Moving away from incentives, Tesla and Volkswagen power ahead in the race toward EV affordability

Last month, JATO Dynamics’ released its latest report ‘EVs – A pricing challenge 2021’, exploring the impact of government incentives on the electric vehicle (EV) market over the past decade.

Today, JATO shines a spotlight into further insights within the report, conducting a deeper dive into China’s approach to EVs, and the OEMs most prepared for the shift away from the industry’s dependency on incentives.

The report found that government-led incentivisation has been a driving factor in EV uptake over the last decade, acting as a vital support for the automotive industry to offset the price gap between traditional cars and EVs. Alongside this, the rising environmental agenda has also been a key consideration, leading many countries towards incentivisation schemes – such as Germany’s ‘Umweltbonus’, the UK’s ‘Road to Zero’ electrification strategy, and the bonus-malus scheme in France.

However, in China, the country’s problem with air pollution has been the primary reason that its central government invested heavily into EVs. In January 2013, China experienced major air pollution, with 26 days of the month covered by a very heavy smog. This marked a significant turning point for the central government to engage in a ‘war on air pollution’, with EVs proposed as a key approach to combat this.

As well as the country’s focus on reducing air pollution, China placed a large influence on the guidance and direction from visionary leaders. China’s former Minister of Science and Technology, Wan Gang, was a hugely entrepreneurial figure behind the country’s plan to replace ICE vehicles with domestic EVs. A former experienced engineer at Audi, Gang was known for his innovative ideas and ambitions. Once brought into the government, his aim was to create automotive technology that would outpace Western peers and push China ahead in the electric market.

Due to the impact of China’s strong incentive programme, many OEMs operating in the country have been able to quickly expand their range – with some suggesting that production is now cheap enough to no longer require government support. Across the globe, in the short term it appears that manufacturers will continue to use government subsidies and incentives to entice consumers towards EVs. However, some OEMs are closer to giving up this dependency than others.

David Krajicek, CEO at JATO Dynamics, commented: “The EV market continues to rapidly grow, especially as the environmental crisis climbs only higher on the agendas of governments, businesses, and consumers alike. As countries start to roll back their incentive programmes, manufacturers in the US and Europe should look to China’s lead and find avenues to reduce production costs, if they are to remain competitive in this space.”

Findings from the report also showed that Tesla and Volkswagen are taking clear steps to reduce production costs and improve profitability. Tesla is on target for two production plants alone to produce a combined 900,000 units by the end of the year – which is 86% of Tesla’s current annual production capacity. The company is also seeing increases to its profitability, and in Q1 2021, its earnings before interest, taxes, depreciation, and amortization (EBITDA) increased by 94% compared to the same period in 2020. This provides good indication that Tesla will soon be ready to enlarge its product line-up and take steps towards launching more affordable EVs.

Volkswagen is accelerating its electrification plans with the introduction of several new EVs. The ID family in particular is known for its range of electric models across varying segments, which appeal to a broad base of consumers. Currently the world’s top-selling OEM for small, subcompact and compact vehicles, VW sold almost 6.5 million units in 2020. This demonstrates how well positioned it is to make moves into popular EV segments – and the company already has plans to unite its platforms into a Scalable Systems Platform (SSP). This singular electric vehicle platform has the aim of unifying VW’s product portfolio into one comprehensive platform that includes all car types.

Ye Qi, member of Volkswagen Sustainability Advisory Council, commented: “Tesla and Volkswagen provide two examples of OEMs that built and enhanced their brand name in China by focusing on building better technology, and better products. The EV market is huge and constantly growing, with exponential amounts of revenue potential, that truly values quality and technology. Other automakers in Western countries should look to the approaches taken by Tesla and Volkswagen in order to achieve their own levels of success.”

You can find the full report by clicking here