How Can Companies Make Electric Vehicles More Profitable?

MAY 11 2018 BY EVANNEX 37

MCKINSEY REPORT: 4 STRATEGIES TO MAKE ELECTRIC VEHICLES PROFITABLE

Will 2017 be remembered as the year when electric vehicles (EVs) made the move from niche production to the mass market? Noting that roughly 1.3 million EVs were sold around the world last year, a 57 percent increase over 2016 sales, global consultancy McKinsey predicts that EVs’ share of total passenger vehicle sales could reach 30 to 35 percent in major markets like China, Europe, and the US by 2030. In partnership with automotive benchmarking specialist A2Mac1, McKinsey recently took a deep dive into EV technology and identified four strategies that automakers should follow to remain relevant as the industry transforms itself.

Read Also: General Motors Promises Profitable Electric Cars By 2021 … But How?

*This article comes to us courtesy of EVANNEX (which also makes aftermarket Tesla accessories). Authored by Charles Morris. The opinions expressed in these articles are not necessarily our own at InsideEVs.

Above: Tesla Model 3 (nstagram: andreaskreuss)

EVs reached a major milestone in 2017. The main obstacles to mass market adoption have been driving range and price. With the launch of Tesla’s Model 3 and GM’s Chevy Bolt, both of which offer a range of over 250 miles, McKinsey believes that the range issue has basically been solved, and that automakers can now focus on reducing price points, either by increasing design efficiency or reducing manufacturing costs. To be successful at this, McKinsey believes they will need to follow four technical strategies.

1 – Build native electric vehicles

Native EVs – cars built on a custom electric platform, rather than adapted from legacy fossil-fuel vehicles – cost automakers more to develop, but offer multiple advantages. A native EV doesn’t have to be designed around bulky components that are no longer needed, such as drive shaft tunnels and exhaust systems, so it can accommodate a bigger battery pack. The pack can also be placed where it makes the most sense – at the bottom of the vehicle. This “skateboard” design, made famous by Model S designer Franz von Holzhausen, has since been copied by other automakers. Not only does it improve handling by giving the vehicle a lower center of gravity, it also opens up much more space for passengers and cargo.

2 – Push the boundaries of powertrain integration

McKinsey’s benchmarking revealed a continuing trend toward EV powertrain integration: EV-makers are integrating components such as inverters, motor controllers, etc, into fewer modules. One indicator of the increased level of integration is the design of the electric cables connecting the main electric powertrain components (battery, motor, power electronics and thermal management). McKinsey observed a decrease in both cable weight and the number of parts in the latest electric models compared with earlier vehicles.

Above: Comparing electric vehicle powertrains of Opel Ampera-e (the European variant of Chevy Bolt) and the Tesla Model 3 (Source: McKinsey / A2Mac1)

EV powertrains are inherently more flexible, as the components are generally smaller, and designers have more freedom to place them in the best positions to optimize space. McKinsey found that the Chevy Bolt seems to use an ICE-like positioning of its powertrain electronics, whereas the Tesla Model 3 integrates most components directly on the rear of its battery pack and rear axle.

3 – Stay ahead in the technology game

Electric vehicle customers tend to be tech-savvy – they expect to have the latest driver-assistance systems, connectivity features, and infotainment goodies. This almost obligates EV manufacturers to equip their vehicles with the highest levels of technology available. However, McKinsey sees this as an opportunity, as it creates a great testing field for the new technologies that OEMs and third-party providers are developing.

Vehicle controls are steadily migrating from physical knobs and switches to a more central, smartphone-like user interface. Of course, Tesla’s Model 3 is the ultimate example of this, but most EVs are following the trend of clearing the clutter. “We observed EVs in our benchmark that have as few as seven physical buttons in the interior, compared with 50 to 60 in many standard ICEs,” says McKinsey.

Above: An emphasis on tech inside the Tesla Model 3 (Instagram: bens_tesla)

Behind the scenes in vehicles’ electronic control units (ECUs), the trend is also toward more consolidation. Legacy autos are controlled by a jumble of different computer systems, often from different suppliers, that talk to each other in limited ways or not at all. Once again, Tesla led the way. In a 2014 interview, Tesla founder Ian Wright told me that his 2008 Volkswagen probably had “sixty or seventy electronic black boxes, 300 pounds of wiring harness, and software from 20 different companies in it.” Tesla’s vehicles use one central computer system. “The major reliability problem with those cars is the electronics and software,” said Wright. “I think Tesla did take a real Silicon Valley systems architecture perspective in designing all the electronics in the Model S.”

In an EV, electronics and software are the heart of the vehicle, and Wright predicted that, as the majors began to produce EVs, they would eventually be forced to adopt a more systems-oriented approach. McKinsey found that this prediction is coming true. Automakers are finding that a centralized approach gives them the chance to own a key control point in the vehicle, helps to save on weight and costs, and may improve reliability. Central, high-power ECUs “could also be the backbone for developing fully autonomous driving.”

