Volkswagen’s $84 Billion Tesla Fighting Budget & IAA Announcements

So far, before the International Motor Show in Frankfurt begins we have seen Mercedes, Volkswagen and BMW all show some electric concepts. And most of them are really far future concepts, the kind you find at auto shows but never see the light of day. Here are some highlights:

Audi

AiCon

Elaine

BMW

iVision Dynamics Concept:

Mercedes

eQA:

 

None of the above look like anything that will see the light of day soon.

What about VW’s 84 Billion Investment?

Volkswagen just announced that they will invest 70 billion Euros ($84 Billion) in electric cars and batteries. That sounds good. Finally Tesla will have some real competition. Not so fast. Here are the details of the announcement:

• This is from now until 2030.
• 50 billion euros ($60 billion) will be to “buy” batteries according to BBC and Bloomberg
• Cumulative sales of 3 million electric cars by 2025 (from the Bloomberg article above).
• Annual sales of 1 million by 2025

Let’s what the investment gets us. It gets us an average of ~$6.5 billion/year. If batteries cost 100$/kWh average, $60 billion buys 600,000,000kWh. Thats an average of 46 million kWh/year. Let’s round that up to 50 million because batteries will get cheaper with time. If we assume that the average EV needs a 60kWh battery to be a viable competitor to Tesla, then we have roughly 830,000 cars average per year and a total of ~ 10 million cars. However, considering VW’s 1 million in 2025 goal, most of this investment is probably back loaded in the next decade. Just for comparison – VW sells 10 million cars every year. If they were serious about electrification, they would talk about 5 million annual sales by 2025, not 1 million.

So while the $84 billion investment sounds good, it is basically a non-event as far as competing with Tesla goes. What does this mean for the upcoming Audi eTron Quattro. VW has been very quiet about this considering production is supposed to start early next year. I learned today that there have been some sightings of the car in camo. If real, this would be the first real premium Tesla competitor. Unfortunately based on the investment, this is likely a low volume car. As will be the the Porsche Mission E if it arrived. That was supposed to be the first real Tesla Model S competitor.

In fact, nothing significant coming before 2020 has been shown or announced by any luxury manufacturer. And we all know that 2020 really is just a sweet spot for being just enough time away that concepts can be watered down, delayed or scrapped.

The Real Problem

Let’s for a second take all these auto makers at their word. Assume they will really produce all these electric cars and sell them side by side with their ICE vehicles. To also be able to sell the ICE vehicles, manufacturers currently do this:

ICE vehicle costs less than hybrid which costs less than a full electric.

If this practice continues, then their electric cars will not be competitive with their ICE cars, which means that they will not be competitive with Tesla which prices its cars in line with gas cars in the same segment.

The obvious conclusion is that there is no viable long range electric car competition for Tesla in the near future in spite of the announcements. Of course, I could be wrong and there really will be an eTron Quattro next year closely followed by everyone else’s mythical electric cars. Hopefully they think of building out charging infrastructure.

Disclosure: Long TSLA