Will the technocrats blink, will their eyes be blinked for them, or will, like the First World War generals they so resemble, they just plug on?
Back in January, Porsche announced that it would (over time) be reducing its workforce in response to weak electric vehicle (EV) demand and “challenging geopolitical and economic conditions.” The latter was partly a reference to slumping demand for Porsche in China, brought about by the country’s weaker economy and the fact that the Chinese have learned from Western auto manufacturers how to make their own, competitive, cars, thank you very much. Also weighing on Porsche’s finances was the need for it to invest more money in the production of conventional cars and hybrids, even though the company won’t be allowed to sell them in the EU from 2035.
Porsche’s second quarter numbers (released in July) were underwhelming, and it cut its guidance for the third time this year, on the last occasion mainly because of the Trump tariffs, which, although lower (at 15 percent) than first threatened, are far higher than the 2.5 percent that prevailed before “liberation day.” They were the last thing Porsche needed after the continuing collapse in China had left the U.S. as its second largest market. The stock is roughly flat in euros year-to-date but is down roughly two-thirds since peaking in 2021.
And so it wasn’t too surprising when Porsche announced on Monday that it had scrapped plans to make its own EV batteries (although it will continue R&D in this area).
Battery production is brutally expensive, requiring billions of dollars in upfront investment and scale that’s tough to achieve. And Porsche said it no longer saw a viable path forward for producing its own cells, given the pace at which the EV market is developing…
For European battery companies, it’s an incredibly tricky period. China’s battery makers not only have a stranglehold over the supply chains, but their production is mature and they can sell high-tech batteries to Western brands at lower costs.
In November, Northvolt, the Swedish firm that was once meant to be Europe’s EV battery champion — and was, oh yes, an ESG darling — filed for Chapter 11 in the U.S. It filed for bankruptcy in Sweden in March and has stopped operations. Most of it has now been bought by, oh the shame, an American start-up, Lyten, from (it gets worse) Silicon Valley, which is backed by Stellantis and Fedex, among others. Lyten may or may not do well, but the effect of the Northvolt collapse and other European battery fiascos, including that at Porsche, will, if the EU continues to force through its conventional car ban, be to deepen Europe’s dependence on China. What could go wrong?
EU automakers are trying to make Brussels see reason. The heads of the European automobile manufacturers’ and automotive suppliers’ associations have written to Ursula von der Leyen, the EU’s top bureaucrat, saying that “meeting the rigid car and van CO2 targets for 2030 and 2035 is, in today’s world, simply no longer feasible.” They are being polite. Those targets were never feasible. Embedding them into law was merely another example of central planners’ conviction that saying “make it so” will make it so. But Europe simply was not ready to switch to EVs on that sort of timetable.
Separating planned supply from a realistic assessment of demand (something better tested in the market than laid down by technocratic fiat) is a recipe for disaster, even more so when the supply is of a big-ticket item. People might gamble on a toaster, but not a car, especially as it is, for many, an essential: It is a purchase buyers must get right. Mutually reinforcing problems over mileage and access to charging (the latter no small matter in a bloc where a large percentage of the population live in densely packed cities filled with apartment buildings) meant that for many consumers EVs were perceived as not offering the reliability they expected in a car. If EV manufacturers, helped — if governments insisted — by a light thumb on the scale, had been allowed to develop their market more or less organically, things might have been different, but they were not.
The result in the EU, where the auto sector accounts for roughly 7 percent of GDP, is developing into an economic, political, and geopolitical catastrophe, with an endgame in which China dominates what remains of its auto industry. By contrast, the question in the U.S. is — so long as California-style regulators can be reined in, and federal deregulation continues — how bad and how long-lasting the damage that has already being caused will turn out to be.
The authors of the automakers’ letter, well aware of the political landscape in which they operate, still talk the climate policy talk (net zero by 2050, sure, sure), but argue for more flexibility:
EVs will lead the charge, but there must also be space for (plug-in) hybrids, range extenders, highly efficient internal-combustion engine vehicles, hydrogen and decarbonized fuels.
Will the technocrats blink, will their eyes be blinked for them, or will, like the First World War generals they so resemble, they just plug on?