China is most important battleground for carmakers

The automotive industry is coming under increasing pressure worldwide due to a growing focus on electric mobility, autonomous driving and digital services. Competition from China is also on the rise.

Newcomers and startups are increasingly setting the pace when it comes to developments in the auto industry. This has forced the sector's top dogs to jump on the bandwagon of change so as not to be left out of the widely anticipated imminent transition in human mobility. Many experts are convinced that these developments will lead to a breakthrough in electromobility.  

For such a future, however, startups and companies that are small and agile appear better suited and equipped than the old and established industry titans.

Read more: How Volkswagen is gearing up to be an electric car leader

Even if Tesla cars can already be seen on the road in Germany, the American company is still one of the newcomers to the market. Even though Tesla has yet to put in place a functioning routine when it comes to its production of vehicles in Germany, it's ramping up efforts to increase its sales in the country.

"We are expecting Tesla to emerge as a clear market leader in electric cars in Germany in 2019," said Ferdinand Dudenhöffer, a renowned expert from the Center for Automotive Research (CAR) at Germany's Duisburg-Essen University.

On Monday, Tesla founder and CEO Elon Musk laid the foundation stone for a new Gigafactory in Shanghai

The analyst pointed out that in the United States, the world's second-biggest car market, Tesla has sold 25 percent more vehicles than the entire Audi brand in the last three months. "In spring 2019, Model 3 will come to Europe, which will also rekindle the hype surrounding Tesla in Germany," Dudenhöffer told DW.

For Tesla, the Chinese market is even more important than the German market. The American company is investing heavily in the Asian giant. On Monday, Tesla founder and CEO Elon Musk laid the foundation stone for a new so-called Gigafactory in Shanghai. At this factory, Tesla plans to produce not just vehicles, but also the required batteries. By the end of the year, Model 3 cars are expected to roll off the production line there. In doing so, Musk intends to achieve a breakthrough on the world's largest car market.

Chinese startup founded by Germans

Another startup that the German carmakers should pay attention to is the Chinese firm Byton. It was, in fact, founded by former BMW managers.

Although they have only come up with prototypes so far, the company is planning to start production of an electric SUV by the end of 2019. It's initially targeted at the Chinese market. Byton's plant in the Chinese city of Nanking is almost ready, the company's CEO Carsten Breitfeld told German business daily Handelsblatt. Test vehicles have been in production since last May, he noted.

At the Consumer Electronics Show (CES) in Las Vegas, one can get an impression of the kind of vehicles that will penetrate the US and some European markets starting from the third quarter of 2020.  

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Last year, Byton presented a prototype of its electric SUV M-Byte there (main picture). This year, the company is putting on display the production-ready interior of the model. The exterior design has yet to be finalized.

In Las Vegas this year, Byton is putting on display the production-ready interior of its electric SUV M-Byte

Software and services, not just metal and motors

"Building and selling cars is an outdated business model," Breitfeld declared in Las Vegas. Instead — similar to what happened in the smartphone business — they will use car hardware as a platform to sell digital and driving services to customers.

"This is the actual business model of the future, that's what we've built the company for," said Breitfeld. "A company with 150,000 or 250,000 employees will find it extremely difficult to completely restructure its business model," he underlined, adding that startups like Byton are better suited and equipped to drive this change.

China's market decides

And what will this transition mean for the old behemoths? Even the traditional carmakers want to expand e-mobility and digital services, and are courting attention in Las Vegas.

The CES, once focused on consumer electronics, has increasingly morphed into an auto show in recent years.

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Artificial intelligence, driverless cars to be in the spot...

Traditionally, the focus in Las Vegas has been on networked cars and autonomous driving. Brands like Audi, Daimler and Ford, among others, are again in Las Vegas to take part in this year's event.

Volkswagen is staying away from CES this time around, despite the company's increased focus on electromobility, networked cars and autonomous driving.

Volkswagen also intends to maintain its strong position in China. In a move that reflects the Chinese market's significance for VW, CEO Herbert Diess himself on Monday took over the management of the group's China business. "The future of Volkswagen will be decided on the Chinese market," Diess said in Beijing on Monday.

Global carmakers have for years brought their technology to the Chinese market from outside, Diess noted. But now, he added, innovation is increasingly taking place directly in China, where capabilities in the areas like e-mobility or self-driving cars are already "well developed."

 With subsidies for electric cars and restrictions on combustion engines, the Chinese government wants to ensure that by 2020 at least 5 million electric-powered cars will be driving on China's roads. Last year, an estimated 1 million electric cars were sold in China.

Read more: German e-cars still hampered by lack of charging stations

Intensifying battle

VW has so far sold over 40 percent of its cars in China. This year, doing business is likely to be more difficult, as the Chinese government now requires carmakers to adhere to a quota for sales of electric cars. If a manufacturer sells too few such cars or hybrids, it faces penalties.

China's slowing economy also poses a challenge. This will likely further intensify the battle between the traditional carmakers and newcomers for market share. And as far as electric cars are concerned, German manufacturers are not so well positioned yet.

