Almost a decade ago now, the late, great CEO of what was then called Fiat Chrysler penned a manifesto of sorts called Confessions of a Capital Junkie. In it, Sergio Marchionne argued the auto industry would do well to consider more consolidations and team-ups to drive down enormous R&D costs, meet emissions and safety requirements together and deal with the fact that all their competing 2.0-liter turbo four-cylinder engines drove the same anyway.
China and electric vehicles weren't mentioned in his manifesto; this was 2015, after all. But what's old is new again as Europe's biggest automakers consider unprecedented team-ups to match the Chinese automakers in the EV race.
That kicks off today's edition of Critical Materials. Also on tap for today: hybrids are questioned yet again by green groups, and if you want some good news, batteries are getting cheaper. Let's dig in.
30%: Europe's Automakers May Need To Unite As Never Before
Here in America, we only get headlines sounding the alarm about Chinese EV giants like BYD. But in Europe, those fears are playing out in real-time. Chinese automakers are moving in quickly and selling super-cheap EVs that vastly undercut the hometown competition; even Volkswagen has been lambasted for being unable to make a "people's car" on their level anymore. (It's not a good look when people think you can't deliver on the name of the company.)
Bloomberg has a report on how bad this situation is, for VW, Stellantis (Fiat Chrysler's successor company), Renault and their suppliers. Plus, it's bad enough that the Chinese automakers are starting to win the cheap-car game; they're getting better at the nicer stuff too:
BYD Co.’s Dolphin, for instance, is listed at about €7,000 less than a similarly equipped VW ID.3, which the German carmaker originally pitched as the Beetle of the EV era. The Chinese manufacturer will underscore its European ambitions by showing off several electric models at the Geneva car show next week, including a luxury SUV rivaling the Mercedes-Benz G-Class.
Failure for Europe’s carmakers to come up with a working Plan B risks upheaval in an industry that employs some 13 million people and accounts for 7% of the EU economy.
“We have spent billions as an industry to make electric mobility possible,” said Holger Klein, the CEO of ZF Friedrichshafen AG, a German parts maker that employs around 165,000 people worldwide. “Now the question is: Do we have the right parameters?”
One answer could be to do an electric, 2020s version of what Marchionne once suggested: an epic team-up. Renault's CEO called this the "Airbus of autos," referring to the aircraft manufacturer that was itself a result of the consolidation of several European aerospace companies.
I prefer instead to call it "European Electric Car Voltron," because I think that is more fun.
Renault SA CEO Luca de Meo has been advocating an alliance akin to the tie-up that created a European planemaker to vie with Boeing Co. by pooling assets in Germany, France, Spain and the UK. The executive has argued that an “Airbus of autos” would help share the massive cost of building cheap EVs, while allowing them to benefit from greater scale.
Interest in broader cost sharing rose late last year, when Renault presented a concept for an electric city car that would cost less than €20,000 — half the price of VW’s ID.3. De Meo’s initiative is inspired by Japan’s kei cars. The popular mini vehicles are built by several manufacturers and get preferential treatment from regulators.
Renault’s de Meo downplayed speculation on a major combination last week, telling Bloomberg Television that agility is more important than size. He confirmed that talks on a joint EV platform are taking place “left and right.”
“We’re very open to share that kind of investment because it’s very difficult to make money with small cars,” said de Meo, who has previously worked for Volkswagen as well as Fiat. “We’re trying to find a way.”
The kei car analogy is a good one; many don't realize this, but Japan's 660cc city cars have a ton of commonality and re-badges with one another. It makes sense for them to team up in that segment. (For the record, I could actually see Japan's automakers taking a similar approach with EVs, led by Toyota. I'll give you my "Japanese Stellantis" theory one of these days here.)
Also, weird that Renault would bring this up without mentioning Nissan, but it's not my place to comment on other people's marriages.
As that Bloomberg story notes, it feels inconceivable that the European automakers are even in this position. All of them expected fairly smooth EV transitions when they made those announcements in the last decade; instead, they've all faced familiar problems, like buggy software, high costs, a dearth of charging infrastructure and consumer adoption that moves in unpredictable waves.
