The global market contraction raises the prospect of casualties. French finance minister Bruno Le Maire has warned that Renault, an early adopter of electric cars with models like the Zoe, could "disappear" without state aid.
Even Toyota, a hybrid pioneer when it first introduced the Prius hatchback in 1997, is under pressure. The automaker expects profits to tumble to the lowest level in almost a decade.
Automakers who for years have invested heavily in a shift to a high-tech future--including autonomous vehicles and other alternative energy-based forms of transportation such as hydrogen--now face a grim test.
Do their pre-pandemic plans to build and sell electric cars at a profit have any chance of succeeding in a vastly changed economic climate? Even as COVID-19 has obliterated demand, for the automakers most committed to electric, there's no turning back.
"We all have a historic task to accomplish," Thomas Ulbrich, who runs VW's EV business, said when assembly lines restarted on April 23, "to protect the health of our employees--and at the same time get business back on track responsibly."
VW pushes ahead
Global EV sales will shrink this year, falling 18 percent to about 1.7 million units, according to BloombergNEF, although they are likely to return to growth over the next four years, topping 6.9 million by 2024.
"The general trend toward electric vehicles is set to continue, but the economic conditions of the next two to three years will be tough," said Marcus Berrett, managing director at consultancy Roland Berger.
VW's Zwickau facility became the first auto plant in Germany to resume production after a nationwide lockdown started in March. Before restarting, the company crafted a detailed list of about 100 safety measures for employees, requiring them to, among other things, wear masks and protective gear if they can't adhere to social-distancing rules.
The cautious approach has reduced capacity--50 cars per day initially rolled off the Zwickau assembly line, roughly a third of what the plant manufactured before the coronavirus crisis. Persistent software problems also have plagued development of the ID3, one of 70 new electric models VW group is looking to bring to market in the coming years.
Still, Ulbrich and VW CEO Herbert Diess over the past three months have reaffirmed VW's commitment to electrification.
"My new working week starts together with Thomas Ulbrich at the wheel of a Volkswagen ID3 - our most important project to meet the European CO2-targets in 2020 and 2021," Diess wrote in a post on LinkedIn in April. "We are fighting hard to keep our timeline for the launches to come."
Diess has described the ID3 as "an electric car for the people that will move electric mobility from niche to mainstream."
Pre-COVID, the company had anticipated that 2020 would be the year it would prove its massive investments and years of planning for electric and hybrid models would start to pay off.
A more pressing worry that could hamper VW's ability to scale up production is its existing inventory of unsold vehicles. The cars need to move to make room for new releases, but sales are down as consumers are tightening their spending. One response has been to offer improved financing in Germany, including optional rate protection should buyers lose their jobs.
VW also has adopted new sales strategies first used by its Chinese operations, such as delivering disinfected cars to customer homes for test drives and expanding online commerce.
Other German automakers are similarly pushing ahead with EV plans. Daimler is sticking to a plan to flank an electric SUV with a battery-powered van and a compact model later this year. BMW plans to introduce the iNEXT SUV in 2021 as well as the i4, a sedan seeking to challenge Tesla's bestselling Model 3.
A potential obstacle for all these companies--apart from still patchy charging infrastructure in many markets--is the availability of batteries. Supply bottlenecks appear inevitable given that the number of electric car projects across the industry outstrip global battery production capacity. And boosting cell manufacturing is a complicated task.
China's (weakened) EV dominance
For VW and others, the first big test of EVs' appeal in a COVID-19 world will come in China. Diess has referred to China as "the engine of success for Volkswagen AG." VW group deliveries returned to growth year-on-year last month in China, while all other major markets declined.
Not long ago, China appeared to be leading the world toward an electric future. As part of President Xi Jinping's goal to make the country an industrial superpower by 2025, the government implemented policies that would boost sales of EVs and help domestic automakers become globally competitive, not just in electric passenger cars but buses, too.
With the outbreak seemingly under control in much of the country, China is seeing some buyers return to the showrooms, but demand for passenger cars is likely to fall for the third year in a row, putting startups like NIO at risk and hurting more-established players like Warren Buffett-backed BYD, which suffered from a 40 percent year-on-year vehicle sales decline in the first four months of 2020.
The Chinese auto market may shrink as much as 25 percent this year, according to the China Association of Automobile Manufacturers, which before the pandemic had been expecting a 2 percent decline. EV sales fell by more than one-third in the second half of 2019.
NIO, the Shanghai-based startup that raised about $1 billion from a New York Stock Exchange initial public offering in 2018 but lost more than 11 billion yuan ($1.5 billion) last year, was thrown a much-needed lifeline when a group of investors, including a local government in China's Anhui Province, offered 7 billion yuan last month.
Other Chinese automakers are counting on support from the government, too, including tax breaks and an extension to 2022 of subsidies, originally scheduled to end this year, to make EVs more affordable.
For now, the government will also look to help makers of internal combustion engine vehicles, at least during the worst of the crisis, said Jing Yang, director of corporate research in Shanghai with Fitch Ratings. But, she said, "over the medium-to-long term, the focus will still be on the EV side."
America is Tesla country
Companies can't count on that same level of support from President Donald Trump in the U.S., where consumers who love their SUVs and pickup trucks have largely steered clear of electric vehicles not named Tesla.
The U.S. lags China and Europe in promoting the production and sale of EVs, and that gap may widen now that Americans can buy gas for less than $2 a gallon.
"When you're digging out of this crisis, you're not going to try to do that with unprofitable and low-volume products, which are EVs," said Kevin Tynan, a senior analyst with Bloomberg Intelligence.
Just weeks after announcing plans to launch EVs for each of its brands, General Motors delayed the media debut, originally planned for April, of the Cadillac Lyriq EV. Then on April 29, the company said it would put off the scheduled May introduction of a new Hummer EV.
The models are part of CEO Mary Barra's strategy to spend $20 billion on electrification and autonomous driving by 2025, to try to close the gap with Tesla.
In another move aimed at winning over Tesla buyers, Ford unveiled its electric Mustang Mach-E last November at a splashy event ahead of the Los Angeles auto Show. The highly anticipated model had been scheduled to debut this year. Ford has not officially postponed the release, but the company has said all launches will be delayed by about two months, potentially pushing the Mach-E into 2021.
Elon Musk, whose electric cars dominate the U.S. market, is engaging in a high-profile fight with California officials. Tesla's factory in Fremont, California, closed because of the statewide ban on non-essential manufacturing, a policy Musk slammed as "fascist." The billionaire, in a May 11 tweet, vowed to reopen the plant in defiance of the county government. Then, on May 16 Tesla told employees it had received official approval.
During most of the shutdown in California, the company managed to keep producing some cars thanks to better relations with local officials regulating its other factory, in Shanghai. That plant closed as the virus spread from Wuhan in late January, but the local government helped it reopen a few weeks later in early February.