VW have not committed to $91bn EV R&D, they have committed to $91bn cumulative EV Cost of goods + Opex + Capex + R&D. R&D is only a very very minor part of this. It is an extremely misleading number put out by VW purely for PR (plus parroted without critical thought in media such as Reuters).
Why ICE OEMs are handicapped relative to new EV companies
- EVs will be lower margin products for ICE OEMs for several years. EV product launches will heavily cannibalize a brands equivalent higher margin ICE car creating a large disincentive for high quality EV launches. Currently all ICE OEMs sell as few EVs as possible while meeting their legal emissions mandates. This is why their cars are all low volume, sub standard offerings, and is unlikely to change for the next 5 years.
- At ICE OEMs most car components and most of the production process is outsourced. This reduces share of the value chain and reduces profit per car. It also makes the company much less agile to rapid changes in technology.
- Tesla designs all of its components in-house which means it can develop unified software across all of the car components. This software is constantly refined through data collection from its car fleet. Around half of Tesla's c.40% miles per KWh improvement in recent years has been from software rather than hardware. ICE OEMs cannot do this because their components and software are outsourced to multiple different companies.
- EVs only share 10%-20% of components and production process with ICEs.
- Sales channel is outsourced to dealerships who are not incentivized to sell EVs. Dealerships make a majority of their profits from maintenance revenue, which is much lower for EVs and requires different expertise. This profit sharing with dealerships also lowers profit per car for the OEMs and lowers the EV breakeven point.
- ICE service networks and service technicians do not have training in electronics and battery tech and are not able to service EVs without significant investment and significant new hires.
- The key IP and barrier to entry in the auto industry has been engine design and lack of funding for car startups. Engines are now redundant and Tesla has proved the investment case for investing in EV disruptors.
- ICE OEMs have a 50 year+ culture of working towards minimal annual incremental improvements rather than rapid innovation. Not suited to the rapid change needed to follow the EV/battery & motor experience curves.
- Unionized and inflexible to automation and modernization.
- Significant historic pension and other liabilities built over 50+ years.
- Own $trns of legacy ICE assets, many of which will have to be written down as part of the EV transition.
- Mostly trying to fit EVs into their old production lines and existing designs, EV companies have flexibility to design from scratch and make full use of the potential safety and ease of manufacturing improvements.
- Own a short term loan portfolio of ICE leases and auto loans which needs to be refinanced continuously, but the underlying assets will depreciate rapidly with the EV transition
- Shareholders value short term profits, dividends and share buybacks and are not supportive of short term pain for a long term vision, or investing heavily in the future.
- Traditional brands are tarnished with a history of killing 1-4 million people per year from pollution, in some cases cheating their legal mandate for profit.
