By on July 22, 2011

When I was a very young and very green copywriter, Dr. Carl Hahn, at the time CEO of Continental Tires and later CEO of Volkswagen, said in an agency brief: “We lose 10 Deutschmarks on every tire we sell.”

“Then we better stop advertising them,” said I.

Hahn gave me a pained look. The look was followed by real and massive pain in my left foot, because my Creative Director had kicked me viciously.

“Ouch!” I said.

“You’ve got that right,” said Hahn.

That little story crossed my mind when I read in The Nikkei [sub] that “Mitsubishi Motors Corp.’s electric vehicles and other eco-friendly offerings are expected to begin contributing to the firm’s bottom line in two years.” This according to Mitsu’s Executive Vice President Hiizu Ichikawa. With its i-MiEV, Mitsubishi had been one of the first to offer a (well…) mass-produced EV. The cars are not necessarily flying off dealers’ lots.

“During the period covered by the current business plan, we hope to reach the point where they will no longer drag down our earnings,” Ichikawa said. The break-even level is of 60,000 to 70,000 units sold annually, and Mitsubishi hopes to get there in the fiscal year ending in March 2014. For this year, the optimistic plan calls for selling 25,000 units – at a loss.

Mitsubishi hopes to ignite sales by cutting prices and using a cheaper battery. Nissan goes to opposite route and raises prices for its Leaf.

This situation may explain why manufacturers with salable EVs are expanding production o0nly VEEERY carefully, and why manufacturers with EVs on PowerPoint charts or in prototype form  are reluctant to crank them out in high numbers. Although, as the kick under the table still reminds me to this day, if you don’t have the gumption for high numbers, you’ll never get your investment back.

 

 

 

Get the latest TTAC e-Newsletter!

13 Comments on “Green Cars In The Reds...”


  • avatar
    VanillaDude

    What business are they in?
    If they are in the car business, then they will only look at the bottom line. Profitablilty is vital, but it is only the fruit at the end of a healthy vine. You don’t earn that profit until everything else is in place, on time, and healthy.

    EVs are not profitable for a number of reasons. How you do EVs depends on your company’s profit environment. Some companies will start from scratch. Some will cobble together an EV from an existing structure. Others will use a different approach.

    Not every company can create a profit the same way because every company has a different profit environment. Some have a healthier fiscal foundation. Some have a healthier infastructure. Some have a healthier know-how. Due to the differing profit environments, we see differing market approaches regarding EVs.

    Will EVs become profitable? Sure – you just may not be able to afford one at the prices set. You may not get one that is very good. You might not get one before the market evolves away from the current EV offerings.

    It doesn’t mean EVs are “good” or “bad”, anymore than market success means cigarettes are better than cigars.

    • 0 avatar
      HerrKaLeun

      Obviously profitability is important. But most car makers don’t count on breaking even for a new type of vehicle for the entire first model cycle. For example, BMW projected the Mini to be profitable in the second model (which typically is 4-5 years away) (actually it broke even sooner, but that was unexpected. and in that case they didn’t even need to really invent anything)

      For an entirely new vehicle type a reasonable car manufacturer would allow more than a model cycle. the Prius I didn’t make profit (I think), but now is a huge financial success for Toyota and the powertrain research is used in many of their other models.

      The problem with Mitsubishi is, they don’t have any other exciting car to carry the financial burden. Considering this car is a Mitsubishi, it is quite successful I’d say. If a car has the 3 diamonds nowadays, the bar isn’t really high :-)

      I know many people here doubt EV will play major role any time. Maybe they never get 50% market share. but maybe 5-10%. And this would be more than many other niche vehicles. It wouldn’t be good to miss that boat the same way they missed the hybrid train.

