Volkswagen (VW) is catching up to Tesla in the global electric vehicle market. However, Elon Musk’s company remains ahead in some critical areas, including software, say some analysts, although Volkswagen does hold an advantage in scaling.
While 140 miles from each other, the two automakers will operate factories
“The country isn’t big enough for us both.”
Volkswagen (VLKAF) and Tesla (TSLA) – Get Tesla Inc Report have recently announced plans to build electric vehicle factories 140 miles apart in Germany.
Volkswagen has announced it will spend about $2.2 billion to build a new manufacturing facility for its Trinity electric vehicle near its main Wolfsburg plant.
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Establishing Metrics!
Volkswagen said that construction would begin as early as spring 2023 and that the net carbon-neutral Trinity model would debut in 2026.
By using fewer components, more automation, and leaner production lines, the company plans to achieve a production time of 10 hours per vehicle.
As part of its Accelerate strategy, the company offers a faster charging time and a range of more than 700 kilometers (435 miles).
“We are setting benchmarks in the automotive industry with Trinity and the new factory and making Wolfsburg into a global lighthouse for cutting-edge and efficient car production,” CEO Ralf Brandstätter said.
By 2030, Volkswagen hopes to attract new types of customers and tap into new sources of revenue while making autonomous driving available to a large number of people.
Tesla launched a recruitment campaign for its Gigafactory in Berlin just two days after receiving the permit to compete with Volkswagen at its home turf.
Tesla, led by CEO Elon Musk, wants to increase production significantly to increase its market share in the EV market that it currently dominates.
Key Background
Last year, Tesla sold just under 500,000 EVs, representing a 16% share of the global market (down from 17% in 2019), while VW sold about 422,000 vehicles, denoting a 13% share. VW sold the most EVs (191,000) during the fourth quarter of 2020, compared with Tesla’s 183,000. As for sales of all-electric vehicles, Tesla had a 23% global market share in 2020, more than double VW’s 11% position (Tesla only manufactures electric vehicles, while VW also makes plug-in hybrids).
Volkswagen announced plans to build six battery cell factories in Europe by the end of the decade and 18,000 public battery charging stations by 2025 (five times more than its current infrastructure).
Additionally, VW will install 3,500 charging stations in the U.S. and 17,000 in China. Volkswagen expects its all-electric vehicle sales to account for more than 70% of its total car sales in Europe by 2030 (double its prior target of 35%). More than 50% in China and the U.S. As part of its overall campaign to achieve carbon-neutrality in the EU by 2050, the European Commission, the executive branch of the European Union, wants at least 30 million zero-emission vehicles on European roads by the year 2030.
“We assume that [EV market] share shifts in Europe reflect the onset of [carbon dioxide regulations] and subsidies, while Tesla is also short on inventory due to the Fremont [factory in California] shutdown,” Credit Suisse’s Levy wrote. In addition to producing more cars – including internal combustion engine models – in a month than Tesla does in a year, Trainer argues that VW may be able to overtake Tesla as the world’s leading EV manufacturer very soon. He says Tesla has yet to show that it can produce cars on the same scale as the incumbents, who have shown they can shift from producing internal combustion engines to EVs.
UBS analysts warned that VW remains far behind Tesla’s software and battery capabilities. VW has a $1,300 disadvantage in batteries versus Tesla and is unlikely to close the gap due to Tesla’s vertical integration and innovative power. Software, UBS analysts said, will be the “battleground” for EV supremacy. In the meantime, VW plans to invest $19 billion in digitalization and software capabilities over five years.
Tesla’s Breakthrough
Tesla has posted several job advertisements on its website but displays an incredibly clear message on Twitter: “Giga Berlin is allowed to open,” the company said.
The analysts said that the approval from German authorities “removes a major overhang on Tesla’s stock over the past few months.” Wedbush analysts Daniel Ives and John Katsingris have an outperform rating on Tesla.
In a research note, Ives said Tesla’s Berlin factory establishes a major beachhead for the company in Europe with the potential to expand to producing approx. 500k vehicles annually with Model Y at the forefront in the next 12 to 18 months.
Giga Berlin represents a major competitive advantage for Tesla as it expands its supply footprint in this key region. The race towards electrification in Europe reaches a new level and competition for EVs intensifies from every angle, with VW doubling down on its EV ambitions.
As many on Wall Street were doubting that Giga Berlin would ever open for Musk & Co., the editors of the note stated: “The red tape and headaches seen around the delays/disputes opening up this flagship European factory has been frustrating to watch unfold.”
In addition, the analysts added, “We cannot overstate the importance of production at Giga Berlin to the overall success of Tesla’s footprint in Europe and globally, since the current Rubik’s Cube logistics of producing cars in China at Giga Shanghai and delivering them to customers across Europe is not sustainable.”
Surprising Fact
Even though VW has made early strides in the EV market, and despite being one of the biggest automakers on earth, its market cap is still only about a fifth of Tesla’s – $134 billion versus $678 billion.
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Frequently Asked Questions (FAQs)
Why is Volkswagen whipping Tesla in Europe?
Volkswagen has dominated the European auto market for decades; its ID. 3 EVs sell at a lower price point than anything in Tesla’s stable, and local manufacturing makes it easier to get a car from factory to driveway.
Is Tesla a monopoly?
Tesla manufactures electric cars. If Tesla were the only company selling electric cars, it would be considered a monopoly.
What is Tesla’s next move?
Musk’s automaker currently offers just four models – two sedans and two SUVs – but it is planning to expand its line-up in the near future. Tesla is working on an electric ATV, a $25,000 car, and a van, as well as a semi truck and a supercar due to arrive by 2023.
