We knew one thing like this was going to occur. However now we all know the numbers. After greater than a 12 months of working in an unprecedentedly robust setting 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 straightforward one.
The continued Euro-pocalypse is the main target of at the moment’s Vital Supplies roundup of tech and mobility information. Make certain and join updates too as we get able to convey it to your inbox as nicely 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 overlaying this “poisonous cocktail” going through the VW Group and Stellantis specifically. Extremely-high rates of interest, eroding market share in China, excessive prices to make electrical automobiles that may meet the long run (and future emissions rules) and intense competitors on their dwelling turf from Chinese language newcomers have mixed to make life extraordinarily arduous for Europe’s largest automakers.
VW introduced at the moment 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 taking a look at plant closures for the primary time ever in its native Germany.
Here is some evaluation from Automotive Information at the moment:
Group earnings had been hit by a weak efficiency on the VW model, together with excessive prices in its German dwelling market and investments in new fashions.
VW mentioned the outcomes reinforce the necessity for drastic measures in Germany, the place labor leaders are resisting the potential closure of no less than three factories and the elimination of hundreds of jobs. The corporate can be trying to scale back wages for round 140,000 employees by 10 p.c.
The core VW model — the place a lot of these cuts would fall — earned a 2.1 p.c working margin within the first 9 months, in contrast with 3.4 p.c in the identical interval final 12 months.
“This highlights the pressing want for vital value reductions and effectivity positive aspects,” VW Group Chief Monetary Officer Arno Antlitz mentioned throughout an earnings name on Oct. 30.
“VW by no means had actually excessive margins over the course of occasions, however these are totally different occasions,” Antlitz mentioned. “VW shouldn’t be incomes the cash it must spend for all the brand new merchandise.”
He mentioned the automaker has spent €4.9 billion on growth 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 business.” And it is true that pivoting to batteries and software program is proving endlessly extra expensive and tough than when automakers like VW assumed they may pull it off a couple of decade in the past now. However for many firms, the playbook goes like this: finance these costly EV and battery investments with sturdy gross sales of the present gas-powered vehicles. It is how Basic Motors is, maybe paradoxically, paying for its EV transition with Escalades and Silverados.
However in VW’s case, the complete European new automobile market has shrunk amid rising prices, individuals 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 true: it might’t make investments sooner or later. And that is not an possibility.
What’s an possibility is aggressive chopping to make labor and manufacturing unit prices extra aggressive throughout the board, which is one among VW’s largest challenges. But that is going to be a horrible scenario for the precise employees at VW’s numerous manufacturers, hundreds of whom may lose good-paying, extremely protected jobs with nice advantages.
Antlitz mentioned 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 inner 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 is not simply the core VW model that is having hassle, 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 few years, has solely made Audi’s Q8 E-Tron and Q8 E-Tron Sportback (previously simply referred to as the E-Tron.) And I am not stunned as to why. The Q8 E-Tron was a groundbreaking automobile when it first arrived—it predates the Tesla Mannequin Y, consider 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 would possibly 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 at the moment are additionally getting ready to collapse, the probabilities for Brussels – even with one other Group model – have diminished additional. In mid-September, Audi’s Chief Working Officer Gerd Walker said 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 situation of a plant closure materializing. There have been most likely 26 events and potential buyers, however in keeping with Walker, they had been unable to current a “viable and sustainable idea” for the way forward for the manufacturing unit. An inner 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 hearth over there.
90%: The EU Would not Take This Mendacity Down
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Picture by: InsideEVs
So what is the European Union presupposed to do right here? Let scores of jobs go by the wayside (the VW Group employs 300,000 individuals 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 vehicles in China and exports them to Europe. From Reuters:
The European Union has determined to extend tariffs on Chinese language-built electrical automobiles 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 12 months 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 prime of the EU’s normal 10% automobile import obligation.
The Fee, which oversees EU commerce coverage, has mentioned 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 12 months is twice the scale of the EU market. Given 100% tariffs in the US and Canada, the obvious outlet for these EVs is Europe.
The brand new tariffs go into impact subsequent week and will have a profound impression on automobile pricing in Europe. Extra on this as we get it, together with the impression on EV pricing in Europe. The U.S. at present has 100% tariffs on EVs made in China, however that hardly impacts any vehicles at present on sale, past the Polestar 2 or the upcoming Volvo EX30, that are shifting manufacturing to Europe to get round that downside. Europe, nonetheless, has tons of Chinese language manufacturers and Chinese language-made EVs proper now; I will be very curious to see how costs spike.
Apparently, Germany was towards the tariffs as a result of its automobile firms nonetheless must do enterprise in China, reminiscent of it’s lately.
100%: What Do The European Auto Trade’s Issues Imply For The U.S.?
I suppose no less than a few 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 example in Europe imply for the U.S., too? Is that this a part of the world insulated sufficient from China’s growing dominance within the area, or is it a preview of what is to come back?
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