September 11, 2017
Volkswagen and Daimler announced ambitious new plans to make long-range electric vehicles in an intensifying competition with Tesla, GM and others.
German automakers Volkswagen Group and Daimler on Monday announced ambitious new plans to make long-range electric vehicles in a rapidly intensifying competition with Tesla, General Motors, Nissan and other global auto companies.

Their timing could be just right after years of tepid industry sales for electric cars.

China, hoping to clear up devastating urban smog, this weekend signaled plans to eventually ban gasoline engines, delivering a sharp jolt for battery-powered vehicles despite limited interest so far among consumers worldwide.

Volkswagen, Mercedes-Benz launch electric cars: 'anything Tesla can do, we can do better'
The moves also come amid rapidly falling battery prices, which analysts say will quickly make electric cars as affordable as gas vehicles.

Volkswagen, the world's largest car company, said at the Frankfurt auto show in Germany it would make a compact hatchback electric car called the I.D. and a small, electric sport-utility vehicle called the I.D. Crozz starting in 2020.

With a battery range of about 310 to 370 miles (based on European regulatory standards), the I.D. vehicles could hit the market as the longest-range affordable electric vehicles.

And Daimler luxury brand Mercedes-Benz said it would make an electric model of all of its vehicles by 2022.


Volkswagen, Mercedes-Benz launch electric cars: 'anything Tesla can do, we can do better'

It's an "anything Tesla can do, we can do better" strategy, Sanford Bernstein analyst Max Warburton said in a note to investors. "Mercedes is convinced it can match Tesla battery costs, beat its manufacturing and procurement costs, ramp up production faster and have better quality. It is also confident its cars will drive better."

Those product plans follow several recently introduced, long-range mass-market electric cars, including GM's Chevrolet Bolt, Tesla's Model 3 and the forthcoming redesigned version of the Nissan Leaf.

The base models of those vehicles have travel ranges of 238, 220 and 150 miles, respectively, and starting prices of $37,500, $35,000 and $30,000 before tax incentives.
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Despite low gasoline prices and U.S. market share of only 0.5% so far this year for electric cars, investments in the segment are accelerating for regulatory and technological reasons. Sanford Bernstein analyst Mark Newman projected that falling battery costs would make electric cars the same price as gas vehicles by 2021, which is "far earlier than most expect."


And although the Trump administration is considering lowering fuel economy standards, automakers are pressing ahead with electric car plans because regulators in other markets are pushing to reduce emissions.

Chief among them is China, the world's largest car market. Xin Guobin, China's vice minister of industry and information technology, announced the ban on manufacturing and sale of gas vehicles but provided no details on timing, according to state news source Xinhua. It follows similar moves by the Britain and France, which are aiming for 2040.

"The measures would surely bring profound changes to the sector's development," Xin said.

With China stepping on the accelerator, global automakers have no choice but to invest in electric cars, despite the corresponding drag on profits.

"If there’s any country in the world that could pull off a switch, it would be China, only because of the government control that they have," AutoPacific analyst Dave Sullivan said. "There’s less free market forces in play."

For Volkswagen, China's move is ideal timing. The automaker is planning 30 electric vehicles by 2025 as it continues its campaign to shed the negative image associated with its diesel emissions scandal.

The company debuted a newly designed concept version of the I.D. Crozz SUV at the Frankfurt International Motor Show on Monday. The I.D. Crozz would have range of up to 310 miles, while the I.D. would have range of up to 370 miles.

"The electric car will quickly gain extreme momentum at the start of the new decade," VW brand CEO Herbert Diess said in a statement.

Diess said sales of VW electric vehicles could total 1 million by 2025, up from a neglible amount today and a projected 100,000 in 2020.

Mercedes' ambitions are slightly less aggressive. The Daimler brand hopes to sell 500,000 electric vehicles by 2025, Warburton said.

Although the regulatory reasons for investments in electric cars are self-evident, the moves will still compromise profits in the short-term. Daimler warned that its margins could fall from 10% to 8%.

"And that sounds like a best-case scenario," Warburton said.
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