Thanks to your encouragement, I will continue to provide a synopsis of the automotive sector news that I consider to be the most important. It’s going to be called “Curbside Newsstand”, and I’m going to try to focus on those issues that best reflect the big-picture and long-term changes that the industry is grappling with, and mostly avoid the short term ones, like the tariff wars, because they are political by nature and the industry is simply a victim of them. There may be time we have to touch on them, as they are also influencing longer term decisions in the industry.
Today we’ll go back a few weeks in case you’re not familiar with what has to be just about the biggest story in the industry in terms of the future: VW is betting no less than $91 billion on their ability to transition to making huge numbers of EVs, and making them profitably. They’re literally betting the farm on this one, or at least the south forty.
After Dieselgate, VW decided it needed to reinvent itself. And it decided that EVs were the vehicle with which to do so. Yes, VW had been nibbling around the edges of electrification for some years, but this is a total revolution. VW intends to be the first major manufacturer to build EVs on a mammoth scale, and to make profits doing so.
Here’s how it came about (from an autonews article)
“It was an intense discussion, so was the realization that this could be an opportunity, if we jump far enough,” said Juergen Stackmann, VW brand’s board member for sales. “It was an initial planning session to do more than just play with the idea of electric cars,” he told Reuters. “We asked ourselves: What is our vision for the future of the brand? Everything that you see today is connected to this.”
VW intends to get out in front of this wave, and surf it. Hanging ten even, to the tune of $91 billion. Of course that number is over a decade or so, as it’s a PR move to make it look as big as possible.
The reality is that the whole industry is being dragged into electrification reluctantly. There’s a mammoth global investment in IC vehicles, from suppliers, human resources, technology and factories. And it’s been fine-tuned over the decades to work, profitably, most of the time. Dismantling that is going to create huge expenses and disruptions in jobs and capital investments.
EVs are intrinsically more expensive, due to the cost of the batteries. Yes, that’s coming down, but not quite as fast as might be ideal. Tesla has tried to do the impossible: build EVs at a profit. After a decade of losses, they have two modest quarterly profits under their belt. If theta will continue is anyone’s guess. But the impact on the industry has been huge: Tesla has shown what is possible,but has also said that they cannot yet build a base Model 3 for $35,000 profitably.
Yet VW intends to take that to the next level, as in a Golf class EV, the ID Neo (above) to be sold for some 20,000 Euros ($22,700). That’s very ambitious. And to be built in a VW factory in Emden fully converted for EV production. And VW is building a second factory at its Chattanooga TN facility strictly for EV production.
The ID family also includes the Buzz (bus) and the Crozz (CUV).
This isn’t exactly just on a whim: European car makers also huge emission pressures that are pushing VW and others towards EVs: they can’t meet tightening CO2 standards now that diesel sales are dropping at the same time SUV sales are increasing. There’s simply no way to meet the standards without EVs or plug-in hybrids, and the latter is increasingly seen as a less than ideal compromise.
The big problem: nobody knows if the world markets are interested in that many EVs, that soon. It’s a very big gamble. And one that all the manufacturers are trying to decide how to play. Being out front has huge risks, but the upside of being seen as an early industry mover also offers a “positive risk-reward”. We shall see.