From Tesla to Volkswagen, how difficult is it to make money from electric vehicles?

publish_time: 2021.06.04

  To achieve profitability is waiting and suffering.


  "It's incredible, they are losing money by selling cars!"


  Back in 2019, the British richest man James Dyson's car building plan was still dead. He recalled the painful lessons of four years and burned 2 billion pounds. He bluntly said that the main reason for the interruption of the project was business difficulties. To achieve profitability, "It is unimaginable that all electric cars are sold so cheaply now."


  Electric cars, Tesla, batteries, Tesla, Volkswagen, electric cars, car sales


  What Dyson called "cheap" is based on the cost of building a car. This venomous businessman slowly discovered that those automakers who seem to be prosperous are actually making losses behind the scenes. The sale of money. Dyson is not Toyota, nor is it Volkswagen, and cannot continue to "transfusion" the loss-making electric vehicles through other businesses, so he simply retreated from the cliff and pressed the termination button of the project.


  The dream of building a car is broken, Dyson is just the tip of the iceberg.


  As early as the new four modernizations were still in their infancy, Marchionne, the legendary head of Fiat Chrysler, had a very cold attitude towards electric vehicles. He even ridiculed in a speech in 2014, "The profit of electric vehicle production and sales is very limited. I advise everyone not to buy our Fiat 500e, because every time one is sold, the company has a loss of 14,000 US dollars."


  How to make money? This is the most realistic survival problem.


  For traditional automakers, electrification is still a "money-burning pit" on the new track. They work together and share platforms and technologies. The purpose is to save more costs in the journey to the new blue ocean. Transformation pains brought about by reducing cash flow. Even for Tesla, which has achieved profitability, the flying dragon is envious of others, but the period when the dragon's horns just grew, it was a long-term loss in the quagmire.


  According to a study by the British Financial Times, for at least the next 10 years, the cost of European automakers to produce electrified vehicles will still be much more expensive than traditional fuel vehicles. Oliver Wyman's data shows that by 2030, the manufacturing cost of small and medium-sized electric vehicles will drop by about 25% to $19,000, but they will still be 10% higher than similar gasoline or diesel vehicles.


  To achieve profitability is waiting and suffering.


  Volkswagen’s profitability concerns


  Profit, which was originally a "phoenix" held by traditional automakers in the palm of the hand, has transformed into a "monster" wielding giant claws on the track of the new four modernizations, making the car companies that used to make a lot of money Our brains are broken. In this regard, the former German giant Volkswagen Group may have the most experience.


  Pioneers of the profit battle, Volkswagen currently has two.


  One of the pioneers is the ID. series of popular brands.


  Ralf Brandsttter, CEO of the Volkswagen brand, has high hopes for the ID. series, especially the ID.4. As the first global model to adopt the MEB modular platform, the company’s management hopes it will The profit return can catch up with traditional fuel vehicles first, and the best result is to achieve profitability in the "first life cycle".


  Electric cars, Tesla, batteries, Tesla, Volkswagen, electric cars, car sales


  However, ID.4 is after all a mainstream-priced electrified model. What makes Volkswagen more worried is that the new car sales dimension may be able to move, but it may not be able to compete in the profit ring.


  Like the ID.3 and other electrified vehicles, the ID.4 also encountered problems from the battery. The current lithium-ion battery has to rely on raw materials such as cobalt in the production stage. However, with the continuous increase in the sales volume of electric vehicles worldwide, the demand for key mineral resources is also increasing day by day, and the cost is also destined to be under pressure.


  After all, mineral resources are limited, and when the supply is restricted, the previous scale effect no longer works. This is a new challenge for manufacturers who are accustomed to using large-scale production to reduce costs. If they want to balance the range and battery cost, it is even more difficult. This is one of the main reasons why Volkswagen plans to bet on solid-state batteries.


  ID.4 cost troubles also come from factory efficiency.


  Beginning in 2020, Volkswagen has begun to expand its Chattanooga plant in Tennessee, USA, with the goal of turning it into the most advanced electric vehicle production base in North America. At the earliest, the North American version of ID.4 will be produced here in 2022.


