Why Can’t OEMs Dial It Up And Overtake Tesla In The EV Race?

DEC 13 2018 BY EVANNEX 128

WHY BIG AUTO JUST CAN’T SQUASH TESLA

In what must be one of the longest headlines in history, Bill MacDonald asks, “Why don’t bigger car companies such as Ford start producing electric cars, eliminating Tesla’s presence in the emerging market, thus claiming said market share for themselves?”

*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’s Model 3 (Image: Vlad Tchompalov)

The answer, as MacDonald reveals in a recent article published in Quora, is simple: Because they can’t.

Many have mocked Tesla for “bleeding cash,” although Tesla would probably rather describe what’s been going on as “investing in new products.” As the legacy automakers expand their EV offerings, they will soon be bleeding cash as well, as one after another Big Auto exec has admitted.

Shifting production from ICE vehicles to EVs can’t be done by simply flipping a switch on the assembly line. “New battery and powertrain tech has to be engineered,” MacDonald writes. “Manufacturing for those parts has to be established. Supply chains for new types of raw materials have to be established. Platforms that accommodate efficient EV operation have to be engineered. Branding and marketing strategies have to be figured out. Shipping, sales, and service logistics and training have to be established. And in the end, the product can’t just be any EV. It has to be competitive with a Tesla.”

The old-school OEMs can choose to bed down on a rock – build new factories and logistics networks for EVs – or on a hard place – dismantle existing facilities and retool them to produce EVs.

Above: Factories producing internal combustion engine cars will need to adjust to address battery electric vehicles (Image: The Manufacturer)

Either option is going to require massive new investment. How much? MacDonald figures it will cost “roughly the time and money that Tesla spent, minus some savings for being more efficient about it than Tesla has been. Even if you can do it 30% more efficiently than Tesla has done it, you are still talking about 11 figures [tens of billions].”

If and when the automotive giants do start producing EVs in volume, their woes will be just beginning. The greenie and techie early-adopter buyers have already gone electric, so once the volume market gets rolling, every buyer of an EV will be one less buyer for a dinosaur-burner. That means the automakers will be cannibalizing the ICE business that they are still paying big money to operate. Right now, they’re enjoying huge margins on gas cars, especially trucks and SUVs, but they aren’t able to earn anything like those margins on EVs – indeed they’re lucky to make any profit at all.

MacDonald sees that situation reversing over time. “The minute your EVs become competitive, you will slowly start making less and less money on ICEVs, as the volume drops and economies of scale reverse. The margins on ICE will dry up much faster than the margins on EV will grow. There will be a gap. During this gap, you will still be pouring cash into EV factories and logistics, while your profits have suddenly dried up.”

The worst parts of the story for the majors have to do with battery supplies and sales and support logistics. Today, only Tesla and BYD have control over their own battery cell supply chains (although Daimler has taken a step in the right direction with its acquisition of German battery-maker ACCUmotive). In order to secure enough batteries at a competitive price, the legacy brands will have to make massive investments of time as well as money, long before they start seeing much profit from EV sales.

Above: According to UBS, Tesla’s batteries are 20% more cost efficient than the next best on offer from LG Chem (Source: Financial Times via UBS)

Furthermore, the majors’ business model is based on franchise dealerships, which MacDonald calls “a way of subsidizing the sales and support logistics of making cars, via the heavy cost burden of routine service and non-warranty repair.” But service revenues for EVs are sure to be much lower. As Tesla has shown, they may turn out to be virtually non-existent. How are the automakers going to respond when their dealers lose their most reliable income stream? “If they have a higher cost of routine maintenance than Tesla, their cars will be seen as inferior and people will buy Teslas instead. If they match Tesla’s lack of maintenance [requirements], their sales operations will go out of business and they will have to spend even more money to build a non-franchise sales and service operation just like Tesla had to do.”

