AUTO FILE-Fight for scale
By Nick Carey
Sept 22 - Greetings from London! Welcome to the first edition of the new Auto File for subscribers. We’ll take you deeper into the stories shaping the automotive industry, with exclusive materials and expert insights.
And we’re interested in your perspective: Which issues are going to shape the future of the automotive industry? What questions are on your mind? Write to me at autofile@thomsonreuters.com and we’ll try to tackle these issues in upcoming editions.
Let’s get into it: The auto headlines have come thick and fast in the last week, but today we’ll consider the question of scale. The stories of three very different brands - Seat, McLaren and Ceer – illustrate how this plays a vital role in ensuring a brand’s survival.
Seat is a major mainstream brand with a bleak future as it loses scale and its owner Volkswagen figures out what to keep after its turnaround, while McLaren and Ceer are minnows pursuing scale in different ways.
Whether it’s Chinese automakers taking market share from legacy automakers, or startups trying to sell enough cars to bring down costs and lift profits, the fight for scale is back in focus across the industry and will be for the foreseeable future. Read below to see how executives at these companies are seeking to build or preserve scale and avoid falling into obscurity.
Which brings us to today’s Auto File…
Scaling up or down
VW’s pain continues
GM misses out on hybrids
SCALING NEW HEIGHTS
One of the enduring themes of this decade has been the failure of EV startups to scale up.
Companies like Arrival and Lordstown raised billions from investors who wanted the next Tesla – even though most had no revenue or even working prototypes. Most of those same companies went bust as investors balked at letting startups burn sacks of cash with little prospect of getting to scale.
Jim DeLuca, CEO of Saudi EV startup Ceer has a deep-pocketed backer in the country’s sovereign wealth fund, but he told me ahead of the launch of the company’s first two electric models that he has learned from mistakes of other firms.
First, DeLuca stressed that the two futuristic models – the sedan in particular reminds me of the cars in sci-fi thriller “Tron” – are real pre-production cars that will start deliveries in the first quarter, not just ideas in a PowerPoint.
After his experience as CEO of Vietnamese EV maker VinFast – which burned through billions in an aggressive expansion plan and is now restructuring – DeLuca stresses that Ceer will instead scale up methodically in Saudi Arabia then neighboring countries.
Chinese automakers are piling into the Middle East, so it remains to be seen if Ceer can make it. The company has a determined backer as Saudi Arabia has long wanted a viable auto industry of its own.
But with a huge global fight for market share underway, it’s not an easy market to launch a new brand into.
A FIRST-EVER SUV FOR MCLAREN
Life has also not been easy for McLaren, which has been lossmaking for years. But after a painful restructuring under a new owner – Abu Dhabi sovereign wealth fund L’IMAD – the UK sportscar maker is expanding and investing in a new factory.
That will include biting the bullet and launching its first-ever SUV – a move that has been a singular moneymaker for luxury rivals Ferrari, Lamborghini and Bentley.
Part of McLaren’s problem has always been that a few thousand cars a year has not provided enough scale while the company has produced more cars than customers want – which brings discounts and weak resale values.
Chief Operating Officer Michael Straughan told me that McLaren needs growth to spread its costs and get better terms from suppliers. The only way to do that is to launch more models like the SUV to bring in more customers.
LAST BREATH AT SEAT?
Sadly, lack of customers has been Seat’s problem. Founded in 1950 under Franco, Seat has struggled for years.
Automakers loathe ditching old brands, not least of all because it doesn’t look good. But Volkswagen has telegraphed pretty clearly that Seat’s days are numbered. The brand has had no all-new models since 2020 and has not been allocated an EV model because it’s not profitable – the kiss of death on a continent gradually going electric.
The last round of brands to die was around 15 years ago and included Pontiac, Saturn and Mercury.
With the global fight for market share, you won’t have to wait that long for the next round.
Recommended reading:
Chinese automakers scour Europe for old factories
How Trump’s EV attacks hurt US auto revival
Chinese car executives going with Xi to US?
FRESH VW PAIN
Almost four years ago to the day, Porsche had a blockbuster stock market listing where the luxury carmaker looked untouchable as the jewel in Volkswagen’s crown.
Today, not so much.
Porsche’s dismal performance in China and some expensive missteps into EVs have placed it front and centre of Volkswagen’s broader problems as the sprawling German car group tries to turn its fortunes around.
Much of the $11.5 billion in one-off costs Volkswagen spelled out in a profit warning on Friday come down to Porsche’s dire state.
Volkswagen has promised to ramp up its restructuring efforts. But the profit warning came just weeks after the company’s supervisory board approved a turnaround plan, leaving some investors wondering whether more bad news is coming.
GM LACKS HYBRIDS
The last few years have been hard for traditional automakers when it comes to making product decisions.
For decades all they had to do was show up with an “all-new” car that boasted incremental improvements and other than some notable failures – the Edsel comes to mind – they generally hit their mark.
But with high expectations early this decade of an electrifying world, some automakers bet too heavily on electric and were left hanging by a lack of demand – and in the US case by the Trump administration’s active dismantling of state support for the new technology.
As Reuters reporter Kalea Hall reports, General Motors is one of those automakers that bet big on EVs and is now paying the price. You can read all about it here.
GM is sitting out a hybrid boom.
Investors have cheered GM’s focus on gas-engine trucks and SUVs, which has fueled strong profits. But its US sales have declined this year, and some dealers say they are losing customers to rivals selling hybrids.
FAST LAPS
Major automakers, suppliers and dealers urged President Donald Trump to keep Chinese automakers out of the US market, ahead of his meeting with China's President Xi Jinping.
Volvo Cars will launch 13 new models between now and 2030 to double its market share as the Sweden-based automaker grapples with the fallout of U.S. tariffs and slumping sales in China.
Chinese EV maker Xpeng plans to offer its technology to foreign automakers beyond partner Volkswagen as it seeks new revenue streams, according to two people familiar with the matter.
Volvo Cars said Klaus Zellmer would become its president and chief executive officer within a year as it seeks to revive sales in an increasingly competitive market.
Labor representatives at auto supplier Bosch demanded EU-level political action to stem job losses in the industry by drawing up regulations to promote local production.
Renault and Geely will make a new €319 million investment in Brazil, through their joint venture, reinforcing their industrial partnership in the largest Latin American market.
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