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Why Don’t the Big Car Companies Just Stomp On and Kill Tesla by Making Electric Cars Now?

If you want legacy car companies like Ford, GM and Chrysler to make electric cars only that would mean to ask them to at first lose billions of dollars on EV sales as Tesla makes money on theirs, while the legacies revamp their supply chains, acquire and implement new platforms on new battery tech, and hope these new cars will soon one day make money

Posted: November 13, 2018 - 3:08PM
Author: Al Castro

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Why don't the big car companies like Ford just start producing electric cars to eliminate Tesla's presence in the market? It can’t be done as it’s easily said, in fact ironically it’s the same reason why Tesla is having problems with growing pains building just electric cars. One thing is certain: Tesla is about to corner the EV market with their product portfolio of soon to be full line of battery electric vehicles with a world-wide supercharging network that supports them. And there’s not a single thing any one of the Goliaths like VW Group or GM can do about it but hope their electric products are as equally successful. Car makers: get to it!

They may look no differently from one another if car makers stop making EVs look so ugly as some of them do, but electric cars are much more different than gas vehicles, requiring what essentially is, a completely different and new business model for a completely different car. You really do need to almost start from the ground up if a car maker intends to transition from a gasoline car company to an all electric, full electric, zero emissions car company, as General Motors intends to do in the next decade.

What we are either asking or expecting the legacy car companies to do is to at first lose billions of dollars on EV sales as Tesla makes money on theirs, while the legacies revamp their supply chains, acquire and implement new platforms on new battery tech, and hope these new cars will soon one day make money. On the gas side as the transition goes along we are expecting the legacies to start losing money on gas sales as eventually those vehicles are phased out. These are money drains at both ends. Something has to and will give, especially if the economy takes a downturn.

There will be legacy car companies, particularly the smaller ones or less financially healthy ones that have less resources, that will not be able to sustain this transition, and will go bankrupt. You have to be a huge car company flush with cash to spend billions of dollars in development and production capital, and you have to try to keep both sides of your car production operation sustainable if not profitable, with electric cars losing money at first, then what’s left of the gasoline cars to start losing money as well, as you pare production down to eventually lose money last before finally eliminating them.

To be a successful electric car maker, not only do you need to have a good battery supply source, you really do need to have your own battery factory well stocked and supplied, and you really do need to have the latest most recent tech that’s the most affordable for mass production. Tesla and Chinese car maker BYD are the only ones on earth that have this dynamic to not make their cars too expensive to build or buy.

After you get your battery factory going with its supply chain, you set up a chain for the rest of the car. You need transition vehicles to help customers cope, change, and adapt, a dealer network that sells cars the old fashioned way for the gas cars and then the Tesla way since there are few if any incurring costs like maintenance, with an electric car. And you must try to keep both sides as sustainable as possible for your company’s investors, with either side losing as little money as possible as one side goes through growing pains, the other to eventually go into hospice care of the car industry and die if bankruptcy court doesn’t beat them there.

These things are not so easy to do. It’s just not a matter of stomping out your competition. In actuality, Tesla is doing this, not the other way around. See why: in Quora.

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Jim (not verified)    November 13, 2018 - 3:51PM

That's not the biggest problem facing car manufacturers in the US. If the manufacturers stopped building internal combustion powered vehicles, they'd face lawsuits from the 16,708 franchised dealerships in the United States, claiming breach of contract for eliminating product lines.

Al Castro    November 13, 2018 - 4:20PM

Anybody can sue for anything, they’d face lawsuits anyway regardless, and the law alllows for lead time for transition to end the dealership partnership as nothing lasts forever, and quite frankly sir, you’re wrong. Actually what you are proposing is an excuse that we should keep on making gas cars and that’s not going to happen, in fact, the companies that cannot sustain the electric model are bound for bankruptcy. This is why Mazda, Subaru, etc. do not have a robust BEV program other than perhaps PHEVs which is 2000 outdated technology. Do you have any children, grandchildren, nieces or nephews to be concerned about their future? I wish I can help you with this, to help you to wrap your arms around this. Even VW is starting to see the advantages of industrial assembly of electic cars in their simplicity as if they were washing machines. THis s why their VW. Neo is coming to the USA at $21,000 USD. Get used to this. They’re here. They’re coming. More in 2020. Battery electric Cars. The wave of the future.

