A Reassessment in Volkswagen’s Electric Vision
German automaker Volkswagen (VW) is hitting the brakes on its ambition to develop six battery factories, declaring it will wait to gauge the demand for electric vehicles (EVs) before proceeding with these plans. In a reveal to a German newspaper, Thomas Schmall, a board member and head of technology at VW, stated that constructing battery cell factories doesn’t automatically result in success. Furthermore, he hinted that the company’s ambitious target to produce 200 GWh of lithium-ion cells by 2030 isn’t as rigid as it might appear.
The Reality of the Electric Vehicle Hype
Electric vehicles have become increasingly popular and hyped over the years. Part of this excitement can be attributed to the exceptional success of Tesla, the electric vehicle pioneer whose high market valuation has intrigued investors worldwide. Several automakers have made bold proclamations about turning their entire vehicle ranges electric and bidding adieu to traditional internal combustion engines.
However, the excitement surrounding EVs isn’t quite as straightforward as it may seem. For starters, the supposed decline in battery production costs, which was meant to make EVs more affordable, hasn’t occurred. In addition to this, EVs often demand a higher price from the first owner in the US.
Supply and Demand Issues Pushing Potential Buyers Away
The combination of lofty expectations and limited new model availability led dealers to heavily mark up available electric vehicles, driving away potential buyers. Though inventory shortages and high markups have decreased, current high-interest rates continue to hinder customer engagement.
The initial rush to produce and secure EVs led to inventory shortages and, consequently, large markups by some dealers. This approach served to distance potential customers who were already somewhat reluctant due to the vehicles’ high upfront costs. At this point, inventory shortages and markups have lessened; however, consumers are now having to grapple with recently inflated interest rates.
Volkswagen’s Cautious Approach Towards Battery Production
The decision to postpone the creation of battery factories indicates a thoughtful strategic shift for Volkswagen. It signifies a company that’s now looking to balance its aspirational goals with the practical realities of supply and demand in the EV market. VW’s decision to wait and see how EV demand evolves reflects a broader wisdom about not overextending in a market that’s still finding its feet.
Indeed, given the rocky road towards mainstream EV adoption and an array of ongoing challenges, potential investors in the EV market might be wise to consider the hype cycle of new technologies. Volkswagen’s case shows that even the most ambitious of plans can require a rethink—a lesson surely relevant beyond just the automotive industry.