The electrification transformation of traditional car companies is AB
Compile the | Yang Yuke
Edit | Lee Kwok-jeong
Produced by | Bangning Studio (gbngzs)
It's time to make a choice again.
On the road to electrification transformation, traditional automakers are acting in a low-key manner. Those that have been disciplined, such as Volkswagen Group and Ford Motor, have launched an offensive to compete for market share in electric vehicles. Among them, some companies have also developed bold plans to deliver millions of electric vehicles in the next few years.
For traditional automakers, there are many advantages to winning the electric vehicle race. First, they have established the supply chains and facilities needed for large-scale car production, as well as the brand recognition needed to market cars. Second, so far, they have demonstrated that electric vehicles can be offered at a more affordable price than startups.
However, there is also controversy within these traditional automakers about how to find the best transformation strategy.
Some automakers are considering whether to spin off electric vehicles as a separate business unit, or even a public company.
The reason seems strong: First, to provide greater flexibility. The second is to attract money from investors who are obsessed with Tesla. Third, get rid of the burden of "legacy assets" that may be worthless, such as engine plants, and go light.
Similar examples include Ford's spin-off of the Ford Blue and Model e business units, Polestar SPAC's reverse merger listing, and Renault Group's consideration of listing electric vehicle assets separately.
But some automakers have said they will not form separate electric vehicle businesses, including Mercedes-Benz, Volkswagen Group and Stellantis Group.
The Volkswagen Group has pledged to stop selling cars with internal combustion engines in Europe by 2035, while both Stellantis and Mercedes-Benz will use 2030 as a transition time. The EUROPEAN Union banned the sale of cars with internal combustion engines in 2035.
Tearing down, or not dismantling, this is indeed a problem.
▍ A-side: Mercedes-Benz, Volkswagen and Stellantis
On May 6, 2022, Richard Palmer, chief financial officer of Stellantis Group, said that the company had only been restructuring for more than a year and did not expect a fundamental change in its business structure.
That's palmer's response to a question from Goldman Sachs analyst George Galliers. Garyes' problem is that the divestiture of the electric vehicle business is a "hot topic" among stellantis group's competitors.
Palmer replied, "To be honest, I don't think there's anything good about doing so. We need to manage the company and assets well during the transition, and the cash flow of the internal combustion engine business can drive the investment in the technology we need, which is beneficial. ”
He believes that the electrification transition requires "team effort" and that the Stellantis Group must take into account all stakeholders, including employees.
Palmer's views echo the remarks of Herbert Diess, the CEO of Volkswagen Group.
On May 5, Diess said on an earnings call: "We believe that making the most of internal combustion engine assets and maintaining rapid growth and competitiveness in the electrification sector is the best way forward." ”
Harald Wilhelm, Mercedes-Benz's financial director, revealed at the end of April that "there was a very heated debate internally about how we wanted to transform the company. "We're not going to take a strategy of splitting the company into internal combustion engines and 'good parts,'" he said. ”
William told investors: "We are transforming the whole company into the electrification world. The main driver of this change is that Mercedes-Benz spun off Daimler Trucks as a public company last year and concentrated its electric vehicle business in the EQ series.
"Mercedes has 130 years of experience in building luxury cars and needs to bring that experience into the future." William said, "Don't put these assets in shell companies and call them non-performing assets." "Moreover, the technology that manufactures and sells internal combustion engine cars and electric vehicles is interdependent, separating them and dealing a devastating blow to synergies."
At least one analyst agrees with William.
"Electric vehicles are not a new business, they are the core business of the future." On May 6, Morgan Stanley analyst Harald Hendrikse wrote in a report to investors after volkswagen group's first-quarter results conference call, "In our view, separating them is a misconception about the scale of the challenge. ”
It's unclear how EV companies with low EBIT, negative cash flow, and high CAPEX/R&D will operate without the cash flow support of the internal combustion engine. Hendricks said, "While some independent pure electric vehicle companies can do this, there is no guarantee that all pure electric vehicle companies can do it." ”
That means automakers still need to sell profitable gasoline and diesel-powered cars to prop up the less profitable electric vehicle business.
Jim Farley, Chief Executive Officer of Ford Motor, takes the opposite view. Earlier this year, he told investors: "Running a successful internal combustion engine business is not the same as running a successful pure electric vehicle business." ”
▍ B-side: Ford and Renault
On March 2, 2022, Ford motor vehicles said it would separate the internal combustion engine and electric vehicle businesses, with the goal of increasing profit margins and making engineers, designers and developers more focused on the unique needs of each powertrain.
Ford expects its electric vehicles to account for 30 percent of global sales within five years and half by 2030. Among them, the electric business unit is Model e, and the internal combustion engine business is Ford Blue. The two divisions, along with the recently formed Ford Pro Commercial Vehicle Division, will collaborate in a number of areas, but will largely operate independently.
"Traditional architectures have been holding back and we have to change." "By leveraging existing capacity, adding new skills where needed, streamlining processes and reducing costs, farley will improve the efficiency with which we allocate funds to our internal combustion engine and electric vehicle businesses," Farley said on the conference call." Most importantly, it will bring growth and significant value to our stakeholders. ”
Farley believes that this new architecture is unique because most electric vehicle and fuel vehicle manufacturers have similar teams responsible for the development of both dynamics.