4 – Design to cost

Legacy automakers are still struggling to make a profit on their EVs, mainly because of high battery costs (not Tesla, which claims to be earning margins of over 20% on Model S and X sales). Now that the range issue has been more or less solved, McKinsey believes OEMs will need to apply design-to-cost (DTC) strategies to produce EVs at attractive price points while earning decent margins. Fortunately, this is something that established OEMs and suppliers are good at, so they may be able to quickly catch up. For example, improvements in battery technology may allow automakers to switch from lightweight but costly aluminum to more cost-efficient steel (a shift Tesla has already made with Model 3).

Above: GM’s Chevy Bolt (Instagram: senoresteevo)

Can the traditional automakers make money in the volume EV market? Many industry observers are skeptical – one reason for the companies’ reluctance to embrace EVs may be that they see them as a lower-profit proposition. In the first public acknowledgment of this dynamic, Daimler recently announced that it foresees an end to profit growth this year, partly due to the high costs of making the shift to EVs. Certainly, it’s difficult to imagine that any EV will ever yield the prodigious profits of a vehicle like Ford’s F-150 pickup, which has been called the most profitable consumer product in history.

However, McKinsey believes that, if automakers heed its sage advice and take the aforementioned four EV design steps into consideration, they should be able to reduce the higher manufacturing costs of EVs and find their way to a positive mass-market business case. An era of profitable mass-market EVs could be on the horizon, and that would be good news for consumers, the environment – and forward-looking automakers that are willing to take some risks and embrace change.

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Written by: Charles Morris; Source: McKinsey / A2Mac1

*Editor’s Note: EVANNEX, which also sells aftermarket gear for Teslas, has kindly allowed us to share some of its content with our readers, free of charge. Our thanks go out to EVANNEX. Check out the site here.

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37 Comments on "How Can Companies Make Electric Vehicles More Profitable?"

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For most consumers to really start buying an EV as their next vehicle, it makes sense to me that we need some mid size SUV or CUV offerings having 250-300 miles range and costing $25-$30k. Think Rogue, CRV, Crosstreck etc.
Fortunately by 2020 we’ll have decent 150+ kW ultra fast charging infrastructure coverage in the U.S. thanks to Electrify America, which is great because that’s a huge barrier in people’s minds too. But I hope we see these electric SUVs coming then too.

The Tesla model Y is right in that segment you have mentioned. Their price will start right in that area too. Most important is they have Nationwide Super Charging so it can go anywhere with no problem.

Model Y will be more money.

The Y will be closer to $45k than $35k. Hopefully it will come in at $40k but I wouldn’t hold my breath on that. The base 3 will probably end up closer to $38k, not $35k, but it will still be a great vehicle at that price.

Brent oil price now up to $77/barrel and well on the way back up to the $100 level, even with Trump’s “unleashing of America’s energy”. Though politics and short-term economics have much to do with oil price, depletion never sleeps. By 2025, regardless of short-term energy policies, shale revolution will have played out and average oil prices will be well over $100/barrel again. Unsold gas-sucking PU’s and SUVs will again litter dealer’s bargain-basement back lots and the public will finally embrace a mature-and-ready electric vehicle industry. Those auto manufacturers who are already preparing for 2025 will survive and thrive selling profitable and popular products. The others will face the consequences of their myopia.

And stupid American OEMs like Ford and Chrysler (and yes I realize that Chrysler is now owned by Fiat) that have abandoned cars for gas-guzzling Trucks/SUVs will be DOA unless they have done the hard work of lining up huge battery supplies and have the engineering in place to really electrify all their models.

Their loss won’t be mourned.

With certainty like that you can make billions in oil futures.

If EVs stay focused on the personal car market, even with rapid growth they won’t cause oil consumption to peak until 2027-28. But Robotaxis and EV trucks both have outsized effects on oil consumption. Unlike consumer cars, both are huge economic winners, which should drive rapid adoption. Combined they could cause oil consumption to peak by 2021-22, and cause oil prices to crash as soon as 2020.

(⌐■_■) Trollnonymous

Easy, just don’t make a Fugly clown car like the Bolt and people may want to buy one.

It’s all in the eye of the beholder.

Looking at the sales scorecard the clown car bolt is trending down. Looks like the eyes are more beholden to the Model 3.

That is true, Brandon, but most beholders think the Bolt is ugly as sin. And probably designed to be ugly. You don’t end up with a nose like that by accident.

Subjective. The Bolt looks a hell of a lot better than the original Leaf. It’s not sporty looking but I think it looks much better than many other vehicles on the road.

True, but the leaf is at the bottom of the barrel so nothing to brag about.

Ugly SELLS in America. Have you seen SUV sales?

