker Gen­eral Mo­tors (GM) plans to spend a com­bined $8bn on elec­tric and self-driv­ing ve­hi­cles.

Roughly 45% of the global in­dus­try’s planned in­vest­ment and pro­cure­ment spend­ing, more than $135bn, will oc­cur in China, which is heav­ily pro­mot­ing the pro­duc­tion and sale of elec­tric ve­hi­cles through a sys­tem of gov­ern­ment-man­dated quotas, cred­its and in­cen­tives.

As a re­sult, spend­ing by ma­jor Chi­nese man­u­fac­tur­ers, from SAIC to Great Wall Mo­tor, could be matched or even ex­ceeded by multi­na­tional joint ven­ture part­ners such as VW, Daim­ler and GM, as they dra­mat­i­cally ex­pand their elec­tric ve­hi­cle port­fo­lios in China and ramp up bat­tery pur­chases from Chi­nese sup­pli­ers.

Of the in­vest­ment and pro­cure­ment bud­gets made pub­lic over the past two years by 29 of the world’s top ve­hi­cle mak­ers in the US, China, Ja­pan, South Ko­rea, In­dia, Ger­many and France, ac­tual spend­ing by ve­hi­cle man­u­fac­tur­ers on re­search & de­vel­op­ment, en­gi­neer­ing, pro­duc­tion tool­ing and pro­cure­ment is likely to be higher. This does not in­clude re­lated spend­ing by au­to­mo­tive sup­pli­ers, tech­nol­ogy firms and cor­po­ra­tions in other in­dus­tries, from en­ergy and aero­space to elec­tron­ics and tele­coms.

“There has been a rush” to in­vest in elec­tric ve­hi­cles and bat­ter­ies, said Alexan­dre Mar­ian, Alix Part­ners MD and co-au­thor of a 2018 study that fore­cast to­tal elec­tric ve­hi­cle spend­ing of $255bn to 2023 by global ve­hi­cle mak­ers and sup­pli­ers.

Mar­ian said the in­dus­try has in­creased spend­ing bud­gets on elec­tric ve­hi­cles and bat­ter­ies, while seek­ing more al­liances and part­ner­ships to help spread the higher in­vest­ment costs.

Al­liances, such as those be­tween VW and its Chi­nese part­ners, will be among the great­est spurs to in­no­va­tion, es­pe­cially in the global roll-out of elec­tric ve­hi­cles.

VW, Diess said, is “evolv­ing from the model where we have been de­vel­op­ing and bring­ing Euro­pean tech­nol­ogy into this mar­ket to a phase where we will co-de­velop part of the au­to­mo­tive tech­nol­ogy in China for the rest of the world”./Reuters

/Bloomberg

Elec­tri­fy­ing: Her­bert Diess, CEO of Volk­swa­gen, cen­tre, speaks as Jochem Heiz­mann, out­go­ing CEO of Volk­swa­gen’s China unit, right, and Stephan Wol­len­stein, in­com­ing CEO of Volk­swa­gen’s China unit, look on. Volk­swa­gen is the sin­gle largest in­vestor in a $300bn global pro­gramme to­wards elec­tric ve­hi­cle tech­nol­ogy de­vel­op­ment.

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