For European car companies, the current obviously lagging game is better to slow down the pace and play slowly. At present, the approach of European car companies is to increase the return of fuel vehicles to boost income, and the capital market is also happy to see this.
Text: "Autobots" Qi Ce.
The first half of 2024 may not be a good time for an IPO for EV startups. Whether you choose Frankfurt, the New York Stock Exchange or Hong Kong stocks, the conclusion is similar.
At the end of January, Renault announced that it would cancel the IPO process of its electric vehicle subsidiary **ampere, and Volkswagen did a similar thing, announcing that it would suspend the IPO plan of its battery company Powerco. And China's ZEEKR has also suspended its IPO plan in the United States.
The above entrepreneurial brands were originally planned to be listed in 2024. The timing of the announcement of the "suspension" of the three is concentrated in the end of 2023 and the beginning of 2024. The rationale is similar, simply put, the valuations given by potential investors are far from what major shareholders expect.
Divergent valuations put the listing plan on hold
Unlike the previous two, which have not yet submitted listing applications, ZEEKR submitted a prospectus in December 2023 and "hopes" to be recognized by investors for its $13 billion valuation in February 2024. Of course, this plan now looks out of place.
At first glance, it seems quite inconsistent. U.S. stocks are still near record highs, while European EV sales rose sharply in January from a year earlier, but investors just aren't buying it.
This conclusion is not new today. In the second half of 2023, the major shareholders of start-up brands will clearly feel that the investment market is booming. Investors do not recognize the valuation proposed by the start-up brand itself based on financing and market prospects, and the reasons given are not surprising, including the fact that the first-class war has hit profitability (loss expansion), and the poor performance of similar listed car companies in the first place, etc.
Renault has also been given a cold shoulder by investors. Renault CEO Luca de Mayo has pledged to continue funding "until breakeven by 2025 and a 40% cost reduction in next-generation products, but investors are still reluctant to accept" valuations of 8 billion to 10 billion euros.
Obviously, investors' attitudes do not change with the volatility of the investment market and the rise and fall of electric vehicle sales figures. So, what factors can stand still for nearly a year, and have been acting as a "negative perception" of the prospects of electric vehicle start-up brands?
Effective demand decreases
Unlike the traditional automotive business, electric vehicles have not yet experienced a complete boom cycle.
Since 2020, encouraged by the rapid growth of China's electric vehicle market (or driven by a sense of crisis), almost all auto brands have been shouting for transformation and investment expansion. The future plans are how many electric vehicle products will be launched, how many platforms will be developed, and what technologies will be implemented at a certain point in time. This series of plans means that investment is shifted and expansion is accelerated, if not shouted, and market sentiment has been quite aggressive during this period.
However, the European market has changed a lot in 2023, with France becoming the only EU country to return subsidies to electric vehicles (at the level of 20,000 pure electric vehicles per month), and the United Kingdom and Germany have both withdrawn subsidies.
Volkswagen, the most aggressive in style, has seen its orders in the European market fall from 300,000 units at the beginning of 2023 to 150,000 units at the beginning of 2024. This change has left OEMs with low confidence. Investors have also gone through the process from recourse to indifference. It is worth mentioning that Chinese investors have experienced similar changes, but for different reasons.
The decrease in effective market demand is the main reason for OEMs to slow down. In the United States, something similar is happening. General Motors and Ford have both slowed down their electric investments, with the latter, in particular, withdrawing, shelving, and slowing down three gigafactory projects. This has little to do with subsidies, which can only affect consumer sentiment for a period of time (early or delayed), but cannot affect demand for several years.
Cost and profitability issues
If you think about it further, what is causing the decline in demand for electric vehicles in the European and American markets?
The first is the issue of profitability and cost. The major shareholders of the start-up brand can tolerate losses for a long time, even if it is 5 years. The common practice is to feed the new energy business with the profits of the traditional automobile business. It is logical for mature businesses to subsidize new businesses.
But as the competition deepens, it is not difficult to find two bad momentums:
One is that they can't keep up with the rhythm of their Chinese opponents. This rhythm is further divided into the rhythm of technology and the rhythm of cost control. With intelligence as the main axis of the actual deployment, Chinese brands are in the front and have been on par with or overpowering Tesla's intelligent solutions.
The other rhythm is more about cost control. Under the condition of scale, the real manufacturing cost of a single car is a corporate secret (which cannot be reflected in the financial report), but the selling price is not.