  • avatar
    MrWhopee

    “Electric vehicles and other eco-friendly offerings”? What other eco-friendly offerings? It seems that Mitsubishi is banking its future on the i-MiEV, which has been around for a while now, and is too small anyway to sell at volume, at least in the U.S. It’s a specialty vehicle, kinda like the Smart or the THink City, not a mainstream volume seller. I doubt it will ever be. Can a manufacturer the size of Mitsubishi succeed by relying on a niche car as its main offering? Much smaller startup car company like THink (which presumably has much lower overhead than a company of Mitsubishi’s size) have gone bankrupt. Meanwhile, Mitsubishi did not seem to invest in the kind of cars that actually sell in volume…

  • avatar
    Banger

    Your opening anecdote reminds me of my time as a PR writer. My “superiors” didn’t care for such blunt honesty, either, which is why I only lasted three years at that company before going back to news writing, where I first learned to ply my trade. I quickly tired of the sycophants who refused to acknowledge truth in pursuit of some corporate communications goal. I especially didn’t appreciate being treated like I didn’t know any better than the average employee when I was being fed a line of BS, which was often, even though I had been the one tasked with brainstorming and writing the BS that originated what would become the BS party line. Puke.

    Back on-topic, VanillaDude nailed it. It’s not yet time for EVs to be profitable en masse. The EVs are “halo” cars right now, and are either priced accordingly, or are loss-leaders, or perhaps both. As to whether EVs will “evolve away from the current EV offerings,” I should hope VanillaDude is right. They’re far too resource-intensive to make sense at this point, replacing one presumably finite resource (petroleum) with resources that are presumably even more finite (heavy metals in those precious batteries).

  • avatar
    Darkhorse

    Change the name of the i-MiEV to “Zero” and they’ll sell a lot more of them. My WWII fighter pilot grand dad would love a ride.

  • avatar
    lw

    I’ve never understood the marketing of electric vehicles. I think all manufactures have the wrong strategy.

    Since it will take a couple decades for the product to make financial sense, they should be advertising on Nickelodean and the Disney channel. Get 4 year olds talking about the 2025 Volt at the day care center. Maybe do some joint promo’s with Gerber.

    I can see it now.. Spongebob fades out and here is the 2025 GM Volt with a new warning light to tell you to add fuel stabilizer since you’ve gone 6 months on the same tank of gas.

  • avatar
    AaronT

    Mitsubishi made one huge mistake: they managed to corner the market on EV news about two years ago with the iMiEV (now the “i”) and then failed to capitalize on it. Now they’re having to compete against other companies that 1) already have products on the market and 2) are selling those products cheaper. To counteract that, they had to lower the price on their hugely over-expensive MiEV to where it is now losing money.

    They also failed to note something else a lot of now-defunct EV makers learned the hard way: most people won’t buy a stupid-looking car. The Chevy Volt looks mainstream. The Nissan Leaf looks mainstream. The i looks like a plastic toy VW Beetle.

  • avatar
    Pch101

    Mitsubishi made one huge mistake: they managed to corner the market on EV news about two years ago with the iMiEV

    There is no market to corner. It’s a losing segment.

    Has there been a single company in the last 100 years that has managed to sell EVs for more than it cost to build, design and market them?

  • avatar
    AaronT

    The original price tag of the i would have made it profitable (it was to be sold at close to $60k). In 2009 they said their ROI on R&D would be about 2 years. They managed to line up many car companies to rebrand the i for sale in various regions. Everything looked pretty rosy, but then they hesitated release of the vehicles as they tinkered. I said “market on EV news” – are you saying there is no market for that? If so, let Yahoo Green!, Edmunds, this website, etc. know that because they seem to be marketing a lot of news about electrics. Had Mitsubishi capitalized on that, they could have made themselves the Toyota Prius of EVs, thus having a huge market advantage for the tiny sales market for electrics. Don’t underestimate that kind of advantage. When someone says “hbyrid” today, they usually think of a Prius. Like when someone says “cola” you automatically think of Coke or Pepsi.

    Tesla Motors showed its first profit in 2009, to answer your second question.

    I’m not a huge EV proponent, but I am a proponent of new technology. Discounting new tech just because it isn’t profitable immediately is asinine. With few incentives to do so, every major car manufacturer in the world (17 of them now) are working towards a hydrogen fuel cell car for on or before 2015. Profitable? Not for a while. But they’re doing it anyway. Why? Because they know they can sell them and that technology is progressing fast enough to make them marketable.

