Coronavirus Will Overshadow Electric Progess.
“We’ve heard all this before, but 2020 really is a big year for electric cars. We’ll see more change in the next 15 years than the previous 100.
Europe’s carmakers were already bracing for a tough year as they prepared to put on a brave front at the annual Geneva Auto Show, but the coronavirus is an unexpected torpedo to the bottom line.
The disappointment for the industry is that it should be celebrating its electric car technical triumph, but when the corporate chiefs make their presentations to the world’s media on March 3, they will have to brazen out a series of negatives.
Sales in Europe are expected to dive up to 5% in 2020, while manufacturers face two more blows to profitability. They all need to invest huge amounts of capital to modernize away from the internal combustion engine (ICE) and meet swingeing new EU mandated carbon dioxide (CO2) emission targets which demand more electric cars in particular and electrification in general. Currently, electric cars are too expensive for average earners, so that means price cuts and big losses.
French consultancy Inovev expects 2020 car and SUV sales in Europe to fall 5% from last year’s 15.8 million. Germany’s Center of Automotive Management also sees a 5% fall, while Moody’s Investors Service expects a 4% fall in Western Europe this year, recovering a bit in 2021 with a 1% gain. Western Europe includes all the big markets like Germany, France, Britain, Spain and Italy.
Most manufacturers in Europe came too late to the electric vehicle party and inevitably face massive fines for 2020 and 2021. According to a report from investment researcher Jefferies last year, the auto industry faces fines totalling 32 billion euros ($36 billion), twice its estimated annual profits, and will be forced to raise prices up to 10%.
EU CO2 emission standards tighten in 2025 and again in 2030, when average fuel consumption must hit 92 miles per U.S. gallon. This process is so harsh, it is possible less competent manufacturers may be forced into bankruptcy.
Many European carmakers, mainly the German ones, have made big bucks in China, and sales there have now slumped asa the market weakened. But it’s the coronavirus which is the straw that might break the camel’s back. The impact of the virus threatens to not only knock the already weakening Chinese market sideways, but also to disrupt supply chains of crucial components around the automotive globe.
Many observers had expected a final nail in the coffin in the shape of the cancellation of the Geneva show, as the coronavirus impact focussed in on Switzerland, but by Wednesday, the show’s organizers were adamant that it would go ahead. Even so, it will be a shade of its former self as many big manufacturers have already pulled out.
No shows include Cadillac, Ford, Jaguar, Lamborghini, Land Rover, Mitsubishi, Nissan, Peugeot, Citroen, Opel, Vauxhall, Subaru, Tata, Tesla, and Volvo. But these decliners had already decided to miss Geneva months ago, because even the other traditional big car shows like Detroit, and biennial Frankfurt and Paris, have lost their lustre because of the expense, and having been undermined by more effective ways of marketing. Now only companies with a brand new vehicle to hype will bother to pay the huge cost of attendance.
Not everybody is saying the sky is falling on the European auto industry.
David Bailey, Professor of Business Economics at the Birmingham Business School, reminds us that despite all the bad news, the long-term future of the automotive industry will be positive, as it transforms itself from traditional ICE and embraces the electric age.
“I know we’ve heard all this before, but 2020 really is a big year for electric cars. We will see more change in the next 15 years than in the previous 100. Admittedly this is driven by EU regulations, but considerable technical change is coming. In my view we are in year zero of the transformation of the motor industry,” Bailey said.
New electric cars at the show include the Fiat 500 EV, BMW i4 and Renault subsidiary Dacia’s EV. Mainstream ICE debutants are the Hyundai i20 small hatchback, Kia Sorento SUV, Mercedes E class sedan, and a small SUV from Toyota.
Bailey conceded that the industry is a long way off a tipping point when electric vehicles dominate traditional ones, but battery costs are falling as manufacturers scale up production. Bailey doesn’t expect any corporate fatalities as EU CO2 rules tighten. There will be more mega mergers, like the one currently being worked out by Groupe PSA of France and Fiat Chrysler Automobiles. Expect more collaboration to cut costs.
Professor Ferdinand Dudenhoeffer, director of Germany’s Center for Automotive Research (CAR), tries hard to find some positives, and sees some.
“The climate in Geneva will be frosty, not to say extremely frosty. The coronavirus has paralyzed the world’s most important car market, China. The global economic situation and the situation in the auto industry are characterized by high risks,” Dudenhoeffer said.
“Everything could have gone so well for Geneva as electromobility is kicking off in Europe this year, but the missing exhibitors take away the show’s lustre. The exhibition halls will have to be padded with bistro stands, tier manufacturers and old-timer replicas in order to cover up the empty impression,” Dudenhoeffer said.
Germany in danger
Problems in China are especially dangerous for the German industry, which earns about 40% of its profits there.
“This makes clear that 2020 will be a very difficult year for the German industry,” he said.
Even if the show goes ahead, there is the possibility that climate change protest group Extinction Rebellion might be planning a visit. The group put on demonstrations at last month’s Brussels auto show.