Europe's Carmakers Brace for Mass Vehicle Electrification

China recently announced its plans to ban new vehicles powered by gasoline and diesel engines. As the biggest passenger car market in the world, the Asian powerhouse’s announcement has deep implications for the global auto industry, and European car bosses have taken notice.

Gathering at the Frankfurt Motor Show, Daimler, Volkswagen and PSA Group addressed the realities of mass vehicle electrification and its possible consequences to the global economy. They also gave updates about the status of their electric programs, with some details seemingly meant to give policymakers pushing for zero-emissions motoring some pause.

Daimler targets massive cost reduction

Daimler, the company behind Mercedes-Benz, warned that its electric models in the pipeline will initially be just half as profitable as its fossil fuel counterparts. This can compel the carmaker to find ways to cut costs elsewhere, such as outsourcing components outside of Germany, which in turn can compel the company to reduce its German workforce numbers.

"In-house production is almost irrelevant to the consumer," Daimler boss Dieter Zetsche told reporters the night before the Frankfurt Motor Show. As federal elections are set to be held in Germany on September 24, the issue of job security in the country’s automotive industry loomed large.

"Daimler is the first company to state explicitly how much electric vehicles are going to hurt margins," said Bernstein analyst Max Warburton. "It was brave to go first - but of course it won't be the last."

The company says that it must save a total of €4 billion (over P244 billion) by 2025 in order to fund the cost of its electric cars and remain profitable.

Volkswagen and PSA's concerns

Meanwhile, Volkswagen said it was shopping for new global supplier contracts to fulfill its electric car component needs, which are not yet manufactured competitively in Europe.

"A company like Volkswagen must lead, not follow," Chief Executive Matthias Mueller told reporters.

The PSA Group, maker of Peugeot and Citroen, said its main concern was that consumers will be late to catch on to the electric car revolution, and that its first wave of battery-powered cars does not hit the ideal sales numbers.

"If it doesn't gain acceptance in the market, then everybody--industry, employees and politicians--has a big problem," PSA Chief Executive Carlos Tavares said in a pre-show interview.

Other stakeholders weigh in

Fiat Chrysler CEO Sergio Marchionne, one of the few car bosses to voice out their opposition to the electric vehicle trend, predicted that sky-high battery costs would combine with tightening combustion engine regulations to stifle overall sales.

"My aversion to electrification was based on pure cost issues,” Marchionne said.

Marchionne’s view is shared by independent analyst Richard Windsor, who warned that the transition to electric cars could inflict long-term damage to the entire movement if stakeholders fail to pay attention to the warning signs.

"Vehicle makers are queuing up to announce their commitment to electric vehicles but at the same time they may be cheering for their own demise," said Winsor.