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Frankfurt Show Talked Electrification To Ward Off Critics

Frankfurt Show Talked Electrification To Ward Off Critics.

Remains To Be Seen How Serious Industry Really Is.

“Auto shows have been hijacked by the theme of EVs for some time”

The Frankfurt Auto Show made a lot of noise about the imminent triumph of electric cars, but reality might take a little longer.

Governments, and big manufacturers anxious to please them, huff and puff about how by 2025 perhaps 25 per cent of all new cars sold will be electric only. 

But talk to the practical, supplier side of the industry, preparing for the future based on concrete orders and reality, you get a different story. Big global suppliers paint a radically different picture, calculating only between 2 and 6 per cent will be electric-only between 2023 and 2025.

Frederic Lissalde, Vice President of BorgWarner Inc, agrees that the shift away from ICE (internal combustion engine) to hybrids and battery power is inevitable, but his idea of the pace of change shows this will be gradual and not an overnight revolution.

“By 2023 the global market share of electric vehicles will be a bit more than 2 per cent, up from 0.6 per cent in 2016. ICE power will still be huge – 80 per cent in 2023 compared with 96 per cent now, while hybrids will accelerate ahead to 17 per cent, compared to 3.3 per cent in 2016,” Lissalde said.

Magna International said in August it sees a global EV share of between 3 and 6 per cent by 2025. At the same time, Delphi Automotive went for 5 per cent.

According to investment researcher Jefferies there was an air of unreality in Frankfurt.

“Frankfurt’s IAA 2017 wasn’t just about cars but felt like a “political” show with (manufacturers) keen to burnish emission credentials through electrification,” said Jefferies analyst Philippe Houchois.

“Auto shows have been hijacked by the theme of EVs for some time but diesel issues have clearly added a sense of urgency in Europe. European roll-out of EVs remains slow but Europe based (manufacturers) are clearly embracing BEVs and implicitly agreeing that PHEVs (plug-in hybrid) will remain a niche or transition technology,” Houchois said.

Citi Research analyst Michael Tyndall said the industry is in the midst of transition.

“We suspect the carmaker that proves it has a viable – read profitable – EC business model will be handsomely rewarded. We would argue Renault has an early lead, at least on volumes, but if the higher costs associated with EVs require higher pricing it might be Daimler and or VW that steal a march on the rest of the group,” Tyndall said.

Tyndall pointed to Chinese manufacturers like Borgward, Chery and Wey, hidden in an obscure corner of the show which seemed to be competitive in terms of materials and quality.

Bernstein Research analyst Max Warburton agreed about the propaganda nature of the show.

“All the diesel models were hurriedly pushed to the back of the show stands, with pure EVs, plug-in hybrids and new concepts front and centre. A lot of these concepts are ‘vaporware’ and will never be built. But the intent is greater than before and some will come to market,” Warburton said.

Warburton believed the diesel issue is manageable, for now. He came away from the show with five main conclusions –

  • Traditional industry is fighting back – in amongst the vaporware and promises of 20, 50, 100 EVs by 2025 – there were plenty of promising vehicles which will soon be on the market.
  • Daimler most serious about EVs – the whole company appears on the front EV foot. The EQ GLC arrives in 2019, followed by electric models in all segments including a Tesla Model 3 rival. BMW seems half-hearted despite the i Vision Concept, likely to be the i5, after losing big money with the i3. VW is in the middle, pressured by dieselgate ignominy to appear as green as possible.
  • Many cynical, concerned executives – unconvinced the public is ready to go for electric cars. Warburton found top execs sounding convinced about an electric future, while the infantry can’t see it.
  • Capital spending up, but not that much
  • Near-term trading looks strong – earnings claims were confidently positive despite slowing sales growth. Diesel remains manageable, for now.

Ian Fletcher, IHS Markit analyst, said electrification will come at a huge cost, even for the most financially strong companies. He pointed out though that BMW and Daimler have stated diesel will remain an important part of the engine mix for years to come, while VW ICE power will provide a bridgehead to new technologies.

Perhaps the demise of conventional engines has a way to go yet.


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