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Yesterday's Reuters report asked many questions about the fact that Volkswagen (OTCPK: VLKAF) was looking to sell at $ 23,000 or even less its competitor Tesla (TSLA), Model 3, on the land, up to US $ 23,000. less than $ 23,000.
Questions included:
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Can Volkswagen make a profit by selling it at $ 23,000 or less?
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Why will Volkswagen sell it so cheaply?
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Are Volkswagen costs really as low as Tesla's?
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Will this low price not put pressure on Tesla's margins?
Let's first see what we are talking about. Volkswagen is launching the 50pure (BEV) battery electric vehicles, whose first launch phase consists of 27 BEV on the MEB platform, to be completed by the end of 2022.
There will be another 23 BEVs on the other Volkswagen Group BEV platforms (non-MEB), as well as another 30 plug-in hybrids (PHEV) in addition to these first SEM-based vehicles. The $ 23,000 news is for the very first of these nameplates, which is currently undergoing sustainability testing and will go into production in one year – November 2019.
This production starts in a German city called Zwickau and currently has the capacity to produce 330,000 cars a year. It will take at least until the end of 2020 for this plant to produce this $ 23,000 at this annualized rate.
In fact, this $ 23,000 electric vehicle will not be the only product in this plant. You should also expect variants of this car under the Seat, Skoda and Audi brands – as well as a crossover SUV that will be exported to the United States in the second half of 2020. This multi-purpose SUV is codenamed "Crozz. "(I hope that a different final name will be chosen …)
Volkswagen has identified a total of 16 plants that will produce BEVs on the SEM platform at different times over the next three years. There are ten in Europe, five in China and one in Zwickau, Germany. This is only the first, where production begins in November 2019.
Does Volkswagen and its Audi brand already manufacture electric vehicles? Yes they are. Largest volumes concern the VW eGolf, manufactured in Wolfsburg and Dresden, Germany – and the Audi Etron, which is manufactured in Brussels, Belgium. I do not count these because they are built on a pre-MEB platform that was already decided by the end of 2013 – five years ago.
Volkswagen builds 72 eGolf units a day in Dresden and about 80 eGolf units a day in Wolfsburg – and Audi said on September 17 that it was building 200 eTrons a day in Brussels. Deliveries from the Audi eTron are expected to start in Europe by about a month ago and eGolf has been on sale for more than three years – and is one of the best-selling electric vehicles in Europe.
About this $ 23,000 prize: how and why?
For all those who ask: Let's assume that Volkswagen is not profitable at $ 23,000. Why are they going to sell it for this price? … there is one important thing to understand: it is a politically determined price. This is a situation of "solution for X".
So, what is the "X" in this equation?
In China, California (and some other states) and Europe, politicians demanded that a certain number or percentage of cars sold be BEV or have BEV characteristics for the composition of the park. You must sell a considerable amount as a percentage of your fleet. This is the "X" that must be resolved, regardless of the price borne by the market. For example, in California and 10 other US states, you must sell between 15% and 16% by 2025.
Take the analogy with Apple (AAPL). Suppose the US government said that for three iPhones, Apple had to sell an iPad Pro. Then, Apple suddenly cuts the price of the iPad Pro to $ 199.
Would you like to ask: Can Apple earn money by selling the iPad Pro at $ 199? No, you would understand that $ 199 is not a free market price or cost-related. It is a politically determined price. Even if Apple loses money selling the Pro iPad at $ 199, you still do it because you can still earn money by selling iPhones at $ 799 and up.
The same is true for Volkswagen – and other automakers. Electric vehicles will be sold at a loss – at $ 23,000 or less – to allow VW to sell conventional gasoline vehicles such as the Tiguan and Atlas SUVs at a solid profit margin. For all we know, Volkswagen is discounting this car from $ 23,000 to $ 15,000 if needed. Heck, why not $ 10,000? The floor is the limit. Their price will be as low as necessary to sell as many units as the politicians have mandated. Say hello to the all-inclusive monthly rental price of $ 99 or $ 39.
What is the net for all of this for Volkswagen and all other automakers? If they lose more money by selling EVs at a loss than they earn money by selling gasoline vehicles at a profit, they end up going bankrupt. The factories will close and millions of people will be unemployed.
Impact on Tesla: very bad for margins
As long as automakers will be forced to sell VEVs below the market price (and the market price) and that they will remain in business before this policy ruins them if they were allowed to continue indefinitely, Tesla will face competition with which it will be impossible to compete. Tesla has no profitable profitable business in the field of cars, SUVs and gasoline trucks. It swims only in the only basin where car manufacturers are forced to sell at a price below cost.
I am one of the few people to have had the chance to sit in a pre-production version "chassis with partial interior" of the competitor Volkswagen Tesla at $ 23,000. This is the one that will be in production in one year, November 2019.
Although many details, including the exact shape of the body panels and the dashboard, were hidden from me, I could get a good idea of the comfort of the seat and the space around the driver and all the others. occupants around the car. It's a spacious and comfortable car – slightly larger inside than the current VW Golf.
You can indeed consider this VW electric car as a VW Golf in terms of length / width, with a slightly higher roof and an interior closer to the size of the VW Passat. The smallest version of the battery will have a power of 48 kWh and could reach 83 kWh. There will probably be at least one or two intermediate sizes, greater than 48 kWh but less than 83 kWh.
At the low end, the range could be as low as 180-185 miles on the US EPA test cycle. This will be a higher number on the European test cycle. On the high end, the range will be around 300 miles on the US EPA test cycle.
The base car will be a rear-wheel drive, just like the Tesla Model 3. After a year of production, the all-wheel drive will be added for an additional $ 4,000, which is very similar to the Tesla Model 3.
The $ 23,000 Volkswagen car and the Tesla Model 3 differ in that the Model 3 is a sedan, while the $ 23,000 VW will be a hatchback, more like the Tesla Model S – which is a sedan , not a sedan.
For those who ask, the definition of a sedan is a body style where the opening at the rear is oriented down. low of the C-pillar. The definition of a hatchback is a bodywork where the rear opening is articulated to the top of the C-pillar. Therefore, the difference between a hatchback and a wagon or SUV is more in the "slope" of the C-pillar than in the opening of the hinge.
So you have the answers to questions about the competitor Tesla Model 3 of $ 23,000 (or less) Volkswagen. It arrives and it will be sold at a price below cost – as it was so decided by the politicians who set the rules. Think of it as a rent control, but for the auto industry.
Disclosure: I am / we are short TSLA.
I have written this article myself and it expresses my own opinions. I do not receive compensation for this (other than Seeking Alpha). I do not have any business relationship with a company whose actions are mentioned in this article.
Additional disclosure: At the time of submitting this article for publication, the author was short TSLA. However, positions can change at any time. The author regularly attends press conferences, the launch of new vehicles and equivalent courses, organized by most major car manufacturers. Volkswagen organized a factory tour and a briefing on production.
Editor's Note: This article deals with one or more securities that are not traded in a major US market. Please be aware of the risks associated with these stocks.
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