German car makers face daunting challenges that are simultaneously cyclical and structural: withstanding the downturn in global demand will help them manage the transition to electric vehicles, but EVs themselves are no panacea for slack sales. Scope Ratings says that what is true for all the world’s leading auto makers is particularly true for the German manufacturers, namely that they are ramping up multibillion-euro investments in EVs – ahead of tougher new emissions rules coming into force in Europe – just as the industry is undergoing its first cyclical downturn since the global financial crisis.
BMW AG, Daimler AG and Volkswagen AG have made promises of increasingly heavy investment in electric vehicles this year while also announcing profit warnings and hefty job cuts.
“It is tempting to try to link the two phenomena, but it is hard to argue that any auto maker, including the German companies, would be selling more cars had they had more electric models in their line-ups,” Werner Stäblein, automotive analyst at Scope, says.
European registration data for the first 10 months of the year, for example, show no clear divergence in the sales performance of automakers with more electric vehicles in their mix than others. The market shrank by around 1%.
Daimler is one manufacturer that has publicly acknowledged the conundrum that the industry – and ultimately regulators and politicians – faces: most consumers remain price sensitive and are unwilling to pay a premium for EVs despite their environmental credentials.
“For now, elevated battery costs ensure still-high sticker prices,” Stäblein says.
Sales of battery-electric vehicles have continued to grow fast in Europe the year, helped primarily by government subsidies. Registrations of BEVs doubled in the first nine months to nearly 200K vehicles in the EU from the same period in 2018. Sales remain a small fraction of the overall market: nine-month registrations stood at 11.7 mio vehicles.
“It is possible that 2019 will represent a transition year for the German industry and sales of EVs,” Stäblein notes.
From the handful of EV models currently on the market, Volkswagen plans to have 80 electrified models for sale by 2025, including 50 BEVs; BMW plans to have 25 EVs on the market by 2023, of which 13 will be BEVs; Daimler plans 10 BEVs by 2022.By way of contrast, Tesla, the pioneer of premium-priced BEVs, has current plans for an increase in the number of models it has for sale to six from four by 2022. By 2023, there are likely to be more than 100 BEVs models available in Europe – assuming that customers like the product and eventually buy them – with about 300 EV models, both BEV and plug-in hybrids (PHEVs), launched in Europe alone by 2025.
Meanwhile, industry trading conditions remain difficult, hence pressure on management to reduce costs to protect profit margins. Scope estimates that global auto demand will shrink by around 4% in 2019 and continue to decline in 2020 amid cyclical downturns in sales of light vehicles in the US, Europe and China, the world’s three biggest car markets.