If you still have any doubt that the electric vehicle wars have begun, you have to check out this latest report from our friends Joe Miller in Frankfurt and Peter Campbell in London. (It’s pretty entertaining).
German car industry faces ‘day of reckoning’
Tens of thousands of jobs cut as auto groups pump billions into electric technology
That’s the headline. Maybe some of those genius Tesla bears can explain why the rest of the auto industry is spending billions of dollars to catch up to Tesla’s “worthless” electric vehicle technology.
Two weeks ago a bumper crowd of restructuring experts flocked to the swanky environs of Frankfurtâs Villa Kennedy hotel, their sights firmly set on the casualties of the crisis sweeping the German car industry.Financial Times
Well, looks like $TSLAQ was right about restructuring. They just got the name of the company wrong. Anything German would have worked.
Days later, Mercedes-Benz owner Daimler and Volkswagenâs Audi brand announced more than 20,000 job losses, in the first real signs of the huge human cost of the sectorâs transition from combustion engines to electric vehicles.Financial Times
The first 20,000 is just the begining unfortunately. There will be blood.
The auto industry is in the midst of a far-reaching upheaval.Herbert Diess, Volkswagen Chief Executive Officer
Translation: Tesla is forcing everyone to switch to software based electric cars, and we were not prepared.
No one will survive in the form they exist today.Ralf Kalmbach, Bain & Co, who has spent 32 years advising German carmakers
That is extremely bold language coming from someone who has been advising the German auto industry for 32 years. If you believe him, this is the end of the German auto giants. They will not survive in their current form into an electric autonomous future. It sounds hard to believe at first, but if even they’re admitting it at this point it’s probably true.
The enormous expense of this transformation, he added, has left the engine of the countryâs postwar Wirtschaftswunder, or economic miracle, facing the âbiggest crisis since the invention of the automobileâ by Karl Benz more than a century ago.Financial Times
Because the German auto industry didn’t prepare for electrification and autonomy, because they laughed it off and didn’t take it seriously…
The biggest transformation since the invention of the automobile is now their biggest crisis since the invention of the automobile. They’ll have to work hard to catch up, and many people doubt whether they still have time to.
It is estimated that the German car industry, which directly employs 830,000 people and supports a further 2m in the wider economy, will be forced to plough some â¬40bn into battery-powered technologies over the next three years.Financial Times
40 billion euros is $44 billion US dollars. So the German auto industry will spend $44 billion on electrification in the next 3 years. Tesla’s market cap is $59 billion. Believe it or not, there are still people like Russ Mitchell who don’t understand where Tesla’s valuation comes from:
âWe have seen the first few chapters of the transformation, but this is a book with many chapters,â warned Ola Kallenius, Daimler chief executive, last month, as he confirmed the carmaker would post significantly lower profits for at least two years.Financial Times
It’s goint to be a page turner for sure.
German auto giants, from Daimler and Audi to suppliers including Continental and Bosch, have announced that around 50,000 job will be lost or are at risk so far this year, as their traditional businesses become less profitable.Financial Times
To make matters worse, a demographic time bomb is ticking, which could permanently reduce the number of new car buyers, and a new raft of competitors, including the likes of Uber and Googleâs Waymo, are emerging with products such as autonomous cars that will probably drive the future of transport.Financial Times
I don’t think those are the competitors you’re looking for.
âThe German auto industry needs to learn to adapt faster, to change faster,â warned auto analyst Arndt Ellinghorst at Evercore ISI.
Despite these warnings, the premium carmakers have been reluctant to go âall-inâ on electric technology, at the risk of alienating existing engine-loving customers.Financial Times
Classic case of The Innovator’s Dilemma.
With the electric car market still in its infancy, Daimlerâs Mr Kallenius told investors that the Mercedes-owner would ânot develop technology for the sake of technologyâ.Financial Times
BMW, similarly, has been keen to play-up its traditional expertise.
âWe believe there is still much room for growth in the automotive sector,â BMWâs chief executive Oliver Zipse said, dismissing the earnings potential of so-called mobility services, such as car sharing and self-driving taxis.
âThere is a long-term growing demand for individual mobility worldwide, especially in the premium segment. The fundamentals behind it are much stronger than the current dip in the overall market, which is mainly due to economic slowdown.âFinancial Times
Their confidence, however, jars with the impending bloodletting in the countryâs powerhouse sector.
In the next decade, almost a quarter of a million auto jobs will be lost in the country, according to Ferdinand DudenhÃ¶ffer, the director of the Center for Automotive Research at the University of Duisburg-Essen. Smaller suppliers, such as paint shop Eisenmann, have gone out of business.Financial Times
German auto execs be like:
Car sales in China, which helped Germanyâs biggest brands weather the financial crisis, have slowed for 17 months in a row, drastically reducing a key source of revenue at the precise moment it is needed to fund new technologies.Financial Times
Oh shoot, one of the most populated countries in the world is pushing hard to transition into electric vehicles. There goes the word’s biggest auto market. Oops. Who could have seen this coming?
We have kind of the worst situation now. We have got to do the heavy lifting in the next three years.Ola KÃ¤llenius, Daimler CEO, to investors
Ughhh I know getting disrupted into bankruptcy is the wooorrrrrst. Especially for investors.
Despite widespread anxiety in the industry about the lack of demand for electric vehicles, strict EU carbon-emissions rules are forcing carmakers to accelerate their production plans, or face billions of euros in fines from Brussels.Financial Times
People want electric cars, but they have to be good. They have to be a better experience than polluting cars. If the German auto industry can’t deliver on that promise, the demand for EVs will go elsewhere.
The EUâs targets for 2030 can mean that between 7m to 10.5m battery-powered cars will have to be on Germanyâs roads by the end of the next decade.Financial Times
How many of those will be German EVs?
Volkswagen, whose first mass-market battery-powered hatchback, the ID3, is rolling off production lines in east Germany, is âconvinced that the transition to electric-mobility will gain traction next year,â according to VWâs Mr Diess.Financial Times
Well, it better.
âFor the moment, you have to consider that with every electric vehicle, manufacturers are losing a tremendous amount of money,â said Mr Kalmbach at Bain. That is not expected to change until the middle of the next decade.Financial Times
They’re going to lose money until 2025? That explains why they don’t want to sell them. But at least they can just fire workers to reduce costs, right?
The unique strength of German labour unions has forced Daimler and Audi to provide job guarantees, which stretch to the end of the next decade, while VWâs supervisory board is dominated by its powerful workersâ representatives and local politicians, who would stand in the way of mass redundancies.
The cost of shedding jobs in Germany, often estimated at â¬100,000 per axed position, forces companies to consider reskilling programmes or wait for employees to retire.Financial Times
It costs $110,000 USD just to fire someone in Germany?!?! Hope those old gas car employees can figure out autonomous, software based EVs…
âEven during the financial crisis, there were hardly any lay-offs because of agreements with labour unions,â said Rainer Mehl, a managing director at consultancy Capgemini. âAs this crisis gets tougher, there will probably be a need for deeper cuts.â
It seems Germanyâs flagship brands are merely putting off the inevitable.
This is because they are still too profitable for widespread cuts to be politically palpable, said Max Warburton, a veteran auto analyst at Bernstein.
âIn this industry you can only cut jobs in a crisis,â he added. âDeep down, they all know that. They all know theyâre going to have to, they are just trying to postpone the day of reckoning.âFinancial Times
Wow, holy shit. Things are way more fucked than I thought.
Get your popcorn and flamethrowers everyone. The electric vehicle wars have officially begun.