Renault had negotiated with Volkswagen to develop a "cheap" electric car that would retail for less than 20,000 euros. In the European market, there are very few options for electric vehicles under 30,000 euros. Demand for electrified models under 20,000 euros is significantly suppressed by supply.
At first glance, there was no doubt about its commercial viability. The two companies also plan to produce 200,000-250,000 units (it's not clear if it's an annual production), and the two sides have gone quite far in this partnership, and Volkswagen has even designated the series as "ID."1" series, while Renault classified it as a twingo series.
However, Chinese rivals have long deployed equivalent models (based on European landing**). When European companies see that the production cars on the Chinese market are higher-level, more functional, and more advanced in design than their own models that are still stuck in PPT, they will inevitably have doubts about the plan itself. Even though the EU is building a higher tariff wall against Chinese electric vehicles, it is clear that corporate strategic planning should focus more on the market than on the proposed policies.
What's more, both Renault and Volkswagen have to sell the same type of cars to the global regional market. In third-party markets that lack tariff barriers, it is unlikely that they will be more competitive than Chinese products.
* Compared with the spot, the fundamental reason is not the amount of technology investment, but the serious lag of investment in the entire ** chain. When the main manufacturers can provide highly competitive spare parts around the world, the cost control ability of the main engine factory is expected to be implemented.
Of course, OEMs themselves can adopt stricter cost control strategies, but cutting labor costs can easily lead to conflicts with labor unions, which may increase costs in the short term. The cost of production line organization is closely related to the scale. The key advantage of multinational automakers over Chinese brands is that there is a lot of room for market maneuver.
But while China sells 60% of the world's electric vehicles, the scale advantage of the rest of the world's markets is dubious. Fuel vehicles can do this effectively. This is why among the top 10 car companies in the world, only BYD is not a multinational car company in the standard sense.
Now we all know that Volkswagen has put the partnership on hold on hold, citing a massive cost-cutting program. The profitability of electric vehicles is not optimistic, and in order to maintain the profit base of fuel vehicles, European car companies have gone through a cycle in the past three years.
Policy and economic factors
The second argument is that the entire EU and US markets are currently shaking the foundations of the development of electric vehicles. If this is true, it is even more deadly. Obviously, due to the profound changes in the energy chain, Europe's carbon neutrality position is tending to soften, which is discussed in the article "Who is the real opponent of the European automotive industry" in "Automan", which will not be repeated here.
The wait-and-see mood in the U.S. industry is due to the uncertainty of the results in November this year. Although the Democratic Party in power has spent a lot of effort and money to promote the development of electric vehicles, it has also done things that hinder the integrity of the ** chain (simply put, it is to exclude Chinese enterprises from joining the ** chain). And Trump, who may come to power again, is well known for his attitude towards electric vehicles.
At present, the European economy is in a downturn, and the performance of Germany, a double top student in the automobile industry and economy, has plummeted. The United States, on the other hand, still relies on high interest rates to suppress high inflation, and will inevitably enter a cycle of interest rate cuts this year (the suspense is only a few cuts), and the prospect of soaring inflation means for the economy.
Even without considering the uncertainty of political and regulatory policy changes, European automakers should not be naïve enough to rely on ** to rule out extraterritorial competition for a long time. The market logic is simple, excellent products, controllable costs, means competitiveness. If you don't have the confidence to do better than your opponent in the medium term, you might as well do something you're good at.
To put it clearly, the current approach of European car companies is to increase the return of fuel vehicles to boost income, and the capital market is also happy to see this.
Mercedes-Benz's CFO Harald Wilhelm made this point of view unabashedly at the Q3 2023 earnings conference, and even the wording was basically the same.
On the surface, it's just a valuation divergence in the electric business; In fact, in the current market environment, the search for innovative solutions that can solve the problem of competitiveness, but cannot outperform the competition, will necessitate pushing back the independence timeline of the electric business.
For example, the new energy market will grow by 27% in 2024 to 17.5 million units, which cannot prompt European car companies to change course again. Because the largest share of this (exaggerated to ** is 78%), may be taken by Chinese brands.
For European car companies, the current obviously lagging game is better to slow down the pace and play slowly. Either wait for the opponent to make a mistake, which seems feasible, because China's electric vehicles have fallen into industry losses, which are still difficult to lift this year, but will become more serious; Or find your own way and find a rhythm that you can control. The latter is more nihilistic, as no one has yet pointed out what exactly the "new rhythm" is. It is a safe choice to focus more attention resources on the old path. 【Copyright Notice】This article is the original manuscript of "Autobots", and it is not allowed to be unauthorized **.