We knew one thing like this was going to occur. However now we all know the numbers. After greater than a yr of working in an unprecedentedly robust atmosphere in Europe and China, issues got here to a head for the Volkswagen Group this week because it posted its third-quarter monetary outcomes. And there is definitely a path ahead for one of many world’s largest automakers, but it surely won’t be a simple one.
The continued Euro-pocalypse is the main target of right now’s Vital Supplies roundup of tech and mobility information. Make sure and join updates too as we get able to deliver it to your inbox as effectively quickly. Let’s dig in.
30%: VW’s Q3 Earnings Hit Pandemic Ranges Of ‘Uh-Oh’
Volkswagen ID.7 in Germany
We have spent a lot of the previous few months protecting this “poisonous cocktail” dealing with the VW Group and Stellantis specifically. Extremely-high rates of interest, eroding market share in China, excessive prices to make electrical autos that may meet the longer term (and future emissions rules) and intense competitors on their residence turf from Chinese language newcomers have mixed to make life extraordinarily arduous for Europe’s largest automakers.
VW introduced right now that these components—plus the necessity to spend money on these future electrical fashions to remain aggressive—are why its working revenue went down 42% in Q3. And as we reported on Monday, VW is now plant closures for the primary time ever in its native Germany.
Here is some evaluation from Automotive Information right now:
Group earnings have been hit by a weak efficiency on the VW model, together with excessive prices in its German residence market and investments in new fashions.
VW stated the outcomes reinforce the necessity for drastic measures in Germany, the place labor leaders are resisting the potential closure of a minimum of three factories and the elimination of 1000’s of jobs. The corporate can be wanting to cut back wages for round 140,000 staff by 10 %.
The core VW model — the place a lot of these cuts would fall — earned a 2.1 % working margin within the first 9 months, in contrast with 3.4 % in the identical interval final yr.
“This highlights the pressing want for vital value reductions and effectivity good points,” VW Group Chief Monetary Officer Arno Antlitz stated throughout an earnings name on Oct. 30.
“VW by no means had actually excessive margins over the course of occasions, however these are completely different occasions,” Antlitz stated. “VW is just not incomes the cash it must spend for all the brand new merchandise.”
He stated the automaker has spent €4.9 billion on improvement and investments for the EV transition, bringing down VW model’s earnings to €1.3 billion by the top of September.
I do not doubt this can be framed in some sectors as “look what the EV transition is doing to the auto trade.” And it is true that pivoting to batteries and software program is proving endlessly extra pricey and troublesome than when automakers like VW assumed they may pull it off a couple of decade in the past now. However for many corporations, the playbook goes like this: finance these costly EV and battery investments with sturdy gross sales of the present gas-powered automobiles. It is how Normal Motors is, maybe sarcastically, paying for its EV transition with Escalades and Silverados.
However in VW’s case, all the European new automobile market has shrunk amid rising prices, folks aren’t shopping for EVs there after subsidies disappeared and the competitors is each cheaper and higher than ever. If it is not shifting its present metallic, then Anlitz is correct: it could actually’t make investments sooner or later. And that is not an possibility.
What’s an possibility is aggressive reducing to make labor and manufacturing facility prices extra aggressive throughout the board, which is one in every of VW’s largest challenges. But that is going to be a horrible state of affairs for the precise staff at VW’s varied manufacturers, 1000’s of whom might lose good-paying, extremely protected jobs with nice advantages.
Antlitz stated that the VW model—simply the core model, not even the broader group—wants to chop greater than €10 billion (about $11 billion) in value financial savings to remain aggressive with its friends. And it is received to satisfy Europe’s aggressive new CO2 targets that can mainly require an finish to inside combustion. Can VW survive this present second? Most likely, however getting there may be going to be painful.
60%: Audi To Shut Brussels Plant After All
It isn’t simply the core VW model that is having bother, although. Audi is doing some actually spectacular issues within the EV area but it surely’s nonetheless going to be on the receiving finish of the primary VW Group plant closure in many years.
