European automakers fear EVs will eat into auto industry profits

Several new electric models made their debut at the recent Paris Motor Show, including PSA’s DS3 Crossback and the Mercedes EQC, but off the noisy show floor, away from the turntables, hors d’oeuvres and booth bunnies, executives are ruefully acknowledging that the transition to EVs will mean an end to the record profits of recent years.

“What everyone needs to realize is that clean mobility is like organic food – it’s more expensive,” said Carlos Tavares, Chief Executive of Peugeot, Citroen and Opel manufacturer PSA. “Either we accept paying more for clean mobility, or we put the European auto industry in jeopardy.” Tavares called BMW’s recent profit warning, which the Bavarian brand blamed in part on electrification costs, “a first alarm signal.”

According to Reuters, prices are likely to fall faster than production costs, causing red ink to flow. Volkswagen has said that its ID electric hatchback, due to go on sale next year, will be priced close to legacy versions of the Golf. “VW is about to launch a load of electric vehicles at the same price as gasolines, and therefore at a loss,” said Laurent Petizon of consulting firm AlixPartners. “Our interpretation is that the 2021 fines [for failing to meet European emissions standards] have already been factored into their sales strategy. Rather than pay penalties, they prefer to lose money on vehicles and get the market going.”

VW and Daimler have announced 30 billion euros in electrification investment between them, but each company recently warned that it would not be enough.

AlixPartners calculates that EVs still cost legacy automakers an average of 7,800 euros more apiece to produce than legacy ICE vehicles, while PHEVs cost about 5,000 euros more.

“It absolutely is impacting the profitability of the industry,” said Rebecca Lindland of Kelley Blue Book. “Demand doesn’t justify investment at all – it’s all regulation.”

This explains why, while automakers keep putting on multimillion-dollar shows for journalists to tout their commitment to electrification, they’re working diligently behind the scenes to water down or eliminate the regulations that are forcing them to produce EVs.

 

Source: Reuters