A new study is claiming that automakers lose an average of $6,000 for every $50,000 electric vehicle they sell. Boston Consulting Group, an American-based global management consulting firm that issued the report, said the figure accounts for customer tax credits — painting a rather bleak picture for the future of EVs.
However, this was attributed largely to the fact that automakers had spent so much upfront developing electrification. Assuming production continues and the public ends up buying them in meaningful numbers, EV profitability should improve over time. Of course, we’ve been hearing that for well over a decade at this point.
While segment growth has improved, it’s not happening at the pace industry leaders expected. Five years ago, automakers assumed electric vehicles would reach parity with combustion vehicles by roughly 2025. But none of the major markets are on pace to hit those targets.
Meanwhile, the industry projected a 70 percent EV sales growth for 2023 based on the sales growth witnessed during the pandemic. The reality is that the number was closer to 50 percent and has continued to weaken. Fresh EV registrations rose just 15 percent in January, according to data from S&P Global Mobility.
“This obviously caused a lot of consternation among our OEM clients who are pumping billions of dollars into these next-generation vehicles,” Andrew Loh, a senior partner for Boston Consulting Group, told Automotive News in an interview.
Profitability is the other big issue, with Loh suggesting that something will need to change if the industry cannot figure out how to make the next generation of all-electric vehicles consistently profitable.
From Automotive News:
Whether automakers have the “stomach” to keep investing “until they get to the level of scale and efficiency where they can actually turn a profit” is a question, Loh said.
Automakers differ in their approaches to EVs, but most have felt the punch of slowing sales growth. Toyota, for example, will buy credits to meet emissions regulations, choosing to base its EV plans on customer demand.
Ford, which less than two years ago said it wanted to eventually challenge Tesla in EV sales, has cut production of its electric F-150 Lightning pickup and halted shipments for an undisclosed issue.
Nearly 40 percent of 3,000 U.S. consumers surveyed by Boston Consulting Group in January said they intend to purchase an EV as their next vehicle. But they expressed strict requirements to make the jump.
EV intenders want 20-minute charging times, a 350-mile driving range and a price of $50,000, according to the group’s report on the survey.
That’s a lot to ask from today’s market, with the research team suggesting that the Hyundai Ioniq 6 is the only EV capable of even coming close to hitting those metrics. Tesla’s Model3 was runner up.
So what’s the solution?
Building better EVs would be a good place to start. With early adopters having already had their fill of electric automobiles, products will need to start catering to mainstream tastes if they want to see desirable sales volumes in the coming years. Unfortunately, industry trends for both electric and combustion vehicles have not been resonating with the public. Consumer satisfaction surveys have been on the decline for quite some time now.
Batteries will need to get better. But so will infotainment systems and the way in which we interface with vehicles (which includes user serviceability). As things currently stand it’s the new tech that’s serving as the biggest obstacle and the one that’s also being pushed to the forefront by the industry for the purposes of data harvesting.
Loh recommended manufacturers splitting costs with suppliers, rather than trying to go it alone. But the latter was long assumed to be the core business argument for EVs. Since they were assumed to require less labor, automakers could (in theory) streamline their supply chains and become less dependent on suppliers — ideally saving them some money. Unfortunately, high development and materials cost has made this impossible for the time being.
Platform sharing was another possible solution floated by the team. Rather than having a dedicated electric model line, it’s undoubtedly more cost effective to treat them as divergent powertrains for preexisting models. However, that requires a lot of advanced planning where this is taken into account when cars are still under development and the strategy is still not devoid of risks. By accommodating for EV powertrains, automakers may accidentally compromise the design of variants using combustion engines for propulsion and vice versa. When all is said and done, EVs and combustion cars are structurally dissimilar.
Automakers could likewise share designs and sell re-badged versions of EVs developed by rivals they’ve entered into strategic partnership with. Though there wouldn’t be much reason to do so if demand wasn’t there.
“There’s too much upfront investment, and there’s too much individual model risk for both vehicle manufacturers and suppliers to incur on their own,” stated aid Brian Collie, global leader for Boston Consulting Group’s automotive and mobility practice. “Partnerships and joint ventures are the way to drive greater scale.”
But the biggest issue is just how much money automakers have thrown behind EVs in the first place. They’ve spent a fortune already and are assumed to blow through roughly $1.2 trillion by 2030 in order to continue developing EVs that have yet to turn a profit.
“This obviously caused a lot of consternation among our OEM clients who are pumping billions of dollars into these next-generation vehicles,” explained Loh.
Boston Consulting Group seems rather skeptical about the viability of all-electric vehicles, even if the industry continues being supported by tax dollars issued on behalf of the government via subsidies. But the team argued that hybrids may be in a position to pick up the slack. Survey results suggested that EV fanatics were more interested in hybrids (especially PHEVs) than combustion vehicles and they likewise saw broader public appreciation than automobiles wholly reliant on electric motors. Hybrids are also better positioned to adhere to increasingly tough emissions requirements being pushed by most Western countries.
[Image: Hyundai]
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