Tesla teaches car rivals to love each other

By REUTERS | 5 December 2016


LONDON: Tesla and Google are forcing established carmakers to shift into a more cooperative gear.

Spurred on by Elon Musk's upstart, four of the industry's biggest rivals are teaming up to build charging infrastructure for electric cars in Europe. More collaborative deals are bound to follow.

The move, announced on Nov 29, is the second major example of cross-company partnership after BMW, Daimler and VW's Audi brand teamed up in 2015 to buy Nokia's digital maps division for €2.8bil (RM13.29bil), including debt. That deal was a response to Google, which owns digital maps and is investing in driverless cars.

As conventional engines struggle to meet ever-tighter emission rules and battery prices fall, established carmakers are gradually turning away from the internal combustion engine.

BMW, Daimler and Volkswagen all put electric cars at the centre of their new mid-term strategies in 2016. Daimler plans to spend €10bil (RM47.49bil) – 15% of its market value – in the field by 2025. Volkswagen reckons that, in 10 years' time, one in four of the vehicles it sells will be electric.

But drivers will only buy battery-powered cars if they can easily recharge them en-route. The associated infrastructure does not come cheap. A high-speed charging station currently costs up to €25,000 (RM118,734) and loses money on an operational basis. If the market share of battery cars rises to 20% of new sales within a decade, building the necessary charging infrastructure in Europe would add up to an investment of more than €2bil (RM9.49bil), a Breakingviews calculation suggests.

Counting on stretched governments or outside investors to build this crucial infrastructure would be a gamble for carmakers – particularly as Tesla already operates its own proprietary charging network. Sharing the bill eases some of the pressure on already-bloated research and development budgets.

Carmakers are likely to team up in other areas as well.

Joint production of battery cells is one obvious candidate for partnership. Shareholders will welcome collaboration that helps lower costs. But consumers may see a dark side. The risk is that old rivals form a cozy cartel, or use the new alliances to freeze out competitors. Trustbusters will need to keep their eyes on the road.

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