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German tardiness (Part I of II)

It is well known by now that German manufacturers were late to the electric vehicle (EV) party. Flyers were handed out, social media posts were prevalent, all were invited to the EV party, and lots showed up – Nissan, Toyota, Ford, Tesla of course. They had a grand old time, eating and drinking, and not to mention the dancing and some timely karaoke. Yes, this party has been an ongoing party, an EV extravaganza, and one the Germans appeared to be eschewing from afar. Like a 1980s parent telling their kids to forget about listening to rap music as it’s just a fad, destined for the dustbin. It’s 2019 and rap hits lead the music charts much like EVs are the future of driving. The Germans recognize the error of their ways, and VW for one is doing something about it.

The German giant is ramping up production of EVs with the objective of hitting 1 million by the end of 2022. This would result in VW leapfrogging Tesla and placing China front and center for future development. VW has identified two factories in China to build EVs which some estimate will have the production capacity of 600,000 cars per year. By comparison, Tesla is attempting to reach a lofty goal of 500,000 cars per year in its Shanghai, China plant. However, VW will likely shift existing factory labor to EVs thereby leveraging their large infrastructure of factories, workers and suppliers. The barriers to entry in auto manufacturing is still high, and while Tesla is an established player at this point, they are dwarfed in size compared to the likes of VW.

Part of the VW strategy rests on their ability to develop an EV architecture where an increase in economies of scale should push down EV prices to the low $20,000 range. This is a big news as one of the biggest hinderances to EV sales are their price, and there are only so many government subsidies programs out there to incentivize consumer preferences. To fund VW’s electrification shift, the company will be aiming to increase its sales of SUVs to 40% of all sales by 2020. This would represent a 23% increase over 2018 numbers.

Part II delves deeper, but there is a silver lining …

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