Concerns mount over making profits from electric vehicles
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 K-ZE 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 electric-car 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 €30bn ($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 €7,800 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 €5,000. 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 are also feeling exposed.
"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."