Automakers plan electric car blitz even as Tesla burns billions

Companies are lining up to compete wit Tesla. Almost 50 new pure electric-car models will come to market globally between now and 2022, including vehicles from Daimler AG and Volkswagen AG.

By: Bloomberg | Published: October 2, 2017 11:40 am
Tesla, Elon Musk, Tesla electric cars, Volkswagen, Tesla Model S, Daimler, electric car launches, German luxury car makers, zero emission car market, US electric car sales, Chinese electric car manufacture, carbon emission cuts, Tesla model X, GM, Tesla market share Almost 50 new pure electric-car models will come to market globally between now and 2022, including vehicles from Daimler AG and Volkswagen AG. (Image Source: Bloomberg)

Here are two facts that defy logic: By the end of the year, electric-car maker Tesla Inc will have burned through more than $10 billion without ever having made 10 cents. Yet companies around the world are lining up to compete with it. Almost 50 new pure electric-car models will come to market globally between now and 2022, including vehicles from Daimler AG and Volkswagen AG. Even British inventor James Dyson is getting into the game, announcing last week that he’s investing two billion pounds ($2.7 billion) to develop an electric car and the batteries to power it.

The reasons for chasing Tesla are part city hall, part show business. Regulators in Beijing have laid out a plan to mandate electric vehicle production in China, while California requires carmakers to build more EVs or be forced to buy credits from rivals. At the same time, Tesla Chief Executive Elon Musk and his sleek cars have captured the imagination of Americans to the point where consumers and investors are throwing money at his Silicon Valley company.

“Nobody doubts that the future will be electric,” said Erich Joachimsthaler, founder and CEO of brand-strategy firm Vivaldi, which works with German luxury carmakers. “The car companies dragged their feet with electric. Now they are being dragged into it by Tesla and by regulations.”

Crowded Field

In North America alone, the number of electric vehicles will soar to 47 by the first quarter of 2022 from 24 in the third quarter of this year, according to data from Bloomberg New Energy Finance. China’s EV market will go to 80 from 61, and European buyers will have 58 electric choices, up from 31. Globally, there will be 136 EVs on the market by the end of that year, and that doesn’t even include the hybrid models or fuel cells.

That will make for a very crowded field in a nascent zero-emission car market that most consumers have yet to embrace and where financial losses loom large. In the US, electric car sales were less than 1 percent of the market last year, according to the International Energy Agency. They were 1.4 percent in China and in the UK.

“Companies are committed to electric cars, but there is little evidence that there is a lot of consumer demand for it,” said Kevin Tynan, senior analyst with Bloomberg Intelligence. At this point, expensive battery technology still makes them money drains. General Motors Co loses about $9,000 on every Chevrolet Bolt electric car it sells. Tesla had record sales of its EVs last year – and still lost $675 million on $7 billion in sales.

China Factor

So why bother? China is a big reason. Electric cars got a regulatory boost when the world’s most populous nation released a set of regulations meant to cut carbon emissions and pollution by 2030. Carmakers must produce a certain share of so-called new-energy vehicles – which include electric cars – to obtain credits so they can keep selling gasoline-powered ones.

Because China is now the world’s largest car market, automakers are stepping up development. GM, the top-selling foreign automaker there, will offer electrification technology — hybrids or pure electric — in almost all of its models in China by 2025 as it looks to hold its lead.

Many of the electric models today are luxury cars, and Tesla’s Model S sedans and Model X sport utility vehicles often sell for more than $100,000. It’s easy to bury the expensive price of electric drive in the fatter sticker prices of high-end vehicles. The Model 3, which just started production, will sell for more like $35,000 before options and incentives. Tesla said that more than 450,000 people have put down $1,000 deposits to reserve a Model 3.

Musk has poached buyers from German luxury brands and will continue to do so, said Salim Morsy, an analyst with Bloomberg New Energy Finance. “What was seen as a minimum requirement for regulations has shifted to an opportunity for market share and profit,” Morsy said. “In the luxury segment, the Germans see the opportunity to take market share back from Tesla.”

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