The Bolt a fine looking hatchback.

Turn in your man card when you buy the Bolt. While you’re at it tuck, in your testies back to the pre-drop position.
Butt ugly Bolt with a sh1tty battery pack that might fail on you.

Your vehicle will not help you with your inferiority complex.

Clearly you feel the need to compensate for your, um, shortcomings. Worse, you’ve come here to expose yourself.

Dude, where do you drive. Because the roads are filled with ugly SUV, including BMW and Acura, not to mention ugly trucks.

The Bolt is better looking than 89% of the cars on the road.

” The Bolt a fine looking hatchback. ”
Stop! You are killing me! Fine looking? The Bolt? ROTFLMAO!

A $12,000 Versa becomes a $24,000 eVersa.
That is not rocket science.

(⌐■_■) Trollnonymous

Good point.

Even better would be an eSentra.

You get my point, batteries/motor versus engine/transmission is not more than twice the price.

GM has stated they intentionally wanted the ability to build both the ICE Sonic and the Bolt EV simultaneously on the same assembly line (despite being on different platforms)…This was the reason for the Bolt EV has doubled stacked battery modules in the rear, to fill the “gas tank void”…

I mostly agree with this article, but I strongly disagree with taking physical buttons away from EV’s. Having everything controlled via touchscreen is going to cause some headaches because people may accidentally press the wrong thing, or what if the center console suddenly dies?

Then there’s also the issue of fingerprint smudges all over the display. Unless you’re obsessed about cleanliness, all the fingerprints can get distracting when trying to use the touchscreen.

The first gen Chevy Volt was heavily criticized for the center stack that was touch sensitive. And since the “buttons” were all very close to one another, people could easily hit the wrong one, like say accidentally turning on the passenger heated seat when trying to adjust fan speed for climate control.

Not to mention having to look at the center stack, which also means you’re not paying attention to the road. And we all know a lot of people already have issues with that regarding smartphones.

The Gen 2 Volt returned a lot of physical buttons for climate control, which makes it safer and easier for people to use.

I read on one report where the Model 3 got into an accident and the screen got damaged and rendered useless. The driver couldn’t open the glove box to get the insurance papers.

I want voice controls. Lower front passenger window, or turn up the temp by 4 degrees, play KXYZ radio station, etc.

That will make most buttons necessary.

It really needs to work first, though.

Gesture control. Much more dependable, and much less prone to interference.

(Said in the voice of look-alike Sean Connery from the old SNL Celebrity Jeopardy skits)… I’ll show ya a gesture Trebek! 😉

“Having everything controlled via touchscreen is going to cause some headaches because people may accidentally press the wrong thing…”

There are legitimate concerns (and problems) with having almost all functions controlled by the one central screen, but here you’re just inventing FUD. And why? You’d do far better sticking to the real issues than making up B.S. All you’re accomplishing is damaging your own credibility here.

Nobody is complaining about pressing the wrong button on the Tesla Model 3’s touchscreen. That’s not the problem, at all.

“Then there’s also the issue of fingerprint smudges all over the display.”

Good grief. 🙄 Get yourself a spray bottle of screen cleaner and a rag, keep them in the center console…

And quit whining.

You’ll pry my knobs and buttons from my cold, dead fingers 🙂

This article ignores the actual #1 way that auto makers will bring down the cost of EVs: Simply build more of them!

As production of EVs is scaled up, economy of scale will bring the unit cost down. And as they gain more experience with building cars designed to be EVs from the ground up, the ways auto makers can save money will become obvious — as a result of both planning and happy accident.

Auto makers have had, by now, well over a century to figure out less expensive ways of building gasmobiles. It’s going to take some time to approach the same level of expertise in building EVs.

Yes, and like Henry Ford: Build a battery factory.

What the Dickens has an Ampera got to do with anything?! It’s a HYBRID, FCOL! I really had a lot of time for McKinsey but to conflate EVs with Hybrids is just idiotic nonsense!

Gosh, all that ranting for no purpose at all!

The article mentions an Ampera-e (Chevy Bolt EV), not an Ampera (Chevy Volt).

Even for EV “purists” who want to pretend that only BEVs are “really” EVs, and that the letters “EV” in “PHEV” don’t actually mean “EV”…

Even for such narrow-minded people, the Ampera-e still belongs.

“This “skateboard” design, made famous by Model S designer Franz von Holzhausen, has since been copied by other automakers.”

Franz von Holzhausen is a great designer but not an engineer. The skateboard concept came from a GM project that preceded the Model S by a number of years.

https://www.forbes.com/sites/samabuelsamid/2016/05/23/the-father-of-the-skateboard-chassis-dr-chris-borroni-bird/#710d15627b30backing

Franz von Holzhausen worked at GM during this time designing the beautiful Pontiac Solstice and Saturn Sky.