The Evolving Car Market – China goes Electric Pure while VW Still Believes in the Diesel

VW at the Frankfurt Auto Show (IAA) 2017 defending the case for diesel, while the fastest growing and largest auto market, China, has announced plans to end the production and sale of fossil-fuel-burning vehicles. In a way, this debate reflects not only the need to curb pollution and fossil fuel emissions, but also the urbanization trend globally, which would naturally favor electric cars. But if you have a huge land space with a culture dependent on distant travel, the USA or famous for its speedy Autobahns, Germany and a huge market for diesel powered vehicles, Europe, there must be room and time for a compromise. Time is set for somewhere between 2030 and 2040. Fast technological developments which will clean up diesel and the internal combustion engine coupled with efficiency gains may make this a real race, and instead of everything becoming electric, you simply get a re-balancing with a greater electric weighting. The zillion dollar question will be growth in the car market. Marginal growth will favor electric vehicles, but growth in margins or profitability may favor the incumbents, esp. if they can implement a technological and innovative edge (unimaginable?).

Matthias Müller, CEO of Volkswagen (plans to sell 1 million electric or battery driven vehicles by 2025) speaks about Tesla not being a threat to VW, “We can’t compare apples with pears. Tesla is a company that sells less than 100,000 units and we sell 10 million. Currently, Tesla burns a 3 digit million amount and we’ve got results of €12-13 billion per year, so I think we have to be realistic here.”

…cash is king!

Please take a look at an earlier IAV post below for more details and charts:

European Auto Industry — Too Dependent on Diesel? The Tesla Challenge

From Sept. 12, 2017

China electrifies auto market

China’s Ministry of Industry and Information Technology (MIIT) has announced plans to end the production and sale of fossil-fuel-burning vehicles. Although the end of gas-burning cars is still a ways down the road — 2040 is the year that France and the U.K. have set for completing the phase-out, with China likely to aim for that same year — the announcement has given the share prices of leading domestic electric car makers like BYD, famously backed by Warren Buffett, and battery makers like Jiangxi Ganfeng Lithium a real jolt.

In June, when the MIIT set aggressive quotas on new energy vehicle (NEV) production for all automakers in China, foreign automakers freaked out, with many looking to get in bed with domestic automakers with larger NEV capacity, the New York Times reports (paywall). New regulations nominally require up to 10 percent of all cars sold in China to be NEVs as early as next year, though a system of credits will allow carmakers without that kind of electric vehicle capacity some time to adjust.

The policy makes eminent sense: The world’s largest automotive market is also the world’s largest carbon emitter, and the market’s reaction to the MIIT’s announcement reassures Beijing that the industry will respond to its policy guidance, and reinforces China’s confidence that it will quickly become the make-or-break market for NEVs, smart cars, and self-driving vehicles.

—Kaiser Kuo, Guest Editor (Jeremy is off until 9/18)

China’s move will naturally favor its local producers which will not exclude the likes of VW, Daimler and BMW or GM, Ford, Nissan-Renault, Toyota, to name a few, due to their JVs there, but perceived to be at a clear disadvantage when reviewing the proposed quotas unless they ramp up their local production rapidly, which is what China is counting on. Will Chinese manufacturers be able to sell their cars abroad? Is VW being bold or naive when betting on diesel? Then one can’t forget the oil producers lobby–they will want a say, even though most would like to disqualify them. China has very little to lose and the rest of the world producers will have to figure out their global winning strategy to maintain their respective market shares. At the end of the day, let the markets decide — the customer is king!





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