In the meantime, they face tightening emissions rules they have to meet anyway, but these headaches may also result in a delay of Europe's planned phase-out of internal combustion engines.
60%: Hybrids' 'Green' Value, Toyota Marketing Questioned, Again
For the record, I'm pro-hybrid. I think if you're going to get a gas-powered car, you should go electrified if you can because they're vastly better from an emissions perspective. Also, the fact that they sold so well last year is proof, to me, that people want to break up with gasoline if you give them the chance. All better than the alternative.
But here's a question that comes up every time hybrid sales go up: is "better" good enough, from a climate perspective, since they still burn tailpipe emissions? That's coming up again, as is the role of hybrids in the eventual move to full EV power—and how companies like Toyota are branding them.
From the Wall Street Journal:
“Putting more gasoline-powered cars on roads and saying that’s good for the climate is just misleading,” said Aaron Regunberg, senior policy counsel at consumer group Public Citizen and a former member of the Rhode Island House of Representatives.
The market’s shift to hybrids has brought a windfall for Toyota and prompted automakers including Ford Motor and General Motors to lean more heavily into gasoline-electric technology.
In December, Public Citizen filed a complaint with the Federal Trade Commission saying Toyota’s branding of its hybrids as “hybrid EVs” as well as marketing phrases such as “electrified mobility” and “beyond zero” mislead consumers. Toyota North America said its marketing uses terms that are standard in the automotive industry.
I tend to be less mad about this one than other folks are. "Electrified" is a word used in the industry since forever to refer to ICE cars that also have battery power, and Japan has long referred to hybrids as "hybrid electric vehicles" or "HEVs." But Toyota has gone pretty far in the other direction with marketing lately, I think to try and keep green groups like Public Citizen off its back.
A more concerning thing for EV boosters is what Toyota's lobbyists say about the move to EVs:
The EPA’s “draconian EV mandate” would actually be bad for the environment, said Stephen Ciccone, Toyota’s North America head of government affairs, in a message to U.S. dealers.
“We can transition to EVs, but the speed of the transition has to be more realistic,” Ciccone wrote in a memo seen by The Wall Street Journal. Despite “a lot of hits from environmental activists” and others, Ciccone wrote, “we have not—and we will not—back down.”
If you want to know what they think, just ask.
90%: Battery Materials Are Getting Cheaper
If you want some good news amid all the gloomy recent headlines about the rate of EV sales slowing down, here's one: battery materials costs are starting to go down. That means cheaper batteries and cheaper EVs on the horizon, as long predicted. From Automotive News:
But sharp price declines for lithium, cobalt, nickel and other materials are lowering battery costs, potentially giving carmakers some relief.
The falling prices allow automakers to maintain margins as they cut stickers "because you're paying less for batteries, but you make the vehicle more attractive for the end consumer," said Gabe Daoud, an analyst at TD Cowen. The automaker "could ultimately charge whatever they want, but they need to make a margin, and they need to stay in business and not go bankrupt at the same time."
LG Energy Solution said in its fourth-quarter financial results that lower revenues were related to declining materials costs that drove down the average sales price for its battery products. Lithium hydroxide cost trends took two quarters to manifest in the company's average sales price, according to TD Cowen.
General Motors said in its fourth-quarter financial results that it is seeing lower cell costs in 2024 "driven by significantly lower raw materials prices."
That story also says the price of lithium-ion battery packs globally ended at $139 per kilowatt-hour in 2023, down 14% from 2022. China's average battery packs are cheaper still, but we're seeing progress across the board.
100%: Are Consolidation And Team-Ups A Good Thing?
You're already seeing these things in action right now, like the Subaru-Toyota EV twins (a team-up that will likely happen again) and the GM Ultium-powered Honda Prologue, whose First Drive Review you'll read on InsideEVs tomorrow. For a variety of reasons, automakers may not want to go it completely alone as they venture into a new world of technology and have some extremely advanced competition to contend with.
But is that good for the consumer in the end? Does it even matter to them?