Tom (not verified)    November 13, 2018 - 6:27PM

I really don't believe some of these claims. For one thing, the whole angle about losing half their profit on service? Yeah, whatever .... Every vehicle on the road today gets engineered with planned obsolescence in mind. They give a factory warranty of X number of miles and designers are instructed to build the parts JUST well enough to generally last through that much use. They get told to go back and redo things that are "over engineered".

If the big auto makers went to EVs, they'd just continue the same processes and procedures. You'd need to occasionally get one serviced, just like before, because they would keep initial profit margins up and costs down by electing to engineer them so they NEEDED that service.

Basic things like oil changes aren't generally big profit centers for dealerships. Some TRY to make them so by upping the prices, but people tend to just go elsewhere for cheaper oil changes when they do that. Usually, they're more of a break-even proposition that's used as an excuse to find other things on a vehicle that need repair.

With an electric car, you'll still need wheel alignments done and you'll still need new tires. Suspension components will still wear out the same as ever. And you'll still need body work done after accidents -- which is where they REALLY make some profits, especially with insurance paying for most of it. Things like the HVAC system will still break down, and you tend to have multiple cooling pumps and systems if you're going to climate control the battery itself as well as the cabin.

No -- the real reason the auto-makers haven't gone all out to switch to electric is because it has a huge up-front cost for them and no clear financial benefit. Look at all the people they employ who are experts in designing internal combustion engines. Those folks wouldn't necessarily know a thing about electric motors and batteries and the computer systems that do the battery management, etc. They'd have to hire a lot of people with different expertise. Then they'd have to re-tool the assembly lines and make new partnerships, or build new factories to build what's needed for an EV. They'd lose a lot of customers who simply don't WANT an electric vehicle right now, too. (A lot of people are still afraid to own an EV. Everything from range anxiety to lack of personal knowledge of how to service one, to practical problems like inability to install adequate charging for one, where they have to park it each night.

Frank (not verified)    November 13, 2018 - 6:28PM

Finally an article that wrote about the elephant on the corner. "More accurately the Dinosaur on the corner. "You need a dealer network that sells cars the Tesla way since there are few if any incurring costs like maintenance, with an electric car."

James (not verified)    November 13, 2018 - 6:29PM

Big automakers like GM, Toyota, Ford and Chrysler can't make as much money on selling Electric Vehicles as they can selling ICE cars and trucks.

Jim (not verified)    November 13, 2018 - 6:30PM

The half of all revenue for dealerships comes from the Service Department. If the manufacturer eliminated fuel pumps, mufflers, oxygen sensors, oil changes, head gaskets, transmissions, and alternators from their vehicles, that would pretty much crater dealers’ income from the cars they were selling. I think it would be sufficient cause for dealerships to take their franchisers to court over the lack of suitable product for their businesses to continue.

Jon (not verified)    November 13, 2018 - 6:31PM

In reply to by Jim (not verified)

You are right about the problem with service revenue, however, there is nothing in the franchise contracts which identifies servicable parts for the dealers (confirmed this with a buddy who owns three new car dealerships). In fact, there is nothing in the dealer contracts which define product lines or product descriptions. Manufacturers are free to to produce whatever type of vehicle they like and in most cases (not all) the dealers are free to purchase whatever vehicles they like for their dealerships.

The bottom line is that the dealer/manufacturer relationship will need to be re-negotiated. There will be not be "thousands of plaintiffs" since as my friend pointed out, they have a national association which would represent their interests in negotiating with the manufacturers. Some of these changes are already in place. Chevy dealers get an under the table "servicing offset bonus" for each Bolt that they sell.

The dealers will cooperate because their biggest fear is that if they don't, the manufacturers will setup their own stores to sell Electric Vehices and use the Tesla model. They actually know that they don't have a great deal of leverage here.