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Auto chiefs warn of supply chain threat to electric vehicle launch

Tesla and VW lower delivery expectations because of chip shortages and raw material costs

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VW ID.3 electric cars in production. Referring to the rollout of electric vehicles worldwide, VW boss Herbert Diess said many people were ‘a bit over-optimistic’

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The world’s largest automakers have warned that supply chain disruptions and rising commodity prices threaten the spread of electric cars, even as demand for battery-powered models far exceeds the capabilities of electric cars. The manufacturers’ current production.

Speaking at the eighth Financial Times Future of the Car Summit this week, Tesla President Elon Musk questioned his company’s ability to meet its goal, set just a few months ago, of delivering 20 million electric cars to the world a year to the end of the decade. He described it as “an ambition, not a promise.”

“We may stumble and miss that goal,” Musk, an uncharacteristically conservative, said at the conference. “There are some feedstock limitations that we expect to emerge, in lithium production, probably in about three years, and in cathode production,” he added.

Musk’s comments were echoed by several other industry leaders at the annual event, in contrast to previous summits where executives announced increasingly ambitious goals for electric vehicles.

In 2021, even as the semiconductor shortage showed few signs of abating, Mercedes-Benz chief Ola Källenius told the audience that his company would run “faster” when it came to phasing out combustion engine models and building electric alternatives.

But the tone at this week’s top was noticeably more conservative. No senior executive has announced higher targets for electric vehicle sales or battery production. Tesla’s closest rival, Volkswagen, which has long aimed to outpace its rival in electric car sales by 2025, has played down the prospects of achieving that goal, calling it “too narrow”.

“I think a lot of people are now very optimistic,” said Herbert Diess, CEO of Volkswagen, referring to the launch of electric cars around the world.

Speaking from the back seat of Volkswagen’s latest electric model, a zero-emissions version of a 1960s motorhome, he added: “We need energy, we need charging networks, we need infrastructure, of course we need cars, but we also need batteries and materials. raw.”

Dies said industry analysts did not take “the amount of effort he would have to put into this change seriously enough”.

The warnings from the largest producers of electric vehicles came as consumers’ appetite for battery-powered vehicles continued to exceed industry expectations.

After Volkswagen, which plans to sell nearly 700,000 electric cars in 2022, revealed that it had sold all battery models in the US and Europe for the rest of the year, Mercedes-Benz’s Kallenius told the summit that “this was pretty much true for us as well.” .”.

Tesla’s Musk said he believes “nothing about demand generation and more about production, engineering and supply chain,” adding that he wouldn’t rule out buying a mining company to secure the raw materials needed to speed up the manufacture of electric vehicles.

Ongoing bottlenecks in the supply of key battery raw materials have dampened analysts’ expectations for the electric car industry as a whole.

Wells Fargo researchers who examined commodity prices for components in the Tesla Model Y this week found “several surprises that challenge the notion of imminent adoption [of battery electric vehicles].”

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Tesla boss Elon Musk being interviewed at the FT’s Future of the Car summit this week.

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The bank warned that “rising raw material costs for batteries have reduced the cost parity of [battery electric vehicles] with [internal combustion engines] by at least a decade,” referring to a time when zero-emissions cars became as cheap as gasoline or diesel. synonymous.

As a result, Wells Fargo analysts cut General Motors and Ford’s ratings, as US automakers will likely have to sell [battery electric vehicles] on the basis of losing money “to meet ever-increasing regulatory targets.”

His assessment was matched by Renault CEO Luca de Meo, who told a Financial Times conference that supply chain crises mean that “the game has changed” and that automakers must “play by new rules”, which will make them dependent on energy efforts. and mining companies.

He warned that the French group may not achieve cost parity for mid-range models by 2025 and that this could reduce demand for electric cars. “We know that the purchasing power of people in many regions of the world will not necessarily increase,” de Meo said.

At the same time, generous subsidies for electric car buyers in China will be removed by the end of the year, making it difficult for low-income people to switch.

Stellantis, which owns budget brands like Dacia, has warned of a battery shortage in just two to three years, making it difficult to launch affordable electric cars.

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Elon Musk Intervierw

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“The speed with which everyone is now building battery manufacturing capabilities is probably the limit to be able to support the rapidly changing markets in which we operate,” said Carlos Tavares, President of Stellantis.

“We are not approaching this shift with a 360-degree strategic approach,” he added. “Everyone is going to put electric cars on the market. What next? Where is the clean energy? Where is the charging infrastructure? Where are the raw materials?”

To help with the raw materials crisis, Callenius called on Mercedes Europe to imitate raw material procurement strategies implemented by China and the United States and develop “more bilateral trade deals.” . . Perhaps outside the three traditional regions.”

He said the EU should consider signing deals with mineral-rich countries like Australia and India, as well as South American countries, and forging closer ties with “the economies that might have some of those raw materials we need for electricity”.

But most executives agreed that the industry’s problems would not go away quickly.

“[This] is very different from what I used to say a year ago, which is, you know, we are getting better, getting better, one day we will be perfect,” said Ashwani Gupta, chief operating officer of Nissan.

“For me today, the supply chain crisis is the new normal.”

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