The High Cost of EV Adoption Today
George Ayres Automotive | Leader | Sales | Marketing | Mobility | Connected | Electric | Autonomous | Shared | Revenue | Growth 18 articles The transformation of the auto industry from internal combustion engines to battery power is accelerating, no doubt about it. And the infrastructure, charging networks, and government support for this change are increasing. Consumer themselves are listening, learning, and becoming more interested in moving towards EV’s too. The article below describes a recent Consumer Reports survey that said 14% of people would definitely purchase an EV, but twice this number (28%) definitely “would not” consider an EV. What about the 58% in the middle? What will it take to move them? I think the main issue at the moment is not range, charging infrastructure, or fear of new tech. It’s simply cost. EV’s are expensive right now. Too expensive! And it seems things will be this way for at least 3 years. Let’s look at why. https://www.linkedin.com/embeds/publishingEmbed.html?articleId=8431522422095463804&li_theme=dark It’s clear that soon we will have many varieties of electric vehicles available, and some will be more affordable. All OEM’s are moving quickly. Just take a look at the center-spread of this week’s Automotive News (shown below) and you can see that every Automaker is moving faster to transform their product line-up to more EV’s. And States like California are moving to full EV only. But much of this terrific new product development is not helping buyers yet, as the models currently available for sale are all just too expensive. For example, the EV market leader, Tesla, has not expanded its model range for awhile, and even the Model 3 starts at $45k. Ford has the F-150 Lightning and Mach E, but they both cost $40k or more, and very hard to get. And yes, the Cadillac Lyriq sold out in a few hours, but it is in very limited production and costs over $60,000 which is much more expensive than the majority of the buyers in the new car market can afford. And because GM is no longer eligible, there is not even an EV tax credit for this vehicle. But GM did recently reduce the price of the Chevy Bolt. So GM is clearly thinking about EV affordability. https://www.linkedin.com/embeds/publishingEmbed.html?articleId=8673126474556867075&li_theme=dark But all of the new EV vehicles are not here yet. And people need to buy something, or upgrade their current vehicle, and can’t wait. Supply is constrained due to the ongoing semi-conductor chip shortage. And component material prices for batteries are increasing, especially for lithium and cobalt, due to the overall growing EV demand. See the article below from Alix Partners, a research firm, outlining the current situation. One key point they mention is this comparison. “At $3,662 per vehicle (in the US), ICE raw-material content is nearly double pre-pandemic levels. This pales in comparison to BEV raw-material content, which is now $8,255 per vehicle. The disparity is driven largely by cobalt, nickel, and lithium prices.” https://www.linkedin.com/embeds/publishingEmbed.html?articleId=7764712561928756266&li_theme=dark While new advances in battery technology like “solid-state” batteries promise better range and greater materials supply, these batteries currently cost four times more than standard lithium-ion batteries, exaggerating the current problem. Toyota is well placed to lead in this area, but it will be awhile before we see the majority of vehicles with solid-state batteries. https://www.linkedin.com/embeds/publishingEmbed.html?articleId=9124043172319042537&li_theme=dark Add in rising global inflation, which means you can buy less for the same money, and a war in Ukraine which keeps energy markets volatile, and no wonder consumers are hesitating. While they are paying $5 for gasoline, and sure don’t like it, coming up with the cash for a new EV is getting harder and harder. For example, the average new car payment is now over $700 per month. Since the cost of borrowing is rising as the Fed raises interest rates to combat inflation, car buyers can either buy less car, or they have to put up more of their income for a car. Since all other prices are also rising, like mortgage payments, groceries, and school supplies, they feel the squeeze. https://www.linkedin.com/embeds/publishingEmbed.html?articleId=7812184282103910342&li_theme=dark And the average car loan length is now six years, which means that consumers that buy ICE vehicles today will be “upside down” a few more years longer, meaning they will owe more for the car than the car is worth. A negative equity situation. We have seen this phenomenon in the car market more than once, and it never works out for the either the consumer or the automaker. It delays purchases and keeps people trapped in their old technology. The average car on the road in the US is currently 12.2 years, which is much longer than historically we have seen. The current financing market dynamics are suggesting this may get even longer. The promise of a new EV will be in the distant future for too many. https://www.linkedin.com/embeds/publishingEmbed.html?articleId=8622472421372719983&li_theme=dark So if OEM’s want people to move to EV’s they need to bring affordable EV’s to market. They need to work with the government and their ecosystem to ensure that there is wide penetration of EV infrastructure. And of course the government needs to increase EV incentives and encourage more switching from ICE to EV, and not with just tax cuts. What about helping people pay for installing home chargers? While there is good commitment for this from the current administration, these programs are not yet simple, practical, and easy to access. Why not a “voucher” system for anyone buying an EV from a dealer, or even online, to receive a rebate on the cost of a home charger. Tax credits are hard to access and too far removed from the original cost outlay. Consumers need relief on this cost more quickly. https://www.linkedin.com/embeds/publishingEmbed.html?articleId=6987414249488379809&li_theme=dark Overall consumer will move to electric vehicles, the trend is now inevitable, as product development cycles for automakers are many years long. The ocean liner turns slowly. So we will see lots of EV choices for new car buyers in a few years. And high volume categories like Pick-up trucks will even be very EV
Expanding EV Charging – Some Practical Issues
“We want to give customers the right tools and access to charging where and when they need it, while working with our dealer network to accelerate the expansion of accessible charging throughout the U.S. and Canada, including in underserved, rural and urban areas,” said GM President Mark Reuss in a statement.
