There is now no doubt that the era of the Electric Vehicle (EV) is upon us. Governments around the world are legislating for an EV only future, established car makers are pivoting their businesses towards EV and there is a plethora of start ups emerging in componentry, software, infrastructure and whole vehicles. This is disruption on a gigantic, global scale and all the hopefuls in this mix are positioning to take commercial advantage of this seismic shift.
At present and probably for several years yet to come, EVs are more expensive to produce than conventional Internal Combustion Engine (ICE) vehicles. At the same time, the attributes of EVs tend to converge in that they are faster accelerating, quieter and easier to maintain but also heavier than their conventional counterparts. This makes it difficult to deliver genuine differentiation across brands and nameplates and in the case of some established car makers, it runs counter to their heritage attributes to be able to build in low price points or dynamic agility for example.
Historically, brand and price point have been inextricably linked. This was brought home to me not long ago when a respected motoring journalist opined that BMW’s maximum price point was about £100,000. In other words, consumers would refuse to pay much more than £100k for a BMW no matter what the vehicle was like. If you accept the premise behind the statement, it becomes clear that there are plenty of established manufacturers with considerably lower price point maximums. Add to that, that if their heritage attributes are things like agility (Alfa Romeo and Lotus), low pricing (Fiat, Dacia and MG) or luxury (Jaguar, Lancia and Lexus), it becomes increasingly difficult for them to differentiate their way out of this conundrum. In many cases they will be forced to the limits of the brand’s price point, simply because the technology is inherently more expensive. Of course, the start ups, and noticeably Tesla, are not encumbered with heritage and can therefore build their market proposition and pricing less hindered. Clearly there are overall market considerations to be made but generally this is an advantage for the newcomers.
So, how can the industry effectively react to this challenge? First, the established players need to really understand their market price points and how they might be improved, if at all. Second, the attributes in the vehicle need to be tuned and focussed to meet customer expectations of the brand but only as far as is possible within the cost envelope that the price point will define. Third, cost engineering and rigorous design to cost techniques must be applied at the concept and vehicle design stages. In addition to getting the target Bill of Material (BOM) right, the vehicle assemblers must determine which elements of Intellectual Property (IP) in the vehicle they want to maintain and own. Buying in key components such as motors, power electronics, thermal management systems, assembled batteries and even whole skateboards probably is not the way to maximise profits, contain costs, achieve differentiation and/or own the lifecycle of the vehicle.
However, there are new business opportunities to be had as a consequence of the new world of EV. For the first time perhaps, vehicle makers stand a chance of being able to get a slice of the “whole life” cost/revenue of the vehicle and/or its parts. For example, providing infrastructure (e.g. Tesla Supercharger Network) or perhaps managing end of life battery value by repurposing and deploying them into storage devices (e.g. Tesla Powerwall) presents a new revenue opportunity. Vehicle batteries can also be used as a substitute for diesel gen sets or power grid storage devices and as such could become a major source of revenue in the future.
Given the above and given also that new EV projects tend to be “lumpy” in terms of financial/funding and resource requirements, it will be important for industry players to shorten time to market and use resources as flexibly and as sparingly as possible to ensure that products “hit the spot” at the right price point. As a result, being able to understand, benchmark and optimise key areas of operational cost within the engineering and production process will be critical, as will collaborating across old functional boundaries, especially between Engineering and Purchasing. The traditional approach of engineering components and subsequently passing them over to Purchasing to buy from disparate suppliers probably has to change as whole system cost and performance become the critical factors.
Whatever happens, there is clearly a massive paradigm shift going on in an industry that has been established over 120 years. Established brand owners need to think very carefully about how their customers will perceive their new vehicles and what they will be prepared to pay. Some Original Equipment Manufacturers (OEs) are already deploying the best of their heritage (Mustang Mach-E anyone?) in order to connect customers with the new product. There are even rumours of a new Viper-E from Stellantis. The future should certainly be interesting.
Share this insight
UK car makers will have to address some crucial challenges around battery production if they’re going to survive in an age of electric vehicles.
To plot their path to net-zero, businesses will need to instigate a bespoke decarbonisation roadmap and demonstrate their willingness to adapt their operations and systems.