Can mass-market makers ever profit from electric cars?

The one for VW Group drivers is VW’s Automotive Cloud. “Our platform will scale to store and process data from billions of real-world miles, enabling brands to provide predictive and personalised connected experiences for millions worldwide,” according to the firm. Live weather and road safety information is expected to be a big earner once it's rolled out across tens of millions of VW Group vehicles.

Clearly, VW’s all-in approach to reinventing itself as an EV brand and using cloud computing to reduce costs and increase revenue - in the developed world at least - is a big bet. 

Last year, UBS predicted that VW would be the first car maker to make profits from retailing EVs, tipping into the black in 2022. Interestingly, VW’s internal plan is for 25% of its market share to be EVs by 2025, whereas the latest estimate from Schmidt Automotive Research is an overall 16% share by 2025. IHS Markit is predicting 19% share in the EU by 2025.

However, other analysts have warned that the take-up of battery-electric vehicles (BEVs) may be vulnerable to governments withdrawing incentive schemes.

The uncertainty around BEV take-up and battery prices this decade is the background to an interesting industry rumour I heard the other day. I was told that one big player is taking a harder-headed, live-accounting approach to the issue of selling EVs in the future because of the extreme difficulty of turning a profit.

The idea runs like this: a new EV will be leased out by the maker for 10 years, probably initially for four years and then two more leases of three years. The maker will bundle up insurance and servicing into the lease and perhaps any future cloud-based services. Even then, the company thinks it will see a profit on the EV in only the tenth year.

So why such an unusual way of retailing a new car? As I understand it, this idea was floated because the manufacturer knows its customers and what they are comfortable spending. (Sensibly, the maker’s planners have to also take into account the likely withdrawal of government incentives). No doubt, the maker doesn’t want to sell EVs as a loss-leader but also knows it has to sell a certain number of pure-battery cars on the European market.

The upshot is the plan to switch to long-term leasing, making the EV affordable for private buyers, but - eventually - profitable for the manufacturer. It’s just that the maker has to oversee each EV for a decade to make a profit. And does that also mean a rolling 10-year warranty? It’s a brave new world.

Certainly, these hard profit and loss calculations chime with the estimate of Stellantis CEO Carlos Tavares that an EV is 40% more expensive to make than an equivalent ICE vehicle.

Speaking at the Financial Times’ Future of the Car Summit earlier this year, Tavares said: “It's not as simple as having cars on sale. You need people willing to buy and afford them.

“If we don’t keep the affordability, we will impact freedom of mobility, which is a major problem for modern democracies… how to protect freedom of mobility for the middle classes who can’t afford a €30,000 [roughly £25,500] EV when today they pay half of that.”

Certainly, battery prices may fall a little and less expensive, lower-range battery technologies may also be used (such as Renault’s planned NMC batteries), but in the meantime, mass-market car makers selling into the EU have to navigate the rest of the decade with battery prices, showroom affordability, government incentives and buyer behaviour all uncertain.