When Porsche and Rimac Automobil announced their plan on July 5 to fold Bugatti into a joint venture called Bugatti-Rimac, no member of the leadership team from the 112-year-old French brand joined the group that hosted the video event heralding the news.
According to a spokesperson, a public relations specialist from Bugatti did sit in on the call, although she presented no official remarks.
The absence of a Bugatti company executive at the table spoke volumes about how much of the brand—traditionally known for $3 million-and-higher, 16-cylinder objet d’art supercars—might survive in its latest iteration.
Probably not very much.
Rimac founder Mate Rimac says Bugatti will soon become like a Patek Philippe wristwatch: beautiful and highly coveted as a status symbol if, practically speaking, unnecessary in the digitalized modern world.
“With Bugatti, [it will be] like having a very cool analog Swiss watch—with electric input from Rimac for the more nerdy types of buyers,” the 33-year-old Croat told reporters on the call. Rimac will become the CEO of the joint venture company, Bugatti-Rimac, in the fourth quarter of this year.
A spokesperson for Bugatti said changes to the leadership of Bugatti Automobiles S.A.S. are not yet confirmed.
That’s a flattering comparison. Nearly 200 years old, Patek Philippe is one of the most profitable watch brands in history; there are waiting lists for the chance to own one of its mechanical timepieces.
Outside observers, however, see the reorganization as evidence that Bugatti in its current form lacked a role in Volkswagen AG’s plans.
Consolidation for Electrification
Bugatti fits poorly into VW’s new business strategy, which relies on its ability to produce and sell electric vehicles. In June, VW announced it would halt sales of combustion engine vehicles in Europe by 2035, by which time they stand to be outlawed in many European cities.
Britain’s prime minister, Boris Johnson, has said he will ban new cars and vans fueled with gasoline or diesel by 2030 to meet the U.K.’s climate target of net-zero emissions . Norway’s goal dates even earlier: by 2025. France and Spain have announced a target date of 2040 for a ban on cars with combustion engines.
“Volkswagen AG’s timely rollout of battery-electric vehicles in 2021 could be a step toward overtaking Tesla’s BEV (battery-powered electric vehicle) crown in 2023 and catching up on software by 2025, a view the market is only starting to see, helped by positive news on battery-cost savings,” said Michael Dean, an automotive equity research analyst for Bloomberg Intelligence, in a recent report.
“This is welcome as VW attempts to shrink its valuation gap vs. Tesla.”
What’s more, VW’s sports car brand Porsche is “electrifying sales” for VW AG with a potential 30% BEV mix in 2022-23 and as much as 40%-plus by 2025, Dean said.
The growth will closely resemble Tesla’s, but will have the high margins of a specialty brand such as Ferrari, justifying a whopping €55 billion to €80 billion ($65 billion to $94 billion)valuation scenario for an initial public offering for Porsche, he said.
Bugatti, meanwhile, is still selling such cars as the 1,480-horsepower Chiron Pur Sport, which gets eight miles per gallon in city driving. The brand traditionally does not disclose specific sales results but is known to deliver fewer than 100 vehicles globally each year.
Rimac characterized its acquisition as “removing some distractions” from VW. The deal stipulates that Rimac will hold 55% of the venture while Porsche/VW will hold 45%. Additionally, Porsche lifted its stake in Rimac to 24% in March.
Industry analysts seem to agree.
“We view corporate actions taken by VW group to focus attention on its core strategy of electrification across its key brands—VW Brand, Porsche, and Audi—as a net positive,” Tom Narayan, an analyst at RBC Capital Markets, told Barron’s.
“At a time when customers, especially younger ones, expect sustainability across all luxury segments, a combustion engine that empties the tank in around 12 minutes at top speed and consumes more than 30 liters of fuel per 100km in inner city driving has no future,” Daniel Langer, CEO of the luxury brand strategy firm Équité, wrote.
The Future Is Frugal
What does have a future at Bugatti are hybrid and electric cars, according to Rimac—and not even the extraordinary kind.
Bugatti will eventually produce some more affordable, less powerful cars at higher production volumes, he said. This would be an extraordinary move for a brand that built its name on extreme elitism, selling the fastest, most expensive, and most beautiful cars in the world.
“For us it’s about … securing the long-term survival of the company,” Rimac said in the videoconference call. “We want to make the company independent financially—being profitable, having a return on investment. We want to do that with a focus on efficiency.”
Rimac characterized the evolution as natural, saying he will not “artificially separate” Bugatti and Rimac as individual brands within the new company should they blend together beyond recognition over the next few years.
“It might need to converge,” he said.
Keyword: The end of Bugatti as we know it