Forward as before or spin-off for electric cars?

AN EXPERIENCE THAT LOSES VALUE – There are many car brands that are more than a century old and their experience is tangible: well-built vehicles, quiet and clean engines, medium-high reliability. Behind these products, there is a lot of money needed for factories, research centers and a lot of skilled work because a car is not a smartphone that fits in your pocket or purse: the vehicles are on the road, depending on weather events, vibrations and extreme temperatures. That paradigm shift of the electrical however, it risks quickly devaluing these precious traditions, especially those associated with engines: a threat that affects not only short-term profits, but also the very existence of these brands. How to attract capital in a company seen at sunset when the one who is to replace it is still, with few exceptions, a minority?

ASSOCIATION OF BRANDS – That is what analysts think dilemma is very important for builders and component manufacturerssome of which have rectified it (or will fix it) by setting up separate business units for electric and traditional vehicles, switching internal combustion engine operation to separate companies or create new brands for battery-powered cars. The shifts of the builders like Tesla And Rivian (lion here just as Rivian was worth $ 27 billion without ever having delivered a car), proved to be authentic investment magnets shares, put the traditional houses on alert, whose prices have instead been kept quiet. So here it is Polestar, an electric car brand separated from Volvo Cars (also owned by Geely), will be listed on the stock exchange. There Renault is considering setting up a separate section for its electric vehicles, which may even be listed separately (here The news). Similar features for Fordwhich will divide the company into Model and (for electric) and Blue divisions, dedicated to those with internal combustion engines (here to know more). Mercedes and its shareholder Geely has rethought the brand Smart as a 50% joint venture it will build electric cars of European Design in China starts at # 1 (here to know more).

WHAT DO I DO WITH COMBUSTION ENGINES? – But it does not end here: the traditional houses almost seem to want to minimize their ties to endothermic motors. Geely And Volvo they created Aurobay, a separate company that will develop and sell internal combustion engines, including to external customers, and it is also Geely that will develop hybrid engines for Volvo this time with Mercedes. The news regarding BMW it is sensational in its own way: it will “hide” the production of internal combustion engines, once a pride, in the United Kingdom and Austria, in its Steyr factory, which already produces many of them. And the legendary factories in Munich, Dingolfing, Leipzig and Regensburg? They will be redesigned to produce almost exclusively models and electric drivelines. Even the component manufacturers have rethought themselves: from Continentalfor example, Vitesco was born, a spinoff dedicated to electric powertrains that had a difficult debut but then managed to get important orders, such as those for Opel, Peugeot and Hyundai.

CHANGE OF STEPS AND MENTALITYAutonews has collected in opinions by some experts from the consulting firms, who essentially agree with what was said by Ford’s CEO Jim Farley at the time of the presentation of “Ford +”. Farley said “Divisions customers Model e And Blue are different, as are the go-to market and the products we want to develop. The supply chain is also different, as are the necessary skills and the things that can be done “at home”. And in fact, the “pace” of the business is also different, very different. “Andreas Tschiesner, head of the automotive division at McKinsey Europe, sees”different business models and I think most are currently in the phase of transition, where the separation is made, with the houses obliged to regroup the competencies for electric and combustion vehicles. Leaders are focused on phasing out traditional technology and hijacking freed technicians and engineers to work with things like solid-state batteries or software. “

IS IT THE RIGHT WAY? – The situation is not easy: analysts note that investors see traditional technology as one deadweight on the budget (also because it is destined for extinction, at least in Europe), but in reality almost all houses draw the vast majority of their surplus from combustion vehicles, a situation that will continue in the coming years. The profitability of internal combustion engines “is crucial because it allows us to not only grow electric vehicles, but also to integrate them vertically, which is important for profit,” says Jim Farley. Analysts believe that a spin-off poses risks: a company that only produces electric cars will be able to attract investment enough to finance its operations? Another question: Can the winding up of the internal combustion engine business be managed in a way that avoids painful layoffs and restructurings? Harald Proff of Deloitte believes that traditional houses “want to be valued as technology companies and not as dedicated companies to produce things that people want less and less. Compared to pioneers in electric vehicles like Tesla, they are in an awkward position, because they have to earn the money for the transformation through activities that are running out ‘.

IMPORTANT (AND LIFE-SAVING) CHANGES – The builders they’re thinking about extrapolate operations relating to electric vehicles in the hope of attracting capital, they must also rethink the other parts of their business: it is always Proff who says that “it is not possible to keep the valuation one has, just by sharing and saying: ok, we have two companies, but we will keep everything as it is. The result may be that the new company will attract all the value and exhaust the traditional. ”To avoid this dangerous zero sum, Proff suggests that car manufacturers should build flexible value chains and move the production of Easy agreements with assets.to manage future engine production internal combustion engines, such as contract manufacturing of internal combustion engines.Tschiesner believes, however, that the sector may have enough time to make the transition less painful for electric cars. In fact, the analyst believes that “internal combustion engines still produce excellent cash flows and will do so for the next 10-15 years. Investors could positively evaluate this relatively stable income for several years, given it by optimizing costs and adjusting production facilities. It is possible to generate interesting return on investment “. It therefore seems possible to slowly arrive at the dreaded and necessary electrical transition.

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