After the darkness of 2020, there are signs that 2021 offers cause for optimism
After the darkness of 2020, there are signs that 2021 offers cause for optimism. And change – plenty of change…
An industry used to gradual change was poorly braced for the firehose of disruption that 2020 delivered. But as car manufacturers looked to rebuild after the havoc caused by factory stoppages during that first lockdown, something interesting happened. These heritage-rich brands acknowledged they’d become bloated, resistant to change and vulnerable to competition. One by one they (BMW, VW, Mercedes and Renault among them) stood up in front of investors (safely behind a camera) to declare the end of unprofitable volume-chasing, to promise drastic cost-cutting and to pledge a renewed focus on technology.
In the US investors basically declared them dead, and made fantastic bets on new electric vehicle makers, many in their infancy. This year, however, could mark the revenge of the brands as they set out to prove that experience trumps hype.
THE END OF HAGGLING IS NIGH
The future of new-car retailing will bring less haggling and higher prices. Customers noticed last summer that deals seemed to be thin on the ground. The reason? Dealers had fewer cars to sell after the factory shutdowns, which meant they didn’t need to give away so much of their profit margin in the form of discounts.
Car makers want to see more of this rich pricing, and are prepared to reverse decades-long growth philosophies by reducing volumes, cutting low-profit models and focusing on cars that make more money. Mercedes, for example, wants to shrink its much-discounted A-Class range and become ‘extremely disciplined’ on pricing, company head Ola Källenius said in October.
To achieve this, car companies want to change how cars are sold. Under the proposed new ‘agency’ model, dealers would no longer set the transaction price but accept an agent’s fee for each car sold. Brands can then advertise one price online and, while it’s still up to the customer where they buy the car, that price won’t change, no matter how much wheedling they do. ‘I think we will move to agency,’ Daksh Gupta, CEO of dealer chain Marshall Motor Group, said. VW is trialling it with electric ID.3 sales, Seat with Cupra and Ford with the new Mach-E.
LAST HURRAH FOR THE SPORTS CAR
The current buyer enthusiasm for the rally-evolved Toyota GR Yaris hatchback shows that demand for raw sports machinery is still there, but even Toyota admits this is probably the final hurrah for the affordable performance segment and describes the GR as the car equivalent of The Last of the Mohicans. ‘Could you imagine launching a car like this in 2030? Now is probably the last opportunity,’ one company insider said.
The segment is dying, battered by headwinds such as electrification- led weight gains, loss of status to SUVs, and general buyer ennui. The non-premium sports car segment collapsed by over 70 per cent in the first half of 2020 to just 8500 units across Europe, far worse than the overall market fall of 39 per cent, according to figures from JATO Dynamics.
There are signs, however, that buyers are responding to this end-of-times gloom and putting in orders before the doors shut. Sales of Europe’s best-selling sports car, the Porsche 911, barely suffered in the first half despite the lockdown, posting registrations of just over 7000. Porsche is hoping hydrogen-derived e-fuels will save the combustion-engined sports car, but with ever tougher tailpipe emissions rules also coming, 2021 could be a peak time to buy.
BREXIT’S RIPPLES HAVE BARELY BEGUN
At the time of writing there is still much to be resolved about the final form Brexit will take, but none of the scenarios currently on the table looks good for anyone involved in making, selling or owning cars in the UK. If UK-made cars are subject to new tariffs on exports to Europe, that will put prices up and reduce sales. And British-made cars rely on parts from outside Britain – typically, only a quarter of components are locally sourced. If those imports are subject to new tariffs then that too looks certain to put prices up. Toyota is now making Corolla-based Suzukis in the UK, but both companies will be weighing up the pros and cons of this arrangement for their long-term plans. For all the fears over Nissan’s giant Sunderland plant, it will have to survive if Nissan wants to continue operating in Europe. But Vauxhall’s Ellesmere Port factory near Liverpool looks vulnerable either way.
Britain’s annual output of two million engines is already under threat from the proposed 2030/2035 ban on diesel and petrol engines (depending on hybrid assistance), but Brexit friction could hasten that. There’s also the fact we’ll be cut off from the European skilled-worker pool – a fifth of Rolls-Royce workers at its plant in Goodwood are Polish, for example.
THE LOST BRANDS OF STELLANTIS?
When the merger of Fiat Chrysler and PSA Peugeot-Citroën goes through in the spring, the resulting company will have 15 brands. Many compete with each other, most obviously Fiat with Vauxhall/Opel and Citroen, while others are financial liabilities. Will Stellantis, as the merged company is called, cull any? Analysts agree it’s probably for the better.
Management ‘have some tough decisions to make’ argued Arndt Ellinghorst, head of Bernstein’s automotive research, in a recent report. CEO Carlos Tavares should ‘scrap at least a few brands’, he said.
That’s not really Tavares’ style, though. Buoyed by his quick turnaround of Opel/Vauxhall, a company that lost an estimated $20 billion in the 20 years prior to PSA’s takeover, Tavares is unlikely to wield the axe. And it’s his decision. Despite the touted ‘merger of equals’, Tavares has the top job, while PSA has six directors to FCA’s five. It’s essentially a takeover.