  Only in the electrification era, the transformation of the factory is a huge pit of money. Volkswagen’s Zwickau factory in Germany alone has been betting up to 33 billion US dollars. The senior executives of Volkswagen North America are already aware of this problem, and it is difficult to achieve peak efficiency in a short period of time for the brand-new production base.


  Pioneer II is its Audi brand.


  In the first quarter of this year, Audi’s Chief Financial Officer Arno Antlitz once revealed that in the next two years, the profit of the brand’s latest electric models will catch up with traditional cars. They are embarking on a bold battery car offensive, aiming to compete head-on with Tesla in terms of sales and profit.


  It is estimated that by 2023 or 2024, the profit margin of Audi's latest electric vehicle Q4 E-tron will reach the same level as that of traditional fuel vehicles. As of now, Audi is also one of the few companies that can make bold predictions on the profitability of electric vehicles. One of the car brands.


  Of course, there are still many "oil bottles" in the public.


  Bloomberg's research pointed out that the cost of electric vehicles should be equal to that of traditional fuel vehicles, at least in terms of battery prices, and the threshold is about $100 per kWh. But this is only average data. Analysts at Sanford C. Bernstein once calculated that if Volkswagen’s Skoda and SEAT brands are to achieve profitability in the electrification business, battery prices must be approximately from the current per kilowatt-hour. US$140 fell to US$60.


  This also means that entry-level or niche car brands encounter bottlenecks in battery cost more complicated than other brands or models. Once the sales volume fails to increase, the impact on the profitability of the electrification business will be huge.


  Tesla’s new problem


  If Volkswagen’s situation is a microcosm of traditional automakers, then the pits that Tesla has stepped on over the years reflect the real problems on the way to the growth of new car companies.


  UBS Group AG analysts previously predicted that Tesla is expected to become the most profitable player in the electric vehicle field in the next few years, and such a dominant position will largely benefit from its software advantages.


  The agency gave a set of data. Tesla will achieve about 2.3 million electric vehicle sales in 2025, and operating profit may reach 20 billion U.S. dollars, while Volkswagen’s electric vehicle sales can reach about 2.6 million. But the operating profit of related businesses can only reach 7 billion U.S. dollars. This also means that in the field of electrification, Tesla's profit potential in five years will be three times that of Volkswagen.


  And in Tesla's future operating profit of 20 billion US dollars, 45% of the contribution will come from its software, and it is mainly related to the pure self-driving kit (FSD) promoted by the company.


  In the first quarter of this year, Tesla received a net profit of 438 million U.S. dollars and an operating income of 10.4 billion U.S. dollars. This is the company's largest profit return in history, and it is also the seventh consecutive quarter of profitability. But it is worth mentioning that the quarterly growth of nearly two years is due to an important revenue engine-


  In the past few years, Tesla has sold regulatory credits to traditional fuel vehicle manufacturers, and the return on benefits has reached billions of dollars.


  In order to meet the stringent emission regulations of the European Union, the United States, and California, the traditional fuel vehicle manufacturers have to buy credits (also known as carbon emission credits) from Tesla. These transactions have brought a lot of money to Tesla. Profit. Especially for brands like Jeep, the main ones on the market are medium and large vehicles with high fuel consumption. If you don’t buy credit, you will face huge fines.


  For a long time, the profits brought by the credit business are pure profits that do not require any cost input, just like a fat profit cow, brought to Tesla by the shepherd, making Tesla earn a lot of money. But now that the profit cows are taken away by the shepherds, this generous credit business income will eventually come to an end.


  Stellaantis, the largest buyer of Tesla's credit business, made a decision in early May to press the termination button for purchase. Stellantis CEO Carlos Tavares revealed to the French magazine "Le Point" that thanks to PSA's electric vehicle technology, Stellatis will meet European carbon emission regulations as early as this year, which also means that FCA will no longer need it. Purchase credits from Tesla or other organizations.


