Agency Warns Of EV Investment Pile Up Of Epic Proportions

AUG 4 2018 BY VANJA KLJAIC 36

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

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36 Comments on "Agency Warns Of EV Investment Pile Up Of Epic Proportions"

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Stimpacker

Really, so many hundreds of billions invested and only ONE company bothered to build a decent charging network????

Solution is to leverage existing operations to free up cash????

CDAVIS

@Stimpacker said: “Really, so many hundreds of billions invested and only ONE company [Tesla] bothered to build a decent charging network????”
——————-

It is amazing that the traditional car makers (individually and as a group) have allowed Tesla to be the exclusive provider of a convenient and reliable fast charge network for those occasional long distance trips.

Pushmi-Pullyu

No more amazing than that no gasmobile maker ever built its own nationwide network of gas stations.

What’s needed isn’t for every individual EV maker to build a network to rival Tesla’s Supercharger network. What is needed is for the different EV makers to agree on a set of future-proof charging standards, and then encourage independent entrepreneurs and/or electric utilities to build for-profit charging stations to that standard.

CDAVIS

@ said: “…What is needed is for the different EV makers to agree on a set of future-proof charging standards, and then encourage independent entrepreneurs and/or electric utilities to build for-profit charging stations to that standard.”
—————

That’s is exactly what the traditional car makes have announced they intend to do:

General Motors, Honda & Others Sign U.S. Electrification Accord:
https://insideevs.com/gm-honda-sign-electrification-accord/

Eventually the electric utility companies will step-in and install & mange a national EV fast charge network with each utility locally managing the network within their service region… the utility cos will operate as a consortium to decide on standards including an unified billing system that will be seamless across all regions… but all that will be years down the road when there are enough EVs already on the road to entice the electric utilities to capital spend.

In the mean time Tesla cars will have access to a robust convenient and reliable fast charge network for those occasional long distance trips. That gives Tesla a huge advantage for a long long while.

Hence the conundrum… if the majority of EVs sold in USA are Tesla’s (and Tesla has their own fast charge network) at what point do utility cos get enticed to act?

yo

Charging networks are cheap, easy, and quick to build compared to autos and autonomous driving…
Literally ANY BUSINESS could buy charging equipment and have it installed and it is all coming all over the EU and US right now in proportion to the amount of BEVs that need it…
Any billion dollar auto company could literally and I do men literally quadruple Tesla’s charging network within one years time frame…
It is simply not needed at this point…

The real risk is NOT spending money on BEVs and being left behind when the pricing of new cars flip flops and BEVs become cheaper than ICE which is supposed to happen by 2025 at the latest…

dan

Neither of those things is that difficult to do. Apple has enough cash on hand to build 50 giga factories and have enough left over to build 10 super charger networks. These feel like formidable advantages from the perspective of a scrappy startup like Tesla, but if and when EVs become truly profitable (they are currently not), the big guys will likely be able to enter the market as and when they please. Many of them aren’t even planning to dip a toe in till 2021 because they know that the market dynamics will be completely different then. Until then, Tesla likely has a chunk of the market to itself.

F teo

This is why investors are stumped as to why Apple is not investing heavily in Tesla as it is a prudent move at this stage.
https://www.youtube.com/watch?v=NUPRDJLW3go

CDAVIS

@yo said: “Any billion dollar auto company could literally and I do men literally quadruple Tesla’s charging network within one years time frame… It is simply not needed at this point…”
————-

*Could* but are not and will not.

To say “not needed at this point” is to say the traditional car companies are at this point not yet loosing material market share to Tesla which is not true.

yo

Of course they are losing market share and that is why BMW, Mercedes, VW, GM and Nissan have spent Billions on BEVs that will start rolling off the production line next year…

Not to the same extent but Nissan, BMW, Ford, Porsche, and VW have already started expanding the charging network more so in the EU than here but they have along with BP and Shell…

CDAVIS

@yo said: “…Nissan, BMW, Ford, Porsche, and VW have already started expanding the charging network…”
————

Thing is until a fast charge network is in place (which will be 3+ years out) Tesla will continue to exclusively have a robust convenient & reliable fast charge network advantage and continue to eat away at the traditional car maker market share.

I get the logic often presented of why the traditional car makers did not strategically organize to already have had installed a fast charge network ahead of EV volume production market supply but from a long-game strategic competitive perspective it will prove to be a *HUGE* blunder to have handed Tesla that advantage during the critical initial EV transition period where the consumer market is initially forming early opinion about EVs.

Vexar

Unless you count the VW lawsuit, which would make it two, although that was “dragged, kicking and screaming” on their part, the dirty cheaters.

