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Carmakers are worried about ‘stranded assets’ in the process of electrification

06 January 2021

The Guardian has reported that carmakers are finding themselves in a ‘race’ to either shut, switch or sell factories which produce vehicles with internal combustion engines (ICE) as they adapt to meet the 2030 deadline of electrification. 

The increase in electric vehicle (EV) sales has reportedly eaten into the value of ICE factories, making them ‘stranded assets.”

Investment bank, Jefferies, analyst Philippe Houchois told the Guardian that carmaker’s share prices will depend on their ability to avoid such stranded assets. He said, “If you want to be a better valued carmaker you need to find a way to shrink your assets faster than a gradual transition to electric vehicles would suggest.”

Not only have EV sales risen, but the European Union (EU) mandated this year (2020) that average carbon dioxide emissions be limited to 95g/km across all cars sold – a limit which the UK will implement within its own emissions regime following Brexit. 

This new regulation has shifted the industry into gear, driving EV sales to avoid fines. Though, Volkswagen has already conceded that it will miss its 2020 target, incurring a fine estimated at around €270m (£248m), says the Guardian. 

David Bailey, a professor of business economics at the University of Birmingham, said the risks of stranded assets is higher given the likelihood of stricter regulations being introduced, particularly for German carmakers who have already invested heavily in diesels. 

He said, “You’re going to see the massive investment by the German makers in EVs, but they’ve got a huge sunk asset in diesels. They’re trying to eke out some sort of profit from their existing line up while investing in new technologies.”

David Bailey believes the ‘big issue’ for the car industry will be in the supply chain, among companies with limited flexibility to adapt from making parts for internal combustion engines.

We at Marshall Leasing are following news and guidance surrounding the process of electrification closely and trust you find this information useful. If you would like advice from our team of experts, please do not hesitate to get in touch with us at info@marshall-leasing.co.uk or by calling 01480 414541. 

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