The Germans are struggling as software problems delay models and contribute to waning sales in China, their biggest market, where Tesla and local champion BYD have raced ahead.
They are also playing second fiddle in their home market, where Tesla remains the leading EV brand.
Investors will hear from three of the German companies this week, with Porsche reporting quarterly earnings on Wednesday, followed by Mercedes and VW on Thursday.
As Tesla pushes for more volume with aggressive price cuts, it is increasing the pressure on legacy manufacturers that are struggling to keep pace. Tesla’s EV sales increased 30 percentage points more than VW’s in the three months that ended in June, widening its lead.
While the Germans are in difficult talks with unions about retooling their combustion-era production sites, Tesla plans to expand its German factory and is preparing to build a plant in Mexico.
“Tesla is still miles ahead of the German car makers in all the major markets,” said Matthias Schmidt, an auto analyst based near Hamburg. “They’re under pressure to boost volumes to reach the kind of economies of scale needed to make EVs profitable.”
Germany’s car makers thrived because they perfected the production of vehicles running on petrol and diesel, with hundreds of high-quality local parts makers supplying them with gearboxes, fuel injectors and crankshafts. Now that the battery is taking over, their “Vorsprung durch Technik” has evaporated.
In Europe’s biggest economy, inflationary pressures, a dearth of skilled workers and high energy prices are adding to the structural challenges posed by the EV shift. German car makers’ expectations are at their lowest since the 2008 financial crisis, according to a survey the Munich-based Ifo Institute published this month.
The Germans’ biggest threat is their weakening position in China.
VW, BMW and Mercedes dominated combustion-car sales in the world’s biggest car market for decades, but recently have fallen behind Chinese brands that have been better at building affordable EVs with technology and software geared to local tastes.
Mercedes cut prices in China for its flagship electric sedan, the EQS, late last year after poor sales.
VW, in particular, has come under pressure, with BYD outselling the company in China during the first quarter. The German manufacturer’s EV sales in China dipped in the first half in a market that grew 20 per cent.
EVs are expected to make up 90 per cent of the Chinese market by 2030, adding urgency for the Germans to accelerate more competitive EV offerings. Europe’s biggest car maker last month replaced the chief executive of Audi partly because it wants to halt the brand’s slide in the country.
The current EV leaders in China “will tighten their grip on the market”, analysts from HSBC said in a report this month. “With the exception of Tesla, we think they will all be China EV brands.”
All is not lost. Elon Musk has left open a window of opportunity for incumbents looking to catch up, having launched his last new passenger vehicle – the Model Y – in 2020.
Tesla has not redesigned the Model 3 since it went into production six years ago, although work on a refresh is under way.
BYD, meanwhile, is steering clear of the US market because of trade barriers, and several smaller Chinese EV start-ups may not survive the industry’s price war.
The German companies still generate healthy profits selling combustion-engine models, including in China. Mercedes and BMW are not following Tesla out of premium price segments and are still roughly doubling EV sales, year-over-year.
Plans by the Germans to introduce EV-focused platforms around the middle of the decade to lower the cost of their electric cars and equip them with new technology could alter the dynamic.
VW is preparing a compact EV priced at less than €25,000 – a people’s car for the electric age – that is a couple of years away from production.
It recently bolstered its rolling five-year spending plan to €180 billion, with more than two-thirds going to software and EVs. Its ID. 7 sedan that will hit showrooms later this year comes with an augmented-reality display that beams information into the driver’s field of vision.
Mercedes will introduce an electric version of its compact CLA sedan in the US next year to better compete with Tesla’s Model 3, according to an Automotive News report. It is also electrifying the G-Wagon.
BMW is betting that its “Neue Klasse” underpinnings, scheduled to arrive around 2025, will help to improve sales. The manufacturer aims to cut battery costs by half and increase range and charging speed 30 per cent compared to current models.
“The next-generation EV platforms from the Germans could change things,” said Bloomberg Intelligence analyst Michael Dean. “That’s when you’ll see a big push from them, also in China.”