European car bosses gathering for the Frankfurt Motor Show this week are beginning to address the realities of mass vehicle electrification, and its consequences for jobs and profit, their minds focused by government pledges to outlaw the combustion engine.
As the latest such reported statement by China added momentum to a push for zero-emissions motoring, German titans Volkswagen, BMW and Daimler all announced far-reaching electric vehicle programmes in the run-up to the Frankfurt Motor Show.
They are all hoping to hit ambitious hybrid and all-electric car sales targets with a flood of new models by the mid 2020s.
The Daimler boss Dieter Zetsche said the migration from combustion to electric vehicles should be left up to the market rather than forced by quotas.
"We want to reach the maximum speed ourselves, we don't need quotas for that," he told Reuters.
Mr Zetsche said Mercedes-Benz has sold more cars with diesel engines so far this year than in the same period last year, despite talk of possible diesel bans in some German cities.
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Planned electric Mercedes models will initially be just half as profitable as conventional alternatives, Daimler warned. The group said it will have to find savings by outsourcing more component manufacturing, which may in turn threaten German jobs.
"In-house production is almost irrelevant to the consumer," Mr Zetsche said.
The company set a target of saving €4 billion (Dh17.53bn) by 2025 to help fund the cost of its electric cars.
"Daimler is the first company to state explicitly how much electric vehicles are going to hurt margins," said the Bernstein analyst Max Warburton. "It was brave to go first - but of course it won't be the last."
BMW, meanwhile, plans to stick to a goal for 8 to 10 per cent return on sales at its automotive division, even with the arrival of less profitable electric cars, its chief executive told Reuters on Tuesday.
"We're sticking to our 8 to 10 per cent goal and maintain this range, even when electric mobility becomes more widespread," Harald Krueger said.
Mr Krueger also said that the share of BMW's sales in Europe accounted for by diesel engines had dropped to 69.3 per cent from 74.3 per cent, but that he saw no need for writedowns on the value of the cars in its leasing fleet.
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Volkswagen (VW) said it was seeking new global supplier contracts to source 50 billion euros of electric car content including batteries, which are not yet manufactured competitively in Europe.
"A company like Volkswagen must lead, not follow," the chief executive Matthias Mueller said.
VW diesel emissions-cheating exposed by US regulators in 2015 triggered global public outrage, dozens more investigations into test-rigging by the wider industry and a push by some lawmakers to ban diesel and eventually all engines.
The French car maker PSA is considering moving the production of electric vehicle components back to within the company.
"We are having some thoughts regarding 'make or buy' concerning the electric chain of motors, we will move the components part back to within the company, but not the battery chemicals part," said the PSA executive Patrice Lucas.
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
ATP RANKINGS (NOVEMBER 4)
1. Rafael Nadal (ESP) 9,585 pts ( 1)
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15. Denis Shapovalov (CAN) 2,050 ( 13)
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17. Karen Khachanov (RUS) 1,840 (-9)
18. Alex De Minaur (AUS) 1,775
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Director: Amith Krishnan
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