What is the path to profitability?
The cost of the battery supply chain is not coming down at the speed some people hoped. The reasons are that everything in that supply chain needs to be certified for automotive grade, for ESG (environmental, social and governance) compliance, and the batteries need to be made with renewable energy because otherwise the well-to-wheel emissions are incredibly high. The qualification of the entire battery value chain is costing a lot of money, and that comes on top of the scarcity of some of the minerals.
If automakers can't count on battery prices coming down fast enough, where should the savings be made?
To a large degree they have to come out of existing manufacturing. That requires a much higher standardization of platforms and a much lower complexity of the engine portfolio. I see no reason why engines shouldn't see the same consolidation as transmissions. BMW doesn't make a single gearbox itself, for example. I could ask why some brands even need to make their own engines.
What is the longer term impact of the COVID-19 pandemic?
The pandemic is another experience that no one in the industry would ever have thought possible. Stopping production from one day to the next and then only slowly ramping up again has led to the biggest drop in volumes in the history of global auto industry. This was a complete shock to the system. But, then we learned it's actually doable, that the industry can deal with such an extreme situation, which I find remarkable.
Are there any upsides to the pandemic for automakers?
We have seen a much stronger recovery of demand in nearly all markets globally, which is equally remarkable. Consumers have expressed a much stronger desire for cars, which is why we called it the reincarnation of the car. People suddenly realized how important individual mobility is to them, whether that's a weekend trip or holiday or whatever. The car is a private area that offers you freedom. We have also observed deurbanization, with many people leaving big cities and moving to the suburbs or smaller towns. The moment they do that they need a car. At the moment, automakers have extremely low inventories, used car prices are going up, new car prices are going up and the outlook for demand looks extremely encouraging.
What does this do to pre-pandemic plans in the mobility area?
It sharpens everything. Before the pandemic all the talk was about CASE [Connected, Autonomous, Shared, Electric; some companies reconfigured the letters to make it ACES]. What's left is the E and C, electric and connected. That's all. No one wants to share a car. Pretty much every car-sharing business had huge issues before [the pandemic]; now many are almost out of business. Ride-hailing will come back but we have all learned that it's not disrupting vehicle ownership. God knows when autonomous robotaxis will come. Whether that will offer an attractive business model is highly questionable.
How do these changes help?
That's what we call sharpening your edges, focusing your mind on what is core and stopping the spray-and-pray investment mentality. That's just not happening any more. Some of that had become obvious even before COVID-19, but the pandemic is giving executives more reasons to spend less.