Pushmi-Pullyu

Yes, but keep in mind that only a fraction of VW’s massive fine will be used to build out the “Electrify America” charging network. The rest of the money from the fine is being dissipated in a scattershot manner into various other things, including “education”. I’m guessing that means paying for PSAs on TV and radio? What a waste of money that would better have gone to building more public EV chargers, or paying for slow (L2) chargers in parking lots.

antrik

Considering the prevalent misconceptions about EVs among the general public, I don’t think it’s wasted.

yo

VW has also started “Electrify Canada” in addition to what they started building out in the EU neither of which are required by their diesel cheating ways…

In other diesel cheating news VW will now step aside for the largest ever US diesel recall…
https://www.greencarreports.com/news/1118016_cummins-issues-diesel-emissions-recall-larger-than-vws

pjwood1

Cummins “500k” don’t beat VWs 587k (US alone). Also, they had SCR, where most of the VWs didn’t, as the company was hiding behind the false effectiveness of its “lean nox trap”. I read your link. It says the issue was longevity, not that Cummins was failing the whole time and deceiving its customers (with a Clean Cummins program).

“step aside”. LOL. Do you work for VW?

yo

Dude that to Green Car Reports I just read the article and it is in their headlines…
Work for VW?? WTF??
I simply find it comical that almost every auto manufacture has been caught cheating in one way or another over the last 5 years…
They are all guilty…

Pushmi-Pullyu
“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.” That’s the only business strategy with a chance of winning during a disruptive tech revolution. Waiting for things to settle out means other companies will already have grabbed the “brass ring” of being a market leader. Yeah, a lot of startups are going to fail. That’s nothing unusual, about 90% of all startups fail. And the new car market is extremely competitive, so it may be — probably is — even worse for EV startups. But waiting until the market settles out means a company will wind up like Eastman Kodak, belatedly trying to play catch-up after a disruptive tech revolution is almost complete, and absolutely guaranteed to fail. “And to make matters worse, the automotive market itself is currently in a cyclical downturn.” Unlike the previous comments I quoted, I think that is actually a legitimate concern. Still, I think the odds are that the market leaders when the EV revolution is mature are mostly going to be the ones which started heavily investing in the new tech now… and not the ones which waited… Read more »
DamoclesAxe

I believe the automotive market is in a downturn *because* people are waiting for more affordable EVs!

Pushmi-Pullyu

I’d like to believe that’s true. 🙂 However, with less than 2% market penetration for plug-in EVs, I doubt it.

Nix

I was waiting for them to say we should all wait for fuel cell cars.

This just sounds like a rehash of all the old arguments why CARB should kill the ZEV mandate, just gussied up for 2018.

Nix

” 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.”

This is literally repeating the bogus meme of GM having spent $100,000 on every Volt when the Volt first came out. It is the bogus math that fails to understand the concept of long term investment. They divided research to date into short term numbers, and not over the life of the technology.

Mark.ca

No, no….look, this also applies to any other purchase/investment you make. After staying one night in my newly bought house you can say I paid $300k for one night. See, the math is sound!

antrik

I believe the $22,900 figure is for the actual hardware used in each vehicle.

While this is expected to fall over time, only companies like Tesla doing the no-lidar gamble have much cheaper autonomy hardware for now.

Brian

I think you’re using stock shorters math.

antrik

I didn’t do any maths. I just clarified what I believe to be the meaning of the cited number. (Based on what I vaguely remember from other sources on that topic.)

F teo

The current consensus is $10K in total hardware and software for SelfDrive (assume L4). The motors/actuators and sensor board are considered part of the main car itself. But consumers would pay $5K max. As in Tesla’s AP feature.

This $10 K is for consumer cars which is cheaper and less sophisticated than L5 used in AV ride-sharing cars. We are actually getting there but dragging out feet due to mitigated risks in the market.

Doggydogworld

Self drive h/w cost is almost entirely driven by LIDAR (or lack thereof). LIDAR has high cost today and future cost estimates that are all over the map, so it’s all guesswork..

EVShopper

“207 electric models are set to hit the market by 2022”!

Wow! I would like to see a list of those and where they intend to be sold.

David

200 of them are China only.

Brian

And half of those with fewer than four wheels.

antrik

A lot of them are not known yet — most companies only announce that they will bring a particular number of EV models to market by that time, without going into specifics…

antrik

Big surprise: in a gold rush, not everyone come out well off…

hpver

This sort of reminds me of the consultants who were wary of investing in cell phone technology, or wary of the digital music and video revolution. Both were inevitable in retrospect, and those who invested wisely and stayed in mostly made a ton of money. EVs are at least as equally disruptive, maybe more so. There will be a tipping point; waiting for it to arrive before throwing your hat in the ring is not the way to get ahead, either financially or as a company.

antrik

EVs more disruptive than mobile phones? That’s a big claim…

Mart Shearer

Per Wiki, ” AlixPartners has been involved in several high-profile turnaround and bankruptcy assignments including GM’s Saab division,[4] Kodak,[5] Barney’s New York,[6] and JC Penney.[7] ” Not much of a track record going for them, is there?

ekutter

Combing electric cars with autonomous cars in an article like this does electric cars a dis-service. Electric cars are here now and will be viable for most users within 5 years. Autonomous cars are making good progress but probably won’t truly be there for at least 10 years. So by bringing up the cost, viability, and time frame of autonomous cars when talking about electric cars, makes it seem like electric cars are further off as well. Everyone on this site understands the difference. But when they are so often talked about together, the general public will get the feeling they are one and the same and have all shortcomings of both.