  According to Reuters statistics, since 2019, FCA has cumulatively purchased up to $2.4 billion in credit from Tesla. This transaction occupies 55% of Tesla's announced credit limit since 2008.


  Since 2008, Tesla’s cumulative credit sales have reached US$4.4 billion, of which US$2.69 billion was reached after 2019. However, when more and more traditional automakers and start-up companies have the strength to mass-produce electric vehicles, buying credit is no longer their rigid demand.


  Credit profits are drying up, can Tesla still make a profit? So far, Tesla's two core businesses, automobiles and batteries, have not yet achieved profitability.


  For Tesla, a credit transaction is a gift, but the "gift" will eventually disappear. Judging from Tesla’s recently announced net profit of up to US$438 million in the first quarter, behind the dazzling data is Tesla’s US$518 million in carbon emissions credits. Without this fat profit, Tesla In the first quarter of this year, it actually lost $181 million.


  turning point or after 2025


  When taking the first step of electrification transformation, those auto executives who are well versed in cost management have long realized that the profit balance in the traditional fuel era will be completely broken.


  Just, when will the new balance come?


  Up to now, only the two sub-brands of Volkswagen and Audi can estimate the profit time of the Volkswagen Group. As mentioned briefly in the previous article, Audi's profit time may be relatively early and will be realized around 2023, and the technical director of Volkswagen Passenger Cars also revealed to European media that the profitability of the Volkswagen brand is most likely to be around 2025.


  General Motors CEO Mary Barra also expressed his views on profitability. By the middle or later period of 2020, that is, around 2025, the profit margin of the company’s electric vehicles may reach that of current internal combustion engine vehicles. Level.


  It is well known in the industry that General Motors once carried out a top-down corporate restructuring at the end of 2018. At that time, the biggest driving factor of the change was profit. The reorganization has just come to an end. The Detroit giant has to start a new round of reforms facing the new four modernizations, and profit has become one of the most difficult challenges in the new situation.


  In the traditional fuel era, trucks and SUVs are the main business that contributes revenue to GM. In the electrification era, GM's profit logic is paralleled by two main lines.


  The first route still continues the existing idea of ​​"big oriented" in the past. The resurrection of Hummer is a typical example, because the high profits of pickup trucks, full-size SUVs and other models can help manufacturers quickly recover the huge costs of the "new four modernizations".


  Another route is to take luxury brands as the electric pioneer. This type of model also has the advantage of high profits. Cadillac will also enter the most critical next decade under the revival of electrification. It is worth mentioning that all Cadillac models will be converted to pure electric vehicles, and an important turning point in the sales dimension may appear in 2025, which is basically the same as the profit turning point estimated by Bora.


  Today, more and more traditional automakers have begun to have a clear plan for the profitability of electrification. BMW also plans to launch a new platform with a focus on pure electric before 2025, and expects its rate of return will be comparable to that of internal combustion models at that time.


  Alfred P. Sloan, Jr, the former president of General Motors, recalled a story in his book "My Years at General Motors":


  At a high-level meeting in preparation for the 30th anniversary of GM's founding, Sloan introduced a new project to the management present. The feasibility of the project needs to be discussed repeatedly within the company, but it is foreseeable that it will spend too much money to execute.


  "What is the purpose of the company?"


  The meeting continued, and Sloan raised the question to everyone on the scene. Someone said that the purpose of the company was to produce cars. Sloan immediately corrected this statement: "You are wrong. General Motors exists to make money to produce cars."


  In the field of electrification, a very small number of companies have realized the state of "making money while manufacturing cars", although profit does not depend on selling cars themselves, such as Tesla; some manufacturers rely on huge traditional fuel vehicle business to achieve profit , And use this to feed back emerging electrification businesses, such as Volkswagen, or Toyota.


  But for many players, making money from electric vehicles is still an unattainable goal. As one of GM's greatest heads, Ruo Sloan travels through time and space and comes to the 21st century when the transformation of the new four modernizations is in full swing. What kind of spark will it have with the current GM?

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