Volkswagen therefore announced in November 2018 that it planned to direct more resources toward developing e-mobility. Over the next five years, Volkswagen plans to invest €44 billion ($50.5 billion) in electric mobility, autonomous driving, mobility services and digitization.

'Building and selling cars is an outdated business model,' Breitfeld said in Las Vegas

The goal is for electric cars to account for one-fifth of its production in Western Europe by 2025. While VW now produces six battery-powered models, it aims to raise the figure to more than 50 by 2025.

"We will be cheaper than Tesla and we will achieve economies of scale," VW CEO Diess optimistically told industry newspaper Automotive News.

He said then that the platform was "already booked for 50 million electric cars, and we have procured batteries for 50 million electric cars."

Internet companies are the most valuable companies in the world today, but, Diess said, "My forecast is that the title will be held by a car company in 10-20 years' time." That's because in the end people would spend more money on mobility than on communication, he underlined. If that turns out to be true, the big question is: which car company will win the race ?

Battery cell production: Is Germany too late to the party?

Northvolt's mammoth project

Headed by a former Tesla executive, Swedish company Northvolt aims to build Europe's biggest lithium-ion battery factory, producing 32 gigawatt-hours (GWh) of battery cells a year by 2023. The $4-billion project was granted a loan from the EU and will be built in cooperation with German industrial giant Siemens. Northvolt is carmaker BMW's preferred partner after production starts in 2020.

Battery cell production: Is Germany too late to the party?

Tesla head start Germany

US electric car pioneer Tesla, which sources its cells and batteries from its own Gigafactory, has plans to build three more such factories to accompany its first in the Nevada desert (pictured). CEO Elon Musk favors Germany as the location for its European factory. Its Germany-based Grohmann Automation division specializes in manufacturing systems for battery plants, giving Tesla a head start.

Battery cell production: Is Germany too late to the party?

CATL thinking big in Thuringia

The chairman of Contemporary Amperex Technology (CATL), Robin Zeng, announced plans in July to build its first battery cell production site in the eastern German state of Thuringia. The factory in Erfurt will have a capacity of 14 GWh by 2022, with carmaker BMW to source €1.5 billion worth of cells from it. China's biggest battery maker plans to create 600 new jobs there in research and elsewhere.

Battery cell production: Is Germany too late to the party?

GSR Capital buys Nissan best-seller

Chinese investment firm GSR Capital last year bought Nissan Motor's battery business Automotive Energy Supply Corp (AESC), including battery plants in Japan, the US and Britain. AESC offers cells and modules, and its battery packs (pictured) power the world's best-selling electric car, the Nissan Leaf. Under GSR management, AESC will expand in the UK, hoping to win over more European carmakers.

Battery cell production: Is Germany too late to the party?

Priced Eastern locations

Countries in Eastern Europe appear to be favored by battery makers. Samsung SDI President Jun Young-hyun (left) and Hungarian PM Viktor Orban (center) in May opened a new battery plant in Göd. The Koreans don't make cells in Hungary, but others will. Japan's GS Yuasa in Miskolc, China's SK Innovations in Komarom (launch 2020) and LG Chem in Wroclaw, Poland (launch 2019 with a capacity of 4 Gwh).

Battery cell production: Is Germany too late to the party?

Carmakers outsourcing

German carmakers are shunning the risk of producing battery cells of their own, relying primarily on cells made in Asia, which some of them — like Daimler in Kamenz, eastern Germany — assemble into battery packs. The luxury carmaker will source cells for its entire EQ electric car model range, launching in 2020, from SK Innovations and LG Chem.

Battery cell production: Is Germany too late to the party?

Volkswagen mulls cell production

Germany's Volkswagen — the world's largest carmaker by sales — is still weighing options. One being cell production of its own at its plant in Salzgitter, Germany. Another alternative to be considered by an electric vehicle strategy meeting of the board on November 16 is an alliance with South Korean cell maker SK Innovation.

Battery cell production: Is Germany too late to the party?

Sober-minded calculations

Meanwhile, Germany's biggest automotive supplier, Bosch, dropped plans to produce battery cells, saying the investment required would be too risky. "Given dynamic external market forces that can only be predicted with difficulty, it's unclear whether this investment would pay off," the firm said, after calculating it would have to invest €20 billion to secure a market share of 20 percent.

Battery cell production: Is Germany too late to the party?

TerraE hung out to dry

German efforts to establish cell production suffered a new setback in October, when TerraE — a consortium of 20 companies — failed. None of the businesses named, including Varta Microbattery Systems, Ford and StreetScooter, eventually stepped foward to fund the project. Launched in 2017, the idea was to build two foundries for 34 Gwh capacity by 2028, rivaling Tesla's Gigafactory.

Battery cell production: Is Germany too late to the party?

Brussels powering ahead

Fearing the EU auto industry could be left behind in the race, the bloc's energy commissioner, Maros Sefcovic, has launched a "Battery Alliance," offering billions of euros to fund cell manufacturing and research. Germany's newest drive is part of it. Sefcovic believes car making in Europe will be impossible "if you don't master the skills, the innovation and the research linked to batteries."