In the end, the old guard will end up in the same situation they’ve been knocking Tesla for: “burning cash and being unable to generate profits, staring at a massive chasm of time and money that stands between them and re-established profitability.”

Tesla just barely managed to cross this Valley of Death three times, and the giant automakers, which have access to plenty of capital, should be able to do so as well. But some current trends are ominous. Auto sales are slowly contracting as more people opt not to own vehicles. Trade wars and high tariffs are also hurting, as are the costs of trying to keep up with rising emissions standards in some key auto markets. Some of the smaller and/or less well capitalized brands may disappear.

As MacDonald sums up, the legacy automakers are facing a hard choice: “Keep making ICEs and slowly watch your profits get eaten by Tesla, BYD, Nio, etc, or risk a dangerously expensive crossing through a transition period of cash burn and negative margins.”

===

Written by: Charles Morris; Source: Bill MacDonald via Quora

*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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128 Comments on "Why Can’t OEMs Dial It Up And Overtake Tesla In The EV Race?"

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I pondered this question many years ago when many people said big 3 can make EV “just like that” with a snap of a finger when/if it proves to be profitable. I came to the conclusion of main argument in this article that they need to invest heavily before becoming profitable, though I don’t think it’ll be anywhere close to what Tesla’s spent. Share holders will not allow such large investment that may not pan out to take place “just like that”.

Why it may not pan out? Consider Bolt. Bolt is selling in small numbers despite having them in sitting in dealer lots and post subsidy price almost half of Tesla 3, yet people still wait for unavailable Tesla. This is after GM investing / learning from Volt and SparkEV (the best tiny car ever made) spread out over almost a decade. It ain’t easy, and chance for failure is high.

Is it really “sitting on lots” or stuffed to only a limited number of locations, because they don’t really want to sell that many (costs them money), and neither do their dealers.

bro1999 who lives in MD bought the Bolt when Bolt was only available in CA. Yes, they are sitting on lots available to be purchased by everyone in the country.

But the design was sabotaged in key ways. Ways GM doesn’t get wrong in other cars. Painful seats? Glare off windshield? Cheap looking interior materials?

They’ve been optimizing those for decades in their ice offerings. Yeah they can use cheap materials and not look cheap. They do it every day.

Designed to fail.

> SparkEV (the best tiny car ever made)

I know, right? Given that it started out as a cheap hack of a cheap car, the Spark EV is amazingly good. Think what could be done in the same form factor: 40ish kWh skateboard battery, rear drive, better suspension, slightly better interior and fix the damn radio, but keep it tiny and cheap.

Good summary!
Sometimes people think it’s just to be evil the old farts still produce old fashioned products. They want to survive.
I see many different companies and few have the tight set ups that car manufacturers have. It’s not a coincidence that not all car companies are still alive.

And yet, I wonder if there were a real visionary at Ford, would the CMAX have gotten ZERO battery improvement, hurting sales, over 7 years?

The hybrid concept is 20 years old, and the old guard still hasn’t built a plugin-hybrid pickup, and there’s no hybrid pickup for sale. As these things knock back a lot of gas and a lot of MONEY, there surely would be a market for a real hybrid pickup.

But, aside from Ford’s Eco-Fraud Gas Guzzling engines, there’s been no innovation at all in the auto industry.

There were a few big suv hybrids, but they had almost no increase in mileage. Certainly not worth the cost.

RAV4 hybrid changes the paradigm. 39 MPG from a AWD decent size SUV with a minimum premium, it will have an audience for those looking for something better.

I don’t think I’m alone in saying: no plug, no sale,

Design choice. Electric drive overcomes ice limitations in heavier vehicles.

Companies have tried hybrid pickups, but they didn’t sell because they cost too much and didn’t save anywhere near enough on fuel. With modern technology they may be able to make them economically now, we’ll see when Ford release their PHEV.

Unfortunately cost is important. Cost comes down as technology improves. We’re currently just reaching the crossing point for more mainstream vehicles, so in the next few years we should be seeing a lot more hybrid and BEV vehicles.

