Sunday April 25, 2021
German automakers show Tesla how to do it
From Helmut Becker
Tesla is the electric car pioneer. But the topic of electromobility has long ceased to be a unique selling point: The German companies BMW, Daimler and VW are now in the e-focus – and Tesla is in dire straits.
The US finance portal Bloomberg recently published an article that “electrified” the automotive world. The title: “The end of Tesla could be closer than it seems”. Visually, this thesis was accompanied by a cartoon in which a car with the VW logo is approaching from behind in the rearview mirror of a Tesla. This picture lags a bit, because on the one hand it’s not just VW or the Volkswagen Group, but all German car manufacturers. On the other hand, they are not approaching, rather they are already there!
For a long time, the German auto industry let the innovative Tesla founder Elon Musk do it – at first arrogant, then puzzled, and finally annoyed by his success and out of breath at the inevitable efforts to catch up. The organizers of the hunt were the automakers who were most challenged by the automotive greenhorn from California: Long ahead of time, BMW was at the forefront with the small car i3, which has been built around 200,000 times since September 2013 to date. Tesla’s entry into the market, on the other hand, began in the high-priced US $ 100,000 segment of the luxury class with the S and X models. The Tesla S has been sold around 300,000 times since it entered the market and was the best-selling electric car in the world until 2017.
But then from 2018 under the leadership of Herbert Diess and Volkswagen the hunting horn was blown loudly after Tesla was able to achieve significant market success for the first time with the mid-range Model 3. The Model 3 was built around 370,000 times in 2020, accounting for around three quarters of total global Tesla sales.
Pioneer, monopoly, hardly any profits
The decisive impetus for the German manufacturers did not come from Musk or Tesla’s market success. Because despite ten years of monopoly on the world market with high double-digit growth rates and an astronomical valuation of the company on the stock exchange, the brand remained unprofitable and the market unattractive. Electromobility is still not a business model today. And irrelevant for what is happening on the global auto market, because combustion engines continue to dominate here with 97 percent. In 2020, 1.6 billion combustion cars were registered worldwide, but only around 11 million electric cars.
Insofar as Tesla made profits at all during this monopoly, these did not come from its core business, but from the sale of emission certificates to the rest of the manufacturers of cars with internal combustion engines. This prettified their CO2 fleet balances.
Climate change and politics
The decisive signal for the “classic” auto industry to change the type of drive – away from fossil fuel combustion to electromobility – came from climate change and the role that automobiles caused CO2 emissions. The media and public opinion followed the climate change – and politics followed the public opinion: Since around the turn of the millennium, the exhaust gas laws have been increasingly and gradually tightened globally, in the EU up to the de facto ban on combustion from 2030.
In order to enforce the market for battery-operated electric cars, German politicians offered extensive purchase premiums and invested billions in the development and expansion of a public charging infrastructure. With the aim of registering ten million electric vehicles in Germany by 2030.
It was only because of this massive political declaration of will in Europe and in China that the car companies began to promote the development and production of battery cars (BEV) worldwide. The German carmakers were in the lead, above all “Diesel Saul” Volkswagen. With Zwickau and Emden, the Wolfsburg team radically converted entire plants. They occupied the leading position in electrified automobiles in Europe. They played an outstanding role in developing the innovative plug-in hybrid technology. And it is precisely with this hybrid technology that Tesla cannot keep up.
The advertising slogans of the German manufacturers speak a clear language: At VW it is “Electric for all”, at BMW “E-Mobility first” and at Daimler “Electric first”. And at Audi it is “the next level of mobility”.
Tesla in distress
All of this is having an effect. Tesla is increasingly on the defensive. Several strategic competition aspects are responsible for this. On the one hand: The VW Group with the Volkswagen brand, as the market leader, pushed the transformation from combustion to e-mobility late, but then all the more consistently and with greater commitment. By 2025, the group plans to sell up to three million all-electric cars per year, depending on market developments. By then, more than 80 new, electrified Group models are to come onto the market, including 50 all-electric vehicles.
The main thrust at VW is important: the Volkswagen brand wants to bring attractive models to the market at affordable prices. VW is therefore concentrating on the middle and lower classes, where Tesla will not be represented for the foreseeable future.
On the other hand, Audi, BMW, Daimler and Porsche are concentrating on the expansion of their e-car ranges on plug-in hybrid technology as well as on the middle and upper class and SUVs. With its EQS, Daimler in particular is setting new standards for e-cars in the luxury class.
And: In contrast to Tesla, the German auto industry will in future cover the entire depth and breadth of the market with its electric car portfolio. Tesla cannot follow this and, due to a lack of internal combustion know-how, does not offer any plug-in hybrids. If Musk wants to compete in the future, he has to solve three problems.
Tesla has to do that
First of all, the supply problem: Tesla has to significantly expand its model range, which so far only consists of four models and focuses only on the upper price segments. For Musk this means for the first time entry into existing, highly competitive markets with already existing excess capacities – a completely new experience, combined with high investment risks for shareholders.
Then the growth problem: Tesla has to create new markets with new, innovative electric car concepts. However, this is no longer possible, since all market segments are or will be occupied by now.
And last but not least, the earnings problem: In the future, Tesla will have to generate its main income from its core business with automobiles instead of selling certificates, as was previously the case. It is foreseeable that the operating business will not generate any profits due to a lack of growth. The income from the certificate business will shrink as a result of falling emissions from the “old” combustion engine manufacturers relying on electromobility.
How will shareholders react, who have so far been pacified by the hope of profit and rising share prices? The hunt could be over sooner than expected: “The end of Tesla may be closer than it seems”.