Luxury-brand free cash could speed EV transition, although profitability rooted in legacy ICE

European legacy car makers will continue to see most of their profitability coming from ICE vehicles, with battery electric vehicles (BEV) representing only 15% of operating income by 2025, according to Bloomberg Intelligence’s (BI) latest Global Autos Industry Outlook.

Michael Dean, automotive equity research analyst at BI, said the high cost of electric batteries which constitutes 40% of a car’s cost is keeping BEV margins well below a comparable ICE model, pointing out that Volkswagen said it will reach BEV-ICE profitability breakeven in 2026-27 – its previous target was 2025 - while Renault aims to turn BEVs profitable in 2025 through its electric branch Ampere.

He added that in the transition to BEV, luxury brands may be better positioned to reach profitability breakeven with brands like Porsche, Audi, BMW and Mercedes relying on strong pricing power and brand reputation to keep BEV prices high and improve their margins, ahead of mass makers.