Automotive industry: The late harvest has begun.

There is a simple reason why I haven’t written about the changes in the automotive industry for so long. The many twists and turns and tightenings in the emissions cheating scandal often simply left me speechless. I would never have thought that the fraud could take on such proportions and thus accelerate the transition to electrically powered mobility. This effect is only just beginning. And yes, I don’t think we’ve reached the peak of the emissions scandal yet.

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However, the reason for this article is a different one, a very pleasant one:

“The electric becomes Mercedes”

Daimler presented the EQC yesterday. The first electric car developed in-house. Last night, Dieter Zetsche presented the new kid on the block to a crowd of journalists. The presentation was streamed live. Zetsche did a solid and proper job. Even as a Swiss (and a declared and convinced “non-nationalist”), I was somehow irritated by the adulation of Sweden, but Zetsche’s joke about having a special relationship with the moose, just like Sweden, was pretty cool. In general, it has to be said that Mercedes is the coolest and most credible of all traditional car brands.

But in Zetsche’s speech, which was unfortunately completely “teleprompted” or memorized, there were also some rather comical things. For example, that an electric car must have a “great look” and “fascinating usability” in order to be a “valid alternative to combustion vehicles”.

This shows that people have not yet really understood that the electric car (if implemented consistently) is the better concept than the combustion engine in all respects. The fact that Zetsche cites an electric Uralt bus as proof of the early involvement with electromobility, but does not mention the fully electric B250e at all, can probably only be explained by the fact that the B250e Drive Train and batteries were sourced from Tesla and they feel uncomfortable with this. The B250e, if properly promoted and marketed, would have given Mercedes a 3-year head start. It would have had what it takes to become what the Renault Zoe is today.

The statement that the EQC was built to be as safe as a combustion-powered Mercedes also makes experts frown. If designed correctly, an electric car should be fundamentally safer because there is no engine block that can be pushed into your legs in the event of a collision.

Good mediocrity

The car itself is quite good so far. The design is acceptable to the majority, the workmanship, one may assume, will be of high quality. It is irritating that Daimler states the range as 450 km according to the (no longer valid and unrealistic) NEDC standard. In practice, this means that the EQC probably has a range of around 280 km when fully charged. In principle, this is completely sufficient and is on a par with Tesla’s Model X entry-level model (75D) for comparison.

A look under the hood shows that the EQC is not yet a completely newly developed electric car. Where there should be a trunk, there are parts of the drivetrain. As a Tesla driver, you might wonder what all this is about. But as a driver of a combustion engine, this doesn’t bother you at all. However, the components housed under the hood give an indication of why the EQC will not be safer than a combustion engine. Of course, the advantages of building on an existing platform are also there in return. The EQC can be built with existing tooling and Mercedes should be able to achieve higher unit numbers much more quickly.

(Where there should be a trunk is… what exactly?)

Electric cars are only marginally in competition with other electric cars

This morning’s newspapers are full of reports that the EQC will be a competitor to Tesla’s Model X. I think that’s a fundamental misconception.

The bottom line is that electric cars are better vehicles than combustion engines. Almost anyone who has driven a few meters will notice this immediately. The handling is incomparable. What’s more, electric cars are already a lot cheaper overall than combustion engines. My Model S is a good 20% cheaper than a comparable vehicle (so no, not an Opel Corsa) over 3 years. That was already the case 3 years ago when I made the calculation for myself personally and the cost basis has only gotten a lot better in the 3 years.

And the demand for electric cars is latent. If I ask around among my friends, there are three camps. About 50% of people tell me that if Teslas were cheaper, they would buy one. That’s why I think the Model 3 will take off in Europe in a similar way to the US. Another 40% say they would generally look at an electric car if it came from their parent brand. And 10% say that electric cars are not an issue for them.

Of course there will be Tesla customers who will buy the EQC. But a Model X cannot be compared with an EQC. The decisive difference is the Tesla brand. The aura of “against-all-odds”. More than others, Tesla stands for fundamentally changing things. Making a difference in the world. Bringing the non-obvious into reality. That’s why, for example, Tesla delivers sub-par quality cars to begin with – because they can afford to.

If someone buys a Tesla today, it is probably because the products are, on balance, superbly made. Following a stringent logic that is sometimes counterproductive for the user (keyword: rain sensor). The real commitment, however, is created by the Tesla brand.

I think what we will see is that the EQC will result in a shift within the Mercedes fleet. A Mercedes buyer can’t do much with the Tesla values and therefore won’t buy a Tesla either way. But they will certainly buy the EQC. The myth of the Tesla killer is just that – a myth.

This shift is a rather difficult situation for Daimler. According to all available information, Daimler will initially have a lower margin on the EQC than on combustion models of the same class. So high-margin sales are being swapped for low-margin sales. I am therefore almost betting that sales efforts for the EQC will be kept low in the initial phase.

The late harvest has begun

Observers in the automotive industry have always proclaimed that German carmakers in particular have long been capable of electromobility and that the demand was just not there yet. There is no doubt that demand has risen sharply in the last 12 months – paradoxically due to the self-inflicted emissions fraud. But if you look closely at unit economics in the automotive sector, you soon realize that building an electric car technically is not such a big deal. However, building it on an economic basis on which it can be sold at good margins is the challenge par excellence. Price and range was and is therefore the direct trade-off. If you look at the BMW i3, for example (a great car in itself), you quickly realize that the price is actually ok. But the range is far too short. If electric mobility was technically and economically feasible, why would you build and market such a car? There is therefore only one logical conclusion: manufacturers are technically capable of electromobility, but have not yet managed to produce cars at a cost that allows them to achieve respectable margins on the market.

Now the prices for batteries seem to have fallen accordingly for the traditional manufacturers and demand has also increased. So it’s harvest time. However, whether this will be enough to take back the large luxury sedan segment from Tesla, for example, is at least open to question.

Tesla seems to be at a point where they have achieved a real breakthrough in terms of battery costs. Although this figure, cost per kWh at pack level, is being kept secret, there are increasing signs that Tesla has broken through the USD 100 per kWh barrier, which is considered to be the sound barrier in the industry, or is at least close to it. It takes hundreds of thousands of iterations to get technology to an extremely low cost level. We are at the beginning with battery technology. Tesla has a clear advantage here, as they are virtually the world’s first port of call for marketing technological improvements. According to JB Straubel, CTO of Tesla, they receive new suggestions from research every day.

Tesla could then become a threat if they start to translate the cost advantages into prices. However, this will not happen for the time being, as Tesla now wants to show that it can also break even.

So in the short term, the chances of a late harvest for traditional car manufacturers are quite good. In the long term, I think the assessment is difficult. Anyone who reads here often will know that I think the real disruption in the automotive industry will come from self-driving cars. I still see electromobility as a prerequisite for autonomous driving. In five years’ time, we will know how it turned out.

The price is hot

Back to the EQC. Daimler has not communicated one of the most important components in the equation for evaluating this vehicle: The price. This will decide whether the traditional Mercedes drivers will switch to the EQC or not. In order to become a bestseller on the market, the car must be offered at the level of the GLC AMG 43, i.e. at a base price of around EUR 63k (mid-price incl. options EUR 85k). Anything above that represents an inexplicable disadvantage compared to the combustion engine equivalent. Anything below that makes this car really attractive. We can be curious.