The CEO of Mercedes-Benz shared his thoughts on the company’s EV trajectory.
(H/t The Eagles.)
The boss of German car giant Mercedes-Benz has said it will make petrol cars “well into the 2030s” as it watered down its targets for electric vehicle (EV) sales.
Ola Källenius, the group’s chief executive, said the era when EVs would cost the same as an equivalent petrol [gas] car was still “many years away”.
Mercedes had previously promised that its whole car line-up would be battery powered by 2030, but has since walked back that ambition.
The car company, which develops upmarket saloons such as the S-Class and the electric EQ range, said it expected electric vehicles and plug-in hybrids to make up 50pc of sales by the late 2020s, but that it will keep building petrol hybrids into the next decade.
There are two main things to notice about Källenius’s comments.
The first is concerns pricing. If what Källenius is saying holds true for other European carmakers, that means (as Europe moves toward banning sales of new gas cars by 2035) that greenflation (in this case, relating to the price of cars) is going, as promised, to be with us for some time. Alternatively, either (cheap) Chinese EVs are going to have to fill the gap or European car buyers will buy (new or used) traditional cars for as long as they can (although that will push up their prices, too). And if Chinese EVs do fill that gap, that will mean disaster for the European auto sector, with economic and, ultimately, political consequences that will not be pretty.
The second thing to note is the way that Källenius singles out plug-in hybrids as a way forward into the 2030s. With climate fundamentalists still driving policy, hybrids too are meant to be banned in the EU and its sad echo, “Brexit” Britain, in 2035, but I wonder. . . .
The EU is clearly contemplating using some sort of increased protection measures (probably based on “unfairly” low prices) to slow down the growing number of Chinese EVs now flowing into Europe. That’s understandable enough, but the German car industry is dangerously reliant on China (another legacy of the Merkel years). It’s not hard to guess how Beijing will react if the EU takes steps to shelter its auto manufacturers from the threat posed by Chinese importers.
Meanwhile, the Wall Street Journal’s Stephen Wilmot contrasts Mercedes’s overall results (which were good) with news out of EV-makers Rivian and Lucid:
Mercedes’ shares rose roughly 6% in European morning trading Thursday after the inventor of the gas-engine car unveiled a plan to allocate all its excess industrial free cash flow after dividend payments to share buybacks. The amounts could be substantial: Industrial free cash flow last year was €11.3 billion, equivalent to around $12.2 billion or an extraordinary 15.5% of the company’s market value, though it said it would make slightly less this year.
Meanwhile, shares in EV newcomer Rivian were down 24% in early trading. The Californian company said after Wednesday’s close that it would make 57,000 vehicles this year—roughly the same number as last year. It said “economic and geopolitical uncertainties and pressures, most notably the impact of historically high interest rates,” informed its guidance.
Lucid, too, lagged behind expectations with a production forecast of just 9,000 vehicles. Its stock opened 10% lower….
Looking ahead, part of the problem for the latter two companies will be that they are newcomers lacking the benefits of cash flow from a strong existing business. Making matters worse, I suspect, may be the current investor, uh, caution toward the EV sector. If that persists, new capital will not come easily. Rivian’s stock is trading at around $11.50. It went public at $78 per share in November 2021 (closing at $100.73) valuing the company at around $100 billion (fully diluted).
As was noted in the WSJ at the time:
The highly anticipated initial public offering, which raised more money than any other U.S. listing since 2014, further illustrates the excitement that has been building on Wall Street for electric-vehicle makers, particularly those like Rivian that are still young and relatively unknown but hold promise in challenging the more-established car companies.
Oh well.
(Lucid’s stock, incidentally, is priced at around a little over $3 versus a price of $15 when it went public via a SPAC in early 2021.)
Under the circumstances, this report from the Daily Telegraph late last month was hardly a surprise:
Car giant Renault has scrapped plans to list its electric vehicle business on the stock market amid slowing demand and a lack of investor appetite.
The French manufacturer on Monday announced it was cancelling a proposed float of the EV unit, Ampere, in the first half of this year, with bosses not giving any revised timings for when the deal could reemerge.
Mercedes is not the only traditional car manufacturer with a very healthy balance sheet. GM and Stellantis have also arranged substantial share buybacks, a use of capital by large auto manufacturers that may say something negative (I’m speculating here) about the returns management sees as we move (supposedly) into an electric world.
And what will happen when regulators start (one way or another) limiting sales of new traditional cars, something beginning in the U.K. and EU and which is set to happen on this side of the Atlantic before long too? Given, in a number of markets, evident signs that consumers are less enamored of EVs than they were meant to be, where is the money going to come from to invest in EV production once the cash flow from the sale of traditional cars starts getting squeezed?
That’s a question that will become still sharper if we see recession on either side of the Atlantic.