Agency Warns Of EV Investment Pile Up Of Epic Proportions
Consultancy warns about potential pile up due to investments in the electric and autonomous vehicle sector balloon just as the market slows down
Currently, unprecedented sums of money are being poured into electric vehicles by hundreds of industry players. Everyone from newcomers to traditional players is betting on EVs and betting big. The industry, in general, seems to be devoting impressive amounts of money to electric vehicles. And for a reason. The EV revolution – as pundits call it – is bringing several revolutionary items in play: improved efficiency, less greenhouse gas emissions, improved performance and autonomous driving. However, according to a study by AlixPartners, there might be trouble down the road.
According to a recently revealed study, everyone is investing in fully electric and autonomous vehicles before the technology is ripe for cost-effective market saturation. Furthermore, the investors are betting heavily on an industry in a time where the consumers are questioning the cost & safety aspect of some technologies used. And to make matters worse, the automotive market itself is currently in a cyclical downturn.
John Hoffecker, global vice chairman at AlixPartners and a 30-year automotive veteran, said: “A pile-up of epic proportions awaits this industry as hundreds of players are spending hundreds of billions of dollars on electric and autonomous technologies as they rush to stake a claim on the biggest change to hit this industry in a hundred years. The winners in this free-for-all will be those who have the right strategies and, equally important, execute on those strategies to their fullest potential—as billions will be lost by many.”
The AlixPartners study finds that a whopping $255 billion in R&D and capital expenditures will be spent within the industry by 2025 on electric vehicles alone. Furthermore, a staggering 207 electric models are set to hit the market by 2022 – and many of them are destined to be unprofitable due to currently-high systems costs, low volumes and intense competition. A further $61 billion – just the opening ante in this high-stakes game – has been set to be poured into the autonomous-vehicle industry alone. However, according to one of the AlixPartners’ consumer surveys, consumers say they are willing to pay just $2,300 extra for autonomy—compared with current industry costs of around $22,900, or about 10 times consumers’ willingness to pay.
Mark Wakefield, global co-head of the Automotive and Industrial Practice at AlixPartners, said: “This is not the time for industry players to be leaving anything at all on the table, be it in terms of picking a growth strategy for the future or figuring out a bridge strategy so as not to run out of money before you get there. And that has to be accomplished in the midst of what is already the beginnings of a cyclical downturn in the market. In truth, this industry has been operating ‘above the clouds’ in terms of industry volumes for a number of years now, but those volumes are likely to edge down further, just as spending for things like electrification and autonomy need to ramp up.”
To make matters even worse, the AlixPartners study forecasts that the global auto market will grow at an annual rate of just 2.4% through 2025. This would put it behind the expected worldwide GDP growth of 3.3%. Furthermore, the U.S market continues its cyclical downturn this year. The market accounted for a sales volume of 16.8 million units, down from 17.2 million in 2017 and predictably, headed to a figure of around 15.1 million electric vehicles sold in 2020.
Light at the end of the tunnel or just the sign of a coming storm
While the industry predictions by the study aren’t that up taking, AlixPartners find a lot of reasons for industry players to be optimistic about electric and autonomous vehicles. According to the prediction set by the study, fully battery-electric vehicles will reach about 20% of the US market, about 30% of the European market and about 35% of the Chinese market by 2030. Additionally, autonomous vehicles are predicted to account for 3 million in sales by the same time in the U.S alone. A second AlixPartners consumer survey also finds that almost a quarter of Americans, 22.5%, say they’re “likely” to purchase a plug-in electric vehicle as their next car.
Shiv Shivaraman, Americas co-head of the Automotive and Industrial Practice at AlixPartners, said: “Industry players are sort of caught between a rock and a hard place: If they don’t participate in some way in the ‘new-mobility’ revolution that’s coming, they stand to lose out on what might be the biggest thing ever in this industry. If they do participate, as so many are, they have the chance of benefitting from first-mover advantages, but they also face the possibility of going broke in the process. The solution is to leverage your company’s existing operations to their absolute fullest, including wringing out every penny of unnecessary cost and maximizing every penny of revenue, so as to have the money available to fund your future.”
Another key point of the study is the incentives offered by local governments in order to push the EV adoption rates. The upcoming onslaught of new electric vehicle models in the following years is likely going to lead to high incentives in order to sell them. In turn, this will lead to greatly negative used-vehicle residual values and, in turn, a continuing spiral of lowered new electric vehicle sales. A point often overlooked is the introduction of fully autonomous taxis. AlixPartners study predicts that “robotaxi” – self-driving vehicles used by companies such as Uber or Lyft, usually sold at fleet level discounted pricing – will cannibalize retail sales in the US to the tune of 1.6 million units in 2030.
The study, The AlixPartners Global Automotive Outlook, was based on months-long analysis of data from both public and proprietary sources, and included two online consumer surveys of Americans age 18 and older possessing driver’s licenses – one survey regarding attitudes toward autonomous vehicles, conducted May 21-23 of 2,024 people; and one regarding electric vehicles, conducted May 30-31 of 1,500 people.
Source: Wards Auto