,Automotive CEO are making a U-turn on opinions that making electric cars would devastate profits. — Bloomberg
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Automotive CEOs for years warned that making electric cars would devastate profits. They’re now saying the margins on them may not be so bad after all.
Executives from Ford Motor Co. to Volkswagen AG have made bullish statements on their electric forays in recent weeks, forecasting that battery-powered cars will be as profitable as combustion-engine models around mid-decade.
Until recently, automakers at times openly lamented the massive cost of developing electric drivetrains and retooling factories. They built halfheartedly designed electric vehicles that were limited in range and expensive to make, with Fiat Chrysler’s former chief executive going so far as to plead with customers not to buy a model that lost the company money. Now that manufacturers are churning out models purpose-built to be electric and benefiting from falling battery prices, the math is looking much better.
"There are even signs that the EV business could be at least as good as the business with the conventional cars,” Volkswagen Chief Executive Officer Herbert Diess said during a March 16 earnings call.
The German manufacturer is a prime example of how much things have changed. In 2015, VW admitted to rigging millions of diesel engines to hide how dirty they were. It’s now the top EV maker in Europe after developing a standardised platform to underpin dozens of new electric models.
Diess is betting that platform sharing and greater control over batteries -- VW plans to have six cell factories across Europe -- will help bolster profitability. The company plans to use its massive scale -- it owns a dozen brands, including Porsche and Audi -- to pool resources and drive down costs.
The group’s main VW brand expects EV margins to hit a tipping point around 2025. Returns for the ID.4 SUV, which is just starting sales, will be "more or less similar” to a comparable combustion model, according to the brand’s CEO Ralf Brandstaetter.
The group’s budget businesses will take longer to make money, according to Arndt Ellinghorst, an analyst at Sanford C. Bernstein. He estimates that battery prices would have to drop to US$60 (RM248.85) per kilowatt-hour from current levels of roughly US$140 (RM580.65) per kilowatt-hour for the likes of Skoda and Seat to profitably make EVs.
For General Motors Co. CEO Mary Barra, EVs offer a way to expand the automaker’s market share in the US GM sent its stock price soaring in January when it said it wanted to phase out gas and diesel cars by 2035.
"Especially if you look at in the United States on the coast, we don’t get what I would say is our fair share of the market,” Barra said during GM’s Feb 10 earnings call.
EV margins will match what they are today for combustion-engine cars by the "mid or later part of the decade,” she said.