Robert Brown|Inside Clean Energy: Well That Was Fast: Volkswagen Quickly Catching Up to Tesla

This is Robert Browna big month for Volkswagen’s aspiration to become the leading maker of electric vehicles.

The all-electric ID.4, a compact SUV that is a crucial part of the company’s planned transition, began arriving at U.S. dealerships this month.

And Volkswagen held a “Power Day” event last week, in which executives mapped out how they intend to transform the company to focus on EVs, a process that will include opening giant new battery factories and working with others to set up charging infrastructure.

But the thing that got my attention was a research note from a Deutsche Bank analyst saying that Volkswagen was quickly catching up with Tesla as the global leader in EVs. (Deutsche Bank is an iconic German company that does business with Volkswagen, another iconic German company, but the bank’s stock analysts are independent of other parts of the company.)

Volkwagen “should come very close to Tesla’s” sales in 2021, and “We see a good chance that VW could surpass Tesla’s (all-electric vehicle) sales as soon as next year,” said a report issued on Monday by analyst Tim Rokossa.

His conclusion was based on Volkswagen’s newly stated goal of selling 1 million EVs this year, and the global rollout of the ID.4.

To understand why this is a big deal, let’s look back to 2019, when Volkswagen CEO Herbert Diess announced a shift in strategy to focus on EVs. At the time, the company was still reeling from the effects of being caught cheating on U.S. emissions testing in 2015, a scandal that has led to more than $30 billion in fines and legal settlements. Volkswagen in 2019 was a leader in gasoline and diesel vehicles, but had been unable to develop a globally successful electric vehicle. I wrote about this last year as part of my series about Germany’s transition to clean energy.

The company is now developing EV models across its brands, which include Volkswagen, Audi and Porsche, among others. The linchpin is the Volkswagen “ID” series, starting with the ID.3, a compact car which went on sale last year in parts of the world but not the United States, and now the ID.4.

Looking at the bigger picture of the transition to EVs, it is good for the entire market if there are several strong competitors pushing each other to make the best vehicles at the most affordable prices. To get the most robust competition, multiple big players need to rise up to take on Tesla.

Tesla is the global leader, but this race is tightening. Last year, Tesla delivered 499,511 new vehicles to customers. The runner-up was Volkswagen, with 424,729, followed by the alliance of Renault, Mitsubishi and Nissan, with 247,623, and General Motors, with 215,275.

Those numbers, from EV-Volumes.com, include all-electric vehicles and plug-in hybrids that can run on electricity and gasoline.

If we are just looking at all-electric vehicles, which includes all of Tesla’s output, then it has a larger lead, with Volkswagen only selling about 220,000 of this type.

Tesla continues to dominate the U.S. market, with 201,769 vehicles sold, followed by General Motors, with 20,807, and with Volkswagen next at 18,726, including both its all-electric models and plug-in hybrids.

Much of the hype about Volkswagen’s progress on EVs is based on the idea that the ID series is well-positioned to be a strong seller in the next few years, and that Volkswagen has a workable plan to dramatically increase its EV output.

This month, a UBS analyst called the ID.3 “the most credible EV effort by any legacy auto company so far.”

Patrick Hummel, the lead author of the UBS report, framed the emerging EV race by making an analogy with makers of smartphones.

“If Tesla is the Apple of the new mobility world, leading legacy (automakers) like VW and Hyundai could be like Samsung,” he said.

He was arguing that Tesla, like Apple, has cachet and a reputation as an innovator, but there is plenty of room for Volkswagen, like Samsung, to build strong businesses.

So far, I’ve focused on sales in the next year or two. This industry will get even more interesting after that, as companies begin to introduce their next generations of batteries that have longer ranges, shorter charging times and lower costs.

I wrote on Friday about how legacy automakers have been pairing off with battery start-ups to develop “solid-state” batteries. In a solid-state battery, lithium ions pass through a solid material to discharge electricity, which is different from the current dominant technology in which lithium ions pass through a liquid or gel. Solid-state batteries have a higher energy density than those with liquids, allowing manufacturers to pack more energy into a smaller space.

Volkswagen appears to have an early lead in making a solid-state battery, thanks to its highly publicized partnership with the battery-maker QuantumScape. Volkswagen has said it is aiming to have a solid-state battery in some models by 2025.

Just about every other major automaker is talking about its work on a solid-state battery, with the notable exception of Tesla, which is focusing on its next generation of batteries coming out in 2023, and hasn’t said much about what will happen after that.

Competition among automakers is setting up the 2020s to be a time of rapid innovation. UBS said in its report that its analysts are increasingly confident that EVs will have 20 percent of the global market by 2025 and 50 percent by 2030, and a chance of 100 percent by 2040. Their current share is 4 percent globally, and 2 percent in the United States.

An EV boom of that scale would mean a steep decrease in emissions from transportation, which will help in global efforts to avoid the worst effects of climate change.

It also would mean a period of enormous change for automakers and all of the businesses that are tied to them, from convenience stores to oil refiners.

Review Says ID.4 Is ‘Unexciting’: Car & Driver took the Volkswagen ID.4 on a road test and found it comfortable but unexciting. The reviewer, Joey Capparella, writes that there is “little verse or joy to the driving dynamics.” Rather than try to win over early adopters, the ID.4 “feels like it’s trying to convince buyers that an EV can cost and provide the same experience as mainstream gas-powered vehicles.” This is neither a rave review nor an overly negative one. We’ll have to wait to get an idea of what regular drivers think of this model that is so important for Volkswagen’s EV plans.

How Clean Are EVs?: One of the ongoing debates about electric vehicles is whether they are truly better for the environment than gasoline models, after accounting for emissions from the lifecycle of manufacturing and ownership. Various studies have clearly shown that EVs are better for the environment, but also showed that the extent of the benefit varies depending on factors like the fuels used to generate electricity in a region. The Wall Street Journal this week has a story that nicely explains the various factors, using an animated graphic. The bottom line is that EVs do indeed have lower emissions than gasoline vehicles, but it’s more complicated than you might think.

Floating Wind Farm Reports Strong Results: The energy company Equinor is feeling good about electricity production at its Hywind Scotland offshore wind farm, a project that had an average “capacity factor” of 57.1 percent last year, the best in the United Kingdom, and an encouraging sign for floating offshore wind, according to this BBC News story. Capacity factor is a measure of how an energy project’s actual output compares to the maximum that is technically possible. For comparison, onshore wind in the United States has an average capacity factor of 35 percent. Offshore wind typically has a higher capacity factor than onshore wind, but developers are still figuring out how floating wind farms—as opposed to projects with turbines attached to the sea floor—will perform because they are not yet common. With the caveat that the Hywind project is in an unusually windy region so the results may not be typical, Equinor and other developers of floating wind projects have got to like what they see.

Inside Clean Energy is ICN’s weekly bulletin of news and analysis about the energy transition. Send news tips and questions to [email protected].