    EVERY technology you can name had a red ink status at one time or another before it became marketable. The computer you’re going to reply to this with was a rich man’s toy and high cost implement for a university less than three decades ago. Now? Common household implement.

    I will agree that battery electrics are likely only to be a small segment of the overall market, but I suspect that (mainly thanks to huge government interventions), they will exist for a while. Other tech that is more realistic, such as hydrogen, methane, etc., are more likely to dominate the alt market, which itself will likely find dominance over petroleum fuels in the next fifty years.

  • avatar
    Pch101

    Tesla Motors showed its first profit in 2009

    Tesla posted a net loss of almost $56 million in 2009, including a $52 million net loss on operations. It posted an even larger net loss in 2010 of $154 million, including a $146 million loss of operations.

    http://apps.shareholder.com/sec/viewerContent.aspx?companyid=ABEA-4CW8X0&docid=7772520#D10K_HTM_TX151489_24

    I said “market on EV news” – are you saying there is no market for that? If so, let Yahoo Green!, Edmunds, this website, etc. know that because they seem to be marketing a lot of news about electrics.

    Apparently not much of a market, because nobody can make money on it, including Tesla with its aforementioned losses.

    I’m not a huge EV proponent, but I am a proponent of new technology.

    I like new technology, but companies can’t be in the habit of throwing away large amounts of money on products that are doomed to be unprofitable.

  • avatar
    Pch101

    Tesla Motors showed its first profit in 2009

    Tesla posted a net loss of almost $56 million in 2009, including a $52 million net loss on operations. It posted an even larger net loss in 2010 of $154 million, including a $146 million loss on operations.

    (You’ll find this in the 10-K. I tried to post a link, but the forum seems to have problems with it.)

    I said “market on EV news” – are you saying there is no market for that? If so, let Yahoo Green!, Edmunds, this website, etc. know that because they seem to be marketing a lot of news about electrics.

    Apparently not much of a market, because nobody can make money on it, including Tesla with its aforementioned losses.

    I’m not a huge EV proponent, but I am a proponent of new technology.

    I like new technology, but companies can’t be in the habit of throwing away large amounts of money on products that are doomed to be unprofitable.

    I don’t see any evidence that there is sufficient demand for these cars for them to become profitable, and they certainly aren’t profitable now. Profits require volume, and they can’t hit those targets.

    • 0 avatar
      mazder3

      Locally:
      http://www.thetruthaboutcars.com/2010/11/tesla-lost-34-9m-in-q3-103m-year-to-date/
      http://www.thetruthaboutcars.com/2011/02/tesla-loses-154m-in-2010/
      Funny, the titles of the links say it all. :)

    • 0 avatar
      AaronT

      I was going from memory. Now that I Google it, I see you’re right. They turned a $1M profit in July of 2009. But according to Yahoo Finance (can’t link), they are currently showing a $30.7M profit as of latest quarter reports with only $3M in debt (over cash on hand). Even GM can’t meet those numbers.

      I think we’ll both agree, though, that most of the EV market is government-created via incentives, propaganda, and actual purchases (in the U.S. they account for the lion’s share, federally and locally, of EV fleet purchases).

      All I was attempting to point out in my original post was that Mitsubishi failed to harness their PR potential and is now paying the price. Had they released their cars when first planned (MY 2010), they could have demanded the high price tag they originally started with and probably sold thousands of units to government entities alone. Instead, they puttered around with car sharing (Car2Go) and trial fleet schemes that got them nowhere.

      Nevermind how stupid the i looks to start with (not to mention its impracticality).


Back to TopLeave a Reply

You must be logged in to post a comment.

Subscribe without commenting

Recent Comments

New Car Research

Get a Free Dealer Quote

Staff

  • Authors

  • Brendan McAleer, Canada
  • Marcelo De Vasconcellos, Brazil
  • Matthias Gasnier, Australia
  • W. Christian 'Mental' Ward, Abu Dhabi
  • Mark Stevenson, Canada
  • Faisal Ali Khan, India