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 powerful 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, nevertheless it is not going to be a straightforward one.
The continued Euro-pocalypse is the main target of at present’s Important Supplies roundup of tech and mobility information. Be certain and join updates too as we get able to convey 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” going through 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 long run (and future emissions rules) and intense competitors on their house turf from Chinese language newcomers have mixed to make life extraordinarily onerous for Europe’s greatest automakers.
VW introduced at present 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 present:
Group earnings had been hit by a weak efficiency on the VW model, together with excessive prices in its German house 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 at the least three factories and the elimination of hundreds of jobs. The corporate can also be trying 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 important value reductions and effectivity beneficial properties,” 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 instances, however these are completely different instances,” Antlitz mentioned. “VW is just not 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 tip of September.
I do not doubt this will probably 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 might 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 robust gross sales of the present gas-powered automobiles. It is how Common Motors is, maybe sarcastically, paying for its EV transition with Escalades and Silverados.
However in VW’s case, the complete European new automotive 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 transferring its present steel, then Anlitz is true: it might probably’t make investments sooner or later. And that is not an choice.
What’s an choice is aggressive chopping to make labor and manufacturing unit prices extra aggressive throughout the board, which is considered one of VW’s greatest challenges. But that is going to be a horrible state of affairs for the precise staff at VW’s varied 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 bought to satisfy Europe’s aggressive new CO2 targets that can principally require an finish to inside combustion. Can VW survive this present second? In all probability, 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 nevertheless it’s nonetheless going to be on the receiving finish of the primary VW Group plant closure in a long time.
This may 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 referred to as the E-Tron.) And I am not shocked as to why. The Q8 E-Tron was a groundbreaking automotive when it first arrived—it predates the Tesla Mannequin Y, consider it or not—nevertheless it’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. Nevertheless it does imply the Brussels plant is getting the axe.
As just 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 studies that did not work out:
The successor to the Q8 e-tron will probably be manufactured in Mexico, and Audi is not going to 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 said in an interview that the corporate was focussing on the seek for potential traders.
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 traders, 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 inside search throughout the Volkswagen Group for future automotive manufacturing or various 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
Picture by: InsideEVs
So what is the European Union alleged 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 prime of the EU’s customary 10% automotive import responsibility.
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 yr 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 automotive pricing in Europe. Extra on this as we get it, together with the impression on EV pricing in Europe. The U.S. at the moment has 100% tariffs on EVs made in China, however that hardly impacts any automobiles at the moment on sale, past the Polestar 2 or the upcoming Volvo EX30, that are transferring manufacturing to Europe to get round that drawback. 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.
Apparently, Germany was in opposition to the tariffs as a result of its automotive corporations nonetheless should do enterprise in China, equivalent to it’s nowadays.
100%: What Do The European Auto Trade’s Issues Imply For The U.S.?
I suppose at the least a few of the solutions to that query will probably 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 automotive 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 growing dominance within the area, or is it a preview of what is to come back?
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