The most problematic brands are Maserati and Alfa Romeo, which won’t respond to his tried and tested cure of PSA platform sharing (something that should solve Fiat’s chronic underfunding). All eyes will be on Italy in 2021.
THE FORMULA E HONEYMOON IS OVER
News that Formula E stalwart Audi was pulling out of the championship was followed quickly by an announcement from BMW that it too was leaving the electric single-seat series. BMW twisted the knife by saying it had ‘exhausted the opportunities’ for technology transfer to its road cars.
Suddenly, the future looks shaky for the six-year-old series in a period when cash-strapped car makers are forensically inspecting finances.
‘The problem is when money is tight for OEMs then everything gravitates back to Formula 1 and the secondary series lose funding,’ Alexander Hitzinger, the CEO of VW Group’s Artemis tech division and old racing hand, told the Financial Times’ Future of the Car conference.
Racing may have lost its allure, suggested EV pioneer Mate Rimac at the same conference. ‘We have 900 people and I don’t think many watch Formula E,’ he said. ‘I’m a racer, but I have a feeling these times are over. Tesla was never involved in racing and they have built the world’s most valuable car company.’ The problem for car makers is that their electric road cars are becoming more advanced than the race cars; Porsche’s Taycan can charge at faster speeds than its current Formula E car. So far only Mahindra has re-signed for 2022-23, when the third-generation cars arrive. But don’t count out Formula E just yet. McLaren has expressed an interest in joining after 2022, while series founder Alejandro Agag claims to have a 25-year exclusive right to run FIA electric single-seat races, meaning a merger with F1 if/when it goes down that path.
THE EV STOCK BUBBLE IS READY TO BURST
Going into 2021, the value of Tesla as measured by its shares was around $500 billion. Or put another way, twice that of all European car makers put together. But for all the outlandishness of that figure, Tesla is at least building cars and out-selling its rivals in some instances. Some EV makers managed to list on the US stock market in 2020 and achieve values in the billions without selling a single vehicle. Examples include restart-up Fisker ($5.7 billion, all figures as of 8 December, and electric pick-up maker Lordstown ($4.7 billion).
These are unsustainable ‘bubble’ values, according to a Bank of America report published in December. ‘The prices of some of these pure-EV names represent a huge disconnect with the underlying business,’ it said. The bank noted that the price rise of these companies was steeper than the Nasdaq rally prior to the dotcom bubble of 1998-89. The prices implied ‘some or most’ traditional car makers would go bankrupt in the mid-tolong term. ‘We do not forecast that,’ BoA stated.
TESLA CONTINUES TO SET THE PACE
Tesla was the European hero of EV sales in 2020, except when it wasn’t. After briefly heading the UK sales charts in the April lockdown, the Model 3 waved goodbye to any lead it might have had across Europe because Tesla couldn’t build them fast enough. Rivals emerged, most notably VW with its ID.3 hatch, which was rolled out underbaked with gaps in its software abilities but claimed the title of best-selling EV across Europe for October anyway. Tesla will fight back in 2021 if (a big if) it can start production as promised at its factory near Berlin, which will make the Model Y SUV.
It’s not just Tesla’s electric ability that scares the Germans. ‘Tesla customers experience their car like a computer device, with updates every two weeks or so. This capability is some- thing we don’t have yet,’ VW Group CEO Herbert Diess said in November. Tesla’s share of the global premium market will rise to 11.5 per cent by 2025, estimates Bank of America, up from 3.5 per cent in 2019, passing Jaguar Land Rover in 2020 on its way.
EMISSIONS WILL BE CUT… BUT AT A HIGH PRICE
The desire to avoid paying European Union ﬁnes for breaching CO2 limits was one of the few things uniting most car makers in 2020. The contortions they had to perform were many and varied. For example, Ford paying Volvo – a brand it used to own – to oﬀset its too-high emissions against Volvo’s lower ﬁgures, or VW rolling out the ID.3 before it was ready. Only Jaguar Land Rover has so far gone on the record to say it’ll have to pay ﬁnes. The rules tighten in 2021, and many manufacturers have taken steps to bring about change – quite drastic in some cases. For the smaller Japanese companies, that means risking diluting their brand uniqueness and tapping Toyota for help. Mazda will take a version of the Yaris hybrid, following Suzuki’s rebranding of the Corolla and RAV4 hybrids.
But electric programmes are now well advanced, for example a massive 29 per cent of Daimler’s sales (Mercedes and Smart) were electric or plug-in hybrid for October across Europe, according to ICCT data. Last year it was just three per cent. ‘For 2021, the risk of missing targets is rather low,’ Bank of America’s research arm wrote in a December report assessing the health of European car makers. JLR, however, has ﬂagged up a possible ﬁne of up to £10 million to the UK (which has copied and pasted the EU regulations) because of its higher SUV mix here.
‘Tesla was never involved in racing and they have built the world’s most valuable car company’ Mate Rimac
Toyota likens the GR Yaris to The Last of the Mohicans