Impact Lab

Subscribe Now to Our Free Email Newsletter
April 18th, 2019 at 10:34 am

Billion-dollar bets on electric vehicles await payoff


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.

Via Axios



Comments are closed.

31 ways AI will affect the future of entertainment