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Transmission: Incumbent OEMs cutting Tesla’s lead

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OEMs may not be that far behind Tesla

Whenever I think about electric vehicles, I can’t help but immediately think of Tesla. The company revolutionized the EV game. Tesla is always looking for new ways to innovate the industry from introducing battery improvements (thanks to heavy investment in R&D) to sustainability woven intricately within its supply chain. It’s the reason the company is so far ahead of competition and why OEMs are working hard to catch up. However,  people often forget one important thing: OEMs, like VW and GM, who have hopped aboard the “all-electric future” train, have the ability to scale EVs incredibly fast thanks to manufacturing and assembly infrastructure already in place. And the 2020 EV sales data backs this up. Let me elaborate.

In 2020, Tesla barely missed its goal of selling 500,000 EVs (quite impressive considering these goals were set in place before the pandemic took a toll on the entire planet). The majority of sales were either in the United States or China, with Tesla locking down more than 55% market share in the U.S in 2020. 

But Europe is a different story. In 2020, Tesla’s market share shrunk to 13%, an 18% decrease from 2019. The rest of the market, made up of automakers including VW, Daimler, and BMW have been dominating as Europe is quickly pushing for rapid EV adoption by enforcing strict guidelines pertaining CO2 emissions requirements and new ICE vehicle sale bans. Volkswagen reported a total of 212,000 EV sales in 2020, an astonishing 158% increase from 2019, even in a year that saw sales decrease for automakers. Daimler’s 2020 EV sales rose to 160,000, a 228% increase for 2019. BMW’s 2020 EV and hybrid sales totaled around 192,000, a 13% increase from 2019.  Tesla struggled in Europe because they lacked the infrastructure to support sales (hence why I believe Tesla is building a gigafactory in Berlin)

The story continues. It’s crystal clear these automakers excelled in Europe since they all have headquarters, assembly plants or manufacturing facilities located within the continent (i.e VW in Wolfsburg, Germany) which means vehicles don’t have to travel across oceans or cross trade barriers to reach desired markets. Tesla struggled because its facilities are located within the U.S. and China. As Tesla builds the gigafactory in Berlin, it would acquire the ability to regain lost market share.

One last piece to the puzzle: As the Biden administration takes over the White House next week, the auto industry is going to see stricter guidelines set in place to encourage EV adoption. Brian Deese, incoming director for the National Economic Council, mentioned that a $2 trillion dollar agenda will be put in place that offers consumer EV incentives, modernizes infrastructure, and focuses on shaping the future of transportation. Deese also served in the Obama administration, known for strict climate and energy policies. The point is this: the U.S is likely to experience a push for cleaner transportation similar to what’s taking place in Europe. 

The Gist (why does this matter?): Outside of Tesla and EV startups, OEMs have just recently begun taking EVs more seriously. And these same OEMs, including GM and Ford, already have infrastructure put in place for vehicle output here in the U.S, it’s just a matter of converting plants that currently support ICE vehicle production to shift gears to EV production. For example, GM invested $2 billion into its factory in Spring Hill, TN so the company can produce the Cadillac Lyriq. We know, from a past edition of Transmission, that Tesla has struggled creating economies of scale which is one critical advantage OEMs, based in both the U.S and Europe, have. 

Simply put, OEMs will be able to close the gap that Tesla created with the help of energy policies from the White House and infrastructure already set in place. OEMs should continue finding innovative ways to add value to the consumer. This is what Tesla excels at. Suppliers should focus on researching digital technology solutions that solve problems for OEMs and reduce consumer range anxiety. If suppliers aren’t adapting to meet the need of OEMs, they could find themselves in a crunch in the future. I’m not admitting that EV adoption will happen overnight, but rather its happening at a rate much faster than people may anticipate. 

(Chart: Freightwaves SONAR: Retail Sales of motor vehicles and parts)

In relation to this story, I wanted to shed some light on an encouraging sign. We all know by now that auto sales dropped significantly in 2020 (thanks coronavirus). In total, U.S. auto sales decreased 14.8% compared to 2019. But EV sales actually remained constant. EV sales in China paint the same picture. And in Europe? Sales increased by 123% y/y. 

Industry News:

  • Subaru joins the list of OEMs affected by the chip shortage. The automaker will reduce factory output in both Japan and the U.S. It’s unclear how many units will be cut, but Subaru has indicated that Febuary production could likely be affected as well.
  • We were promised flying cars: GM unveiled a single-passenger autonomous flying drone. Yep, you read that right. This drone allows passengers to travel up to 90mph powered by a 90-kWh capacity battery. No time table was given, but GM did say they have plans to expand cabin capacity to two passengers. If all goes according to plan with this drone, GM could lead the charge of multimodal transportation.
  • The results are in for the United States top trading partner of November. For the second month in row the winner is… China! Trade between the U.S. and China totaled $59 billion. In second place was Mexico, with total trade at $49 billion, and in third place, with $47 billion in total trade, was Canada. Laredo is experiencing a surge of broder volume as Mexican factories are ramping up production as demand from the U.S. increases.
  • Foxconn, a major Apple supplier, has come to an agreement with Chinese automaker Zhejiang Geely Holding Group to provide contract manufacturing for automakers. This partnership allows Geely to share its first EV-focused platform with OEMs. Both companies will also provide EV tech consulting services.

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