Tesla dominates global EV race, even in Germany.

Tesla dominates global EV race, even in Germany.

Tesla Surpasses German Automakers in Electric Vehicle Sales

Tesla Delivery

Tesla is making waves in the automotive industry, delivering a staggering 889,015 electric vehicles (EVs) in the first half of this year. This number surpasses the combined sales of EVs by Volkswagen AG, BMW AG, Mercedes-Benz Group AG, and Porsche AG. It’s undeniable that Tesla’s strong presence is putting pressure on the German automakers, who are struggling to keep up.

One of the reasons behind the Germans’ challenges is the software issues that have delayed crucial models, leading to declining sales in China. The Chinese market, being one of the largest for the German automakers, has been outpaced by Tesla and local champion BYD Co. Moreover, even in their home market, Tesla remains the top EV brand, leaving the Germans playing catch-up.

While legacy manufacturers wrestle with unions over retooling their combustion-era production sites, Tesla is forging ahead with plans to expand its German factory and build a new plant in Mexico. As Tesla pushes for more volume through aggressive price cuts, it further amplifies the pressure on the German automakers who are striving to achieve the economies of scale necessary for profitable EV production.

Matthias Schmidt, an auto analyst based near Hamburg, highlights Tesla’s significant lead over the German automakers in major markets, stating, “Tesla is still miles ahead of the German carmakers in all the major markets.” This reality is forcing the Germans to intensify efforts to boost volumes and make the transition to EVs more economically viable.

German automakers have historically excelled in producing vehicles running on gasoline and diesel, benefiting from a well-established supply chain of high-quality local parts manufacturers. However, with the shift towards battery-powered vehicles, their traditional advantage is fading away. The once invincible “Vorsprung durch Technik” is evaporating.

In addition to the technological challenges, the German automakers are grappling with other hurdles. Inflationary pressures, a shortage of skilled workers, and high energy prices in Europe’s biggest economy further compound the structural challenges these companies face in transitioning to EV production. According to a survey by the Munich-based Ifo Institute, German automakers’ expectations are currently at their lowest point since the 2008 financial crisis.

One of the Germans’ biggest threats lies in their weakening position in China. For decades, Volkswagen, BMW, and Mercedes dominated combustion car sales in the Chinese market. However, they’ve recently been overtaken by Chinese brands that have excelled at producing affordable EVs tailored to local preferences. Mercedes, for instance, had to slash prices for its flagship electric sedan, the EQS, in China last year due to disappointing sales.

Volkswagen, in particular, has come under intense pressure, with BYD surpassing its EV sales in China during the first quarter. German automakers are witnessing a decline in EV sales in a Chinese market that grew by 20% in the first half of the year. With the expectation that EVs will account for 90% of the Chinese market by 2030, the urgency for German automakers to accelerate their competitive EV offerings is paramount. Volkswagen recently replaced the CEO of its subsidiary, Audi, partly in an effort to halt the brand’s decline in China.

According to analysts from HSBC, the current leaders in the Chinese EV market “will tighten their grip on the market.” Apart from Tesla, they predict that China’s own EV brands will dominate. However, there are still opportunities for the German automakers to catch up. Elon Musk, CEO of Tesla, has opened a window of opportunity by not having launched a new passenger vehicle since the Model Y in 2020. Although Tesla has yet to refresh its popular Model 3, work is already underway.

While other Chinese EV startups face challenges from trade barriers in the US market, BYD is steering clear. Additionally, smaller Chinese EV companies may not survive the intense price war within the industry.

It’s important to note that German automakers are still generating substantial profits from selling combustion engine models in China and other markets. Mercedes and BMW, for example, are not abandoning premium price segments and are still doubling their EV sales year-over-year. The Germans are also looking to introduce EV-focused platforms around the middle of the decade to reduce the cost of their electric cars and equip them with new technology, potentially shifting the dynamic.

Volkswagen is preparing to launch a compact EV that will be priced at less than €25,000, positioning it as a people’s car for the electric age. This model, which is a couple of years away from production, complements VW’s strengthened commitment to EVs and software development, with a hefty €180 billion allocated to these areas in its five-year spending plan. For example, VW’s ID.7 sedan, set to hit showrooms later this year, features an augmented-reality display that projects information into the driver’s field of vision.

Mercedes, on the other hand, plans to introduce an electric version of its compact CLA sedan in the US next year to compete more effectively with Tesla’s Model 3. The iconic G-Wagon is also undergoing electrification.

BMW’s bet to accelerate sales lies in its “Neue Klasse” underpinnings, expected to arrive around 2025. The manufacturer aims to cut battery costs by half and increase range and charging speed by 30% compared to current models.

The next generation of EV platforms from the German automakers could represent a turning point. Bloomberg Intelligence analyst Michael Dean states, “That’s when you’ll see a big push from them, also in China.”

In conclusion, Tesla’s dominance in the EV market has put German automakers on the back foot, with software issues and an evolving Chinese market contributing to their challenges. However, the German manufacturers are not giving up. With plans for innovative EV platforms and competitive offerings, they aim to regain their position in the global EV landscape. The battle of EV supremacy is far from decided, and the German automakers still have a chance to catch up to Tesla’s lead.