If carmakers have any hope of making money on electric vehicles, they’ll need to re-think how they design and sell them, a new McKinsey study suggests.
Why it matters: Automakers will pour $255 billion into EVs by 2023 but are resigned to losing money on them for the foreseeable future — an expected outcome of a market dictated by regulators and lawmakers, rather than consumers. But because they’re key to future self-driving cars, they’ll keep investing in them.
The big picture: Right now, electric vehicles are an expensive black hole for carmakers.
- AlixPartners says the industry won’t make a dime on most of the 200-plus electric models set to hit the global market in the next few years.
- By 2030, Deloitte says the industry could produce 14 million more electric cars than there are customers.
- Yet driven by regulatory requirements, some companies, like GM and Volkswagen, are staking their future on mass production of EVs and say they’ll do so profitably.
- Carmakers are also relying on the electrical brainpower of EVs to manage the software and computing power necessary for automated vehicles in the future.
- With some creative engineering and new business models, McKinsey says companies can indeed make money on EVs.
By the numbers:
The high cost of rechargeable, typically lithium, batteries is the root of the problem.
- EVs cost $12,000 more to build than comparable gasoline-powered models, McKinsey says.
- The “payback period” for a $30,000 EV — how long it takes to recoup the higher price through savings on fuel and maintenance — is 5 to 6 years for a typical owner who drives 13,000 miles per year.
Yes, but: Most consumers aren’t willing to pay more for an EV, so carmakers need to either swallow the extra cost or make them simpler — and cheaper — to build.
Instead of designing cars that can accommodate either an electric or gasoline powertrain, carmakers could save money in the long run by investing in a new, simpler EV platform with fewer parts.
- But it’s a big bet: a dedicated EV platform costs about $1 billion to develop. (Both GM and VW are doing so.)
- Another problem is that today’s EVs have either too little range (100 miles or less) or too much (300 miles) based on actual driving patterns. McKinsey suggests a 40 kWh battery with a 160-mile range would suit most drivers and shave $2,000 in cost.
- Using more basic materials for things like electronics, seats and interior trims is another cost-saving tactic to make EVs more affordable. However, it’s one of the oldest tricks in the industry, and consumers know when they are getting a lesser product.
It’s not all about cost-cutting.
Targeting fleet customers with EVs or leasing batteries apart from the vehicles could stoke revenue and help carmakers crawl toward profitability, McKinsey says.
What to watch: Consumer attitudes are shifting, with more people indicating they would consider buying an electric vehicle. If so, that black hole might not be as deep as feared.