EVs -- May 27, 2020

The big question is how long "mainstream" automobile manufacturers will be able to "hide" their EV losses in the footnotes of their quarterly and annual reports. My hunch: there are some tough questions being asked in the boardrooms of automobile manufacturers around the world.

First, costly EVs confront a harsh corona virus reality --

At a factory near Germany’s border with the Czech Republic, Volkswagen AG’s ambitious strategy to become the global leader in electric vehicles is coming up against the reality of manufacturing during a pandemic.

The Zwickau assembly lines, which produce the soon-to-be released ID.3 electric hatchback, are the centerpiece of a plan by the world’s biggest automaker to spend 33 billion euros ($36 billion) by 2024 developing and building EVs. At the site, where an East German automaker built the diminutive Trabant during the Cold War, VW eventually wants to churn out as many as 330,000 cars annually. That would make Zwickau one of Europe’s largest electric-car factories—and help the company overtake Tesla Inc. in selling next-generation vehicles.

But Covid-19 is putting VW’s and other automakers’ electric ambitions at risk. The economic crisis triggered by the pandemic has pushed the auto industry, among others, to near-collapse, emptying showrooms and shutting factories. As job losses mount, big-ticket purchases are firmly out of reach—in the U.S., where Tesla is cutting prices, more than 36 million people have filed for unemployment since mid-March. Also, the plunge in oil prices is making gasoline-powered vehicles more attractive, and some cash-strapped governments are less able to offer subsidies to promote new technologies.

Second, Tesla cuts prices across their entire lineup. Model 3 now starts at $37,990. We must be getting close to break-even costs for Tesla. Graphic:

The global pandemic and the lockdowns put in place to slow down the propagation of the coronavirus have ravaged the economy of most countries and the auto industry has been particularly affected.

In response, Tesla, who has rarely suffered from demand problems, has decided to reduce prices across its entire lineup of electric vehicles.
For Model 3, its cheapest and most popular car, it results in a $2,000 price cut across all powertrain options.

KPMG warned against an EV glut in early 2020 and that was before the corona virus pandemic. One can get to the full KPMG report. The report has a copyright date of 2020, but the exact date of publication was not provided, as far as I can tell. Because they provide 2019 data and do not mention the corona virus, it appears this report was released near the end of January, 2020.

It's a great report, and recommended reading. In fact, I will re-post the links in a stand-alone post to make it easier to access.

This caught my attention, page 6 of 14, exhibit 2, from the report:

Based on our analysis of battery, fuel, and other costs, we conclude that ICE vehicles will make more economic sense than EVs for personal use for many years to come.

This assumes no unforeseen breakthrough that dramatically and suddenly reduces battery costs and no radical changes in U.S. policy to switch consumers to electric cars.

As a result, we anticipate that EVs will remain a small factor in U.S. personal-use auto sales into the next decade, if not longer.

We estimate that in 2030 total EV sales will be 1.1 million to 1.8 million or about 7 to 12 percent of the market for personal-use vehicles.