Last Updated on Thursday, 17 October, 2024 at 12:15 pm by Andre Camilleri
Recent articles indicate that the transition to electric vehicles is likely to serve as a case study for why this transformation is faltering. It reminded me of the landmark 1995 Harvard Business Review article by John P. Kotter entitled Leading Change: Why transformation efforts fail.
Martin Sander, head of sales, marketing and after-sales at Volkswagen’s passenger car division, seems to have pinpointed the core reason behind the faltering transformation when he stated: “The most important thing is that customer demand and political regulations are in sync.” It is clear they are not.
On one hand, Volkswagen, Stellantis, BMW and Mercedes-Benz have all cut their earnings forecasts because of problems on multiple fronts from intense competition to weak European demand and rising inventories in the US. Add to this the fact that, next year, the pressure on the industry will increase even more when new EU emissions targets come into force. These targets require carmakers to cut carbon emissions from their fleets – by increasing the proportion of electric and hybrid vehicles – or face large fines. While on the other hand, consumers have become more cost conscious and subsidies have been cut in big markets such as Germany. Add to that the fact that across Europe you have different realities with regards available charging stations.
It’s also important to consider the evolving expectations of future consumers. Consumers feel like buying an electric vehicle today is a mistake because they know that at some point in the future they can get a better vehicle with longer range and newer technology and most likely at a lower price. So, any decision to buy an electric car is postponed.
On the other hand, electric vehicles are already less profitable for carmakers, than traditional combustion engine vehicles. According to research compiled by Renault, EU carmakers will need a 20 to 22% share of the European market share to comply with the emissions targets. But at the moment, they are stuck at less than 15%.
Hence it seems evident that while on one hand, EU environmental regulation is rushing ahead, the reality on the ground is not matching up, creating the problems I have outlined. The main issue I see is that all this can backfire greatly, if not managed well. This is why Mario Draghi, in his recent European competitiveness report, has so eloquently said: “If Europe’s ambitious climate targets are matched by a coherent plan to achieve them, decarbonisation will be an opportunity for Europe. But if we fail to coordinate our policies, there is a risk that decarbonisation could run contrary to competitiveness and growth.” Draghi also mentions that the automotive sector is a key example of lack of EU planning, applying a climate policy without an industrial policy, where the ambitious target of zero tailpipe emissions by 2035 will lead to a de facto phasing out of new registrations of vehicles with internal combustion engines and the rapid market penetration of electric vehicles. However, the EU has not followed up these ambitions with a coordinated effort to transform the supply chain.
