Barriers to entry

It is getting easier for new entrants to make cars

Electrification is lowering the industry’s daunting barriers to entry

WOLFSBURG, THE company town that Volkswagen calls home, is drab. Most executives choose to live in the surrounding countryside or in Berlin, an hour away by train. Its function is to serve a carmaking empire that churned out nearly 11m cars in 2019 (pre-pandemic) and has vied with Toyota and the Renault-Nissan-Mitsubishi alliance to be the world’s biggest carmaker. It seems inconceivable that such a mighty firm, epitomised by Wolfsburg’s vast assembly halls, dedicated power station and towering offices adorned with giant company logos, could be under threat.

VW bosses want to reinvent the firm so as to make the most of established carmakers’ strengths, such as powerful brands, mass-manufacturing prowess and money, while learning from Tesla and the Chinese how to change their business. VW is symbolic of what Henrik Fisker, boss of an American EV startup, calls “a giant machine [incumbents] have to keep alive”. Philippe Houchois of Jefferies, an investment bank, says size matters to spread the industry’s high fixed costs and to generate the cashflows to pay for the EV transition. But, he adds, it is “hard to unlearn the past”.

The industry has refined itself since Henry Ford’s River Rouge factory, where raw materials acquired from mines or rubber plantations owned by the company went in one end, and a…