This is able to be the Brussels, Belgium plant which, for the previous couple of years, has solely made Audi’s Q8 E-Tron and Q8 E-Tron Sportback (previously simply known as the E-Tron.) And I am not shocked as to why. The Q8 E-Tron was a groundbreaking automobile when it first arrived—it predates the Tesla Mannequin Y, imagine it or not—but it surely’s costly and never as aggressive because it as soon as was. Gross sales have tanked as of late.
The brand new Q6 E-Tron, with higher vary, tech and pricing, ought to do higher for the model. However it does imply the Brussels plant is getting the axe.
As lately as a month in the past, it appeared like Audi may discover a purchaser for that plant, presumably even a Chinese language automaker. The European mobility publication Electrive experiences that did not work out:
The successor to the Q8 e-tron can be manufactured in Mexico, and Audi won’t award any new fashions to the Belgian plant. As some German websites throughout the VW Group are actually additionally on the point of collapse, the possibilities for Brussels – even with one other Group model – have diminished additional. In mid-September, Audi’s Chief Working Officer Gerd Walker acknowledged in an interview that the corporate was focussing on the seek for potential buyers.
Round a fortnight in the past, Audi then introduced that it had been unable to discover a appropriate investor for Brussels, which led to the state of affairs of a plant closure materializing. There have been in all probability 26 events and potential buyers, however in line with Walker, they have been unable to current a “viable and sustainable idea” for the way forward for the manufacturing facility. An inside search throughout the Volkswagen Group for future automobile manufacturing or different makes use of for the plant had additionally remained unsuccessful.
So between this and sure plant closures in Germany, you get why it is a four-alarm fireplace over there.
90%: The EU Would not Take This Mendacity Down
Photograph by: InsideEVs
So what is the European Union purported to do right here? Let scores of jobs go by the wayside (the VW Group employs 300,000 folks in Germany alone, for instance) whereas MG, BYD, Nio and Xpeng are available and snatch up all of the enterprise?
In a phrase: non. Right here come the tariffs, hotter than a baguette recent out of the oven and hitting each firm that builds electrical automobiles in China and exports them to Europe. From Reuters:
The European Union has determined to extend tariffs on Chinese language-built electrical autos to as a lot as 45.3% on the finish of its highest-profile commerce investigation that has divided Europe and prompted retaliation from Beijing.
Simply over a yr after launching its anti-subsidy probe, the European Fee will set out further tariffs starting from 7.8% for Tesla to 35.3% for China’s SAIC, on high of the EU’s normal 10% automobile import responsibility.
The Fee, which oversees EU commerce coverage, has stated tariffs are required to counter what it says are unfair subsidies together with preferential financing and grants in addition to land, batteries and uncooked supplies at below-market costs.
It says China’s spare manufacturing capability of three million EVs per yr is twice the dimensions of the EU market. Given 100% tariffs in america and Canada, the obvious outlet for these EVs is Europe.
The brand new tariffs go into impact subsequent week and should have a profound affect on automobile pricing in Europe. Extra on this as we get it, together with the affect on EV pricing in Europe. The U.S. presently has 100% tariffs on EVs made in China, however that hardly impacts any automobiles presently on sale, past the Polestar 2 or the upcoming Volvo EX30, that are shifting manufacturing to Europe to get round that downside. Europe, nevertheless, has tons of Chinese language manufacturers and Chinese language-made EVs proper now; I will be very curious to see how costs spike.
Curiously, Germany was in opposition to the tariffs as a result of its automobile corporations nonetheless need to do enterprise in China, equivalent to it’s as of late.
100%: What Do The European Auto Business’s Issues Imply For The U.S.?
I suppose a minimum of a number of the solutions to that query can be decided by who wins the election subsequent week, although neither former President Donald Trump nor Vice President Kamala Harris appear terribly inclined to again off on anti-China automobile tariffs. However what does this case in Europe imply for the U.S., too? Is that this a part of the world insulated sufficient from China’s rising dominance within the area, or is it a preview of what is to return?
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