In The News
Will the Chevy Bolt recall change EV adoption? Last week GM’s CFO reassured Wall Street that the company will recover the over $1 billion cost of the Chevy Bolt EV recall, with the battery maker, LG Chem, paying GM back for the expense. While as an automaker, recovering direct costs from suppliers for warranty expenses is a routine matter, this is a high profile, high visibility situation for GM. The company has made tremendous progress moving toward an all-EV product line-up, branded their battery system the “Ultium” (which is pretty cool branding actually), and even changed the corporate logo to be more hi-tech looking. Will this recall cause any slow-down in EV adoption for GM? I say short-term yes, long-term no, for three reasons. First, the transition to electric vehicles is happening globally much more rapidly than most previously expected, and this will not slow down for some recall events here and there. EVvolumes.com has reported that in the first half of 2021, global EV sales were up 168% over last year. Of course, the global pandemic had a dampening effect in the first half of 2020, but this is still much more growth than the mainstream auto market. It seems like we are finally “crossing the chasm” as technology adopter guru Geoffrey Moore famously put it in his seminal book of the same name. There is no looking back now. Second, automakers have had many brushes with bad PR due to perceived safety issues and always gotten beyond them. Ralph Nader made his name by attacking a GM vehicle, the Corvair, in the 1960’s, and GM overcame this issue. Audi in the 1980’s suffered sales declines due to perceptions of “sudden acceleration” in some of its models, and now Audi is a very strong brand in the US market. Toyota even had some of the same issues with perceptions of sudden acceleration a few years ago, and this does not seem to be an issue for consumers who are still buying Toyota’s. Overall, these kinds of issues do affect the short-term sales of a model, and the brand as a whole, but longer-term they are soon forgotten. The global chip shortage will probably have more effect on GM’s EV sales near term. Finally, consumers are changing and their expectations will need to be met by progressive companies, and offering EV’s will be a requirement. Tesla has had some bad press a few times along the way but overall they have built a very positive and favorable image for themselves among consumers. Customers like Tesla’s large touch screens, over-the-air-software updates, and “autopilot” automated driving technology. They are looking for similar features from all other EV choices, and the winners will be those that provide the best value which can be thought of as the Total Experience divided by the Total Cost. Savvy consumers will continue to drive the automakers to supply EV’s loaded with hi-tech features and that need little maintenance. In the end, yes, this is a stumble GM could have lived without, and it is great that they will recoup some costs from their supplier. But consumers now have a taste for the future of “mobility” and EV’s are a critical part of this. More EV’s for sale by more OEM’s will be required, and GM will continue to drive much of the progress. Let’s help them change the planet! News Source: https://www.thestar.com/business/thestreet/2021/09/10/general-motors-stock-jumps-as-cfo-sees-battery-recall-cost-recovery-stable-chip-supplies.html?es_id=7968cdc9b4 You can subscribe to the AutoMobility Roadmap for free and continue to follow the dynamic and changing automotive mobility world. If you’d like to engage directly with the team at AutoMobility Advisors, contact us or contact us via Linked In. View and Subscribe to the Automobility Roadmap on LinkedIn here.