"We're not going to run to the fuel vehicle employees and say, let's negotiate a lithium raw material deal." Farley explains, "Again, we're not going to ask designers to design the next Lincoln electric car and Super Duty pickup at the same time. To this day, most OEMs require design teams to do both at the same time. ”
While Farley is considering spinning off Ford's business, he told Automotive News that it will not split the internal combustion engine and electric vehicle businesses into separate companies because doing so would require more capital markets and reduce the likelihood of cooperation between the two business areas.
In addition, this also avoids the outside world thinking that Ford will soon reduce gasoline-powered products.
"Right now, more than half of our customers are internal combustion engines, and that won't change for a long time." Farley explains, "If we do this, people may mistakenly think that we have abandoned the internal combustion engine business. Even though internal combustion engine sales start to decline with the mass adoption of electrification, in many segments this will not happen, and we want to set up a dedicated team to run it. ”
Renault has been pushing ahead with plans to split the electric vehicle and internal combustion engine businesses to catch up with rivals such as Tesla and Volkswagen Group.
The company has said "all possibilities are under consideration" for splitting the EV business, including the possibility that the EV business could go public in the second half of 2023.
Thierry Pieton, chief financial officer of Renault Group, said any plan would need to be approved by alliance partner Nissan Motors. "Nissan has always been in the know when weighing the various options."
On April 22, Renault reported better-than-expected first-quarter revenue, with higher prices and higher-volume electric vehicle sales largely offsetting the impact of the war in Ukraine and the continued shortage of semiconductors around the world.
▍ Radical, but rational?
Ford's decision to split the business into two separate entities did not completely split the electric vehicle division into a single business, as some big Wall Street banks suggested.
By keeping the two divisions in the same company, Ford is intertwining their fates. Without the profits and efficiencies generated by Ford Blue, the Model e wouldn't have succeeded.
It was a bold move — some analysts simply called it "aggressive" while warning that the move would come with serious risks.
Ford said it was a necessary move to help better compete with emerging forces such as Tesla. But as Ford has done before, the impact of its own 118-year baggage could hamper its $50 billion electric vehicle development plan.
Jessica Caldwell, executive director of Edmunds Insights, said Ford's move was "radical but rational." She added, "At the moment, Ford motor is almost like running two companies at the same time, so it makes sense to draw a line between the two companies because it may give employees a more focused purpose." ”
Still, that could hurt Ford's efforts to attract talent and recruit new employees. Caldwell said: "Some people may think that the internal combustion engine industry is no longer so exciting compared to the more attractive ev products of the future. ”
Michael Ramsey, vice president of Gartner's automotive business, commented that Ford motor companies are at risk of manufacturing internal imbalances, and Ford Blue employees have to watch their profits be put into the less profitable, more cost-intensive Model e business.
"It's really a bit of a concern when so much R&D money goes to a relatively small business unit, and it has the potential to divide the company into good and bad sides." Ramsey said.
On the morning of March 2, 2022, Kumar Galhotra, ford Blue's newly appointed president, said Ford Motor's traditional internal combustion engine business is very exciting and is the company's profit engine for the coming years.
Galhotera lists all of Ford Blue's products – mustangs, raptors, and the best-selling F-series pickups. He said Ford Blue employees have a lot to be proud of, and sticking to morale is paramount. "All the teams are working hard for the Ford Blue team."
Ford motor vehicles said that Ford Blue and Model e will not be completely isolated, and that the two sides will have synergies and technology sharing. Take the Blue Cruise Advanced Driver Assistance System, which was developed by Model e software engineers but will also serve as an option for for Internal Combustion Engine vehicles produced by Ford Blue.
Ford is no stranger to split structures. In 2021, it spun off its commercial vehicle entity, Ford Pro. But GM rejected Wall Street's request to further divest the electric vehicle division, spinning it off into a completely separate business.
It could be a more expensive offer that could make banks and capital lenders richer, but it would do little to help Ford's electric car ambitions.
For example, Ford Motor plans to invest $11.4 billion with battery maker SK Innovation to build several new plants in Tennessee and Kentucky. These plants will focus on the development and production of electric vehicles and batteries.
To achieve this, Ford needs to invest in the large-scale development of the raw materials needed for electric vehicle batteries and determine the process for recycling these batteries at the end of their battery life. It will be one of the most expensive transformations Ford has ever seen.
Ford executives said it would depend on the company's success in cutting $3 billion in structural costs from its internal combustion engine business.
Splitting may be a more effective way to solve dealer problems. Ford believes electric vehicle sales are soaring, but dealers have been slow to respond to the shift. Many have expressed concern about the loss of EV sales because EV repairs and maintenance are less. They are skeptical that automakers are rolling out over-the-air software updates because they could hurt their profits.
Ford has promised to stick to the dealer franchise model — the truth is that it doesn't have many options, and many U.S. states ban direct-to-consumer sales of cars. Ford encourages dealers to "opt-in" to improve the customer experience and transparent pricing.
(Part of this article is based on Automotive News, CNBC, Bloomberg, The Verge reports, and some images from the Internet)