Automakers might have to wait 7 years for profits — study

Source: David Ferris, E&E News reporter • Posted: Friday, April 12, 2019

Carmakers plowing hundreds of billions of dollars into making new electric models might have to wait five to seven years before those vehicles start to wring a profit, according to a new study.

It currently costs on average $12,000 more to manufacture a single EV than a comparable car with an internal-combustion engine, said analysts at research firm McKinsey & Co.

Not all is gloom. Consumers are steadily warming to EVs, which passed the 2-million-units-sold mark worldwide late last year. Paths exist to make them cheaper, sooner.

But apart from a few premium models, OEMs (original equipment manufacturers) stand to lose money on almost every EV sold, which is clearly unsustainable, the report said.

The problem, put simply, is the battery.

McKinsey pointed out that lithium-ion batteries are the most expensive component of an EV. Put too many of them in the car, and it costs too much; put too few, and drivers shy away out of range anxiety.

Economies of scale will nudge battery prices down to levels where a profit can be made within five to seven years, McKinsey estimates.

These extreme price pressures are evident at Tesla Inc., which recently released its long-promised $35,000 Model 3. It only hit the mark by reducing costs through layoffs and by closing some of its retail stores.

Automakers will likely grit their teeth and accept the losses because of tightening regulations, especially in Europe and China, the report said.

While the Trump administration is attempting to roll back auto-efficiency standards, the opposite is happening in the European Union, which late last year adopted stringent tailpipe rules for 2030.

China, in a two-pronged effort to clear air pollution and to seize leadership in a new industry, provides heavy incentives for drivers to purchase EVs and requires foreign automakers to meet EV quotas if they want to participate in the world’s fastest-growing vehicle market.

The study’s authors suggested that OEMs could get in the money sooner by committing to dedicated all-electric platforms instead of attempting to straddle two drive trains. They also could take a hard-nosed but creative look at how the new vehicles could be designed more efficiently than the old ones.

An example of such creativity can be found at Volkswagen, one of the most aggressive EV automakers. Part of its plan is to turn other carmakers into customers by offering to sell them its modular all-electric platform, called MEB, developed at the cost of billions.