We spend a lot of digital ink on Tesla here on CleanTechnica. This is logical for a few reasons — Tesla sells by far the most popular electric car ever produced, that car now routinely makes it into top 10 lists for top selling cars and top selling vehicles (sometimes even at #1), and the company is the only large company that is 100% focused on electric transport and renewable energy. However, as CEO Elon Musk and many others have said, in the transport sector alone, we need far more than Tesla in order to solve our climate, pollution, and energy crises.
While we all appreciate what Tesla does, I don’t think many Tesla fans think Tesla is going to solve our main transport problems alone. Many of us have hope that other automakers will step it up and switch at least somewhat quickly to electric transport. Some of us are bullish about Kia and Hyundai, some about Nissan and Renault, some about Chinese automakers, and some about Volkswagen, but the bottom line is that we need tens of millions of EV sales a year, not just millions, and that means we need at least a few leading companies.
Musk has said that there are two core matters investors should be focused on when evaluating automaker potential — batteries and autonomy. I’m skipping autonomy here, since it’s hard to conclude that any other automaker has a good plan in place for this, and also since many people are still skeptical about Tesla’s plans and self-driving vehicles themselves. If Tesla is in the lead, it’s hard to see who’s second. If Tesla isn’t in the lead, it’s hard to see who’s first. In any case, the more immediate and very practical issue of batteries is a somewhat more transparent beast.
Here are a few things we know about batteries:
- Tesla has chosen an extremely vertically integrated approach to batteries, so that it can work on improving them and cutting costs, and because you can’t really guarantee a large supply of batteries at this time if you aren’t producing them.
- Almost all other automakers buy their batteries from a small number of battery companies, most notably LG Chem, CATL, Samsung SDI, and SK Innovation. Together, the first two companies appear to have a contract with everyone.
- German automakers have waffled on whether to produce batteries in Europe or only procure them. The waffling seems to continue to this day, but these automakers have slid toward procuring them.
- Korean and Japanese automakers appear to be 100% reliant on battery suppliers — increasingly, Chinese ones.
- Battery suppliers need proof of EV demand in order to ramp up battery production, and automakers need low-cost, high-performance batteries to compete with Tesla and others in the EV market. This challenge makes rapid progress difficult. We get compelling electric vehicles, like the Hyundai Kona EV and Kia Niro EV, that have very limited production, making customers wait months or even a year for a car. We get the relatively small Jaguar I-PACE for the price of a Tesla Model X.
- Automakers that don’t want to sell many EVs (for various reasons) can easily blame lack of battery supply for low EV sales, and even for high EV prices (more demand than supply = higher prices).
- It’s not clear if any non-Tesla automaker outside of China is securing enough battery supply to sell millions of electric cars a year any time soon.
As long as they all slow-walk it, Tesla can take some of their sales but not enough to bankrupt any of them, especially since the conquest sales are spread all over the place. Consumers either fall into the relatively small camp of people who know a lot about Tesla and see its compelling attractions or the much larger camp of people who go to a conventional automaker for a car when they need one and are unlikely to be funneled into an EV.
However, what if a major automaker gets serious and disrupts that state of equanimity?
That is something I think Volkswagen Group is able to do, and is potentially on the verge of doing. If it’s not, it sure as hell should be.
There are a few positive signs that Volkswagen is prepping to get nasty in this market, and thus has the opportunity to land a lot of conquest sales.
- The company has announced large EV investments in recent years, and more than three years ago indicated it planned to sell a few million fully electric vehicles a year by 2025, representing 20–25% of its sales. Implementing such plans takes time, but the automotive giant has seemingly been laying the groundwork for this since then and is retaining the general goal. (Note, however, that its new global e-mobility webpage says, “In 2025, Volkswagen intends to sell at least 1 million electric cars per year.”)
- The company is building EVs from the ground up on a solid EV platform shared across various models and classes. In the 2016 news noted above, the company already had a goal of bringing 30 fully electric models to market by 2025. The above-mentioned e-mobility page now says, “By 2028, Volkswagen will have launched almost 70 all-electric models across the Group.”
- At the unveiling of the ID.3, when asked by a journalist if there was enough of a market for EVs, board member Jurgen Stackmann said something to the effect of, “We are Volkswagen, we can create the market.” (Not a direct quote.)
- Since that event, VW has been running ads on TV and the internet all across Europe (even in Poland). It is legitimately hyping its electric offerings and trying to prime the market (bad metaphor).
- VW may have some large battery supplies secured with various partners. There have been stories here and there about its battery suppliers. Though, it’s unclear exactly how much production capacity it intends to have in 2020, 2021, 2022, etc.
- Volkswagen Group has been leading the rollout of fast charging and superfast charging stations in Europe and the US.
- VW’s first fully electric models built electric from the ground up target high-volume vehicle classes — essentially a replacement for the Golf (ID.3) and an attractive electric crossover (ID.CROZZ).
We’ve seen how well the Tesla Model 3 has been selling — routinely one of the top 10 cars in the US, the #1 car by revenue in the US, sometimes the #1 car or even #1 passenger vehicle in some European countries, and absolutely dominant in its vehicle class. If VW offers the ID.3 and ID.CROZZ at the right price with the right specs, those vehicles could see similarly disruptive demand, just appealing more to consumers who want a traditional brand, a normal dealer/service network, and a less revolutionary interior and infotainment.
The question is, how many mainstream consumers are not into the “rEVolution” to the point that they bought/want a Tesla but are still open to it enough that they will buy a fully electric VW? I imagine this is what VW is feverishly trying to figure out. However, I hope the company is committed to doing what Stackmann said it could do: creating the market.
The benefits of EVs are evident for anyone who spends a little time with one. The crossover point of battery/EV competitiveness is already in play. The last big step is showing consumers the benefits and that the downsides have mostly dissipated thanks to improved batteries and improved charging infrastructure. It shouldn’t be hard at all for a VW dealer to funnel someone coming in for a Golf or Tiguan into an ID.3 or ID.CROZZ, respectively. It shouldn’t be hard for VW to market to normal car buyers in a way that moves them from a Toyota Camry to an ID.VIZZION, from a Honda Civic to an ID.3, and so on. If VW can play this transition well, it can grab so many conquest sales from Toyota, Honda, BMW, and others that it could solidly secure its place at the top of the automaker food chain.
Of course, if Tesla is scoring millions of conquest sales a year and Volkswagen is scoring millions of conquest sales a year, other automakers are going to be losing those sales. It’s hard to imagine that won’t mean some bankruptcies in the auto industry.
Volkswagen Group currently sells almost 1 million vehicles a month. In July 2019, the number was 886,100, a 2.4% drop compared to July 2018 (908,100). It sold 393,600 vehicles in Europe, 334,800 in the Asia-Pacific region, 80,700 in North America (55,800 of those in the USA), and 53,000 in South America.
It’s unclear how many of these sales are electric vehicle sales, but the conglomerate has a few thousand electric vehicle sales a month in Europe and a couple thousand in the USA. Its internal EV market share globally is somewhere around 1%.
The company’s market cap is currently €72.574 ($80.47).
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