Will Ford follow GM and, as stupid and obvious as it is, experience how truck buyers will have no need for a pickup truck that will travel 15 miles on electric but cost them $60,000 – 70,000? Two years ago, GM made a small batch of Silverado hybrids and only tried to sell them in California. Dealers told me the trucks sat on their lots for over a year because GM loaded them with options and tried to get a premium price. These are the geniuses that have been making us cars for 110 years?! Honda did the very same thing the first time they attempted to hybridize the Accord. They only offered the hybrid Accord equipped as top of the line with all options included. These were $41,000 Accords in the early 2000 model years! No takers? Of course not. The saying goes: “Smart ls learning from your mistakes – WISDOM is learning from others’ mistakes”. GM isn’t wise, nor are they smart. They tried the very same formula years earlier with their 2-Mode Hybrid Silverados and Tahoes. Those hybrids were top line expensIve and not very economical in MPG. This shows us how stubborn and resistant legacy OEMs… Read more »

On the flip side they may have loaded them with options to cover the increased drivetrain price, so they could actually make a profit on the vehicle.

It’s not like top of the line Pickups don’t see in and of themselves.

I wonder if any other EV maker ever started with expensive models and worked their way down?

But those expensive EV’s displayed off major advantages for their expense, like ludicrous acceleration and little noise.

The Ford PHEV pickup might crack it, as they will be selling it on availability of auxiliary power for tools and camping.

Or you miss read their intent.

Not sure you can sell a pickup that can’t tow. Designing a PHEV for towing + efficiency is hard. For example, I tow 2500 lbs frequently, and I use a cheap gasser tow vehicle. A BEV (ModelX) won’t work because towing range is only a fraction of normal EV range. A PHEV would work, but which PHEVs can tow 2500lbs? Outlander PHEV & Crosstrek PHEV (1500 lbs), Niro PHEV & PacHy (0 lbs) all can’t do >2k lbs. I think Volvo XC PHEV is the cheapest at $53k. It’s cheaper to drive a BEV daily, but keep a gasser tow vehicle sitting parked and insured for car trips & towing, than it is to try to get daily plug-in benefits and also highway/distance towing capability >2k lbs.

Hybrid would work magic. More inertia to recover braking. Starting off burns amazing amounts of fuel. Heck you could get to 20 by last stop from 30 with just the electric power. There’s a reason all the trains and huge earth moving equipment is diesel electric.

You ever hear them bring up the “soul” and how EVs have no soul because they hardly make a sound? Walk away from the conversation, as they will turn it into “you don’t understand my combustion religion.”

Meanwhile, Tesla is within 2% of GM’s market capitalization, and making a run for it this week!

Spot on! And that´s the core of the problem talking about pollution, co2 etc: freedom of religion!

The challenge is not trivial, but the big boys have made big changes and survived in the past – one such example was the shift from body on frame RWD to unit body FWD. All new platforms. All new engines and transmissions. Big cost – exectuted with few casualties. They will do it again. Why haven’t they done it yet? Big companies are profit engines and major changes will not happen until profits are guarenteed. As of a few months ago, by Musk’s own words, profits in volume EVs was by no means guaranteed. Note that Musk also stated that even with the wildly successful Model3, they can’t make the $35k version profitably yet, which is still a fair bit over the average transaction price for a car int he US (all light vehicle average is about $36k, which includes SUVs, luxury cars, etc) Now that there is (all of one, very recent) example to work from, we see signs of the big boys coming. Ford and GM cancelled “old world” product lines to invest heavily in EVs. Big announcements from the Germans are all over this site lately. They’re coming. Like a freight train, they take time to get… Read more »

If I could “thumbs up” this 1000 times, I would.

I would also add, though, that a key part of the “car companies are profit centers” part, which I wholly agree with, is that the decision makers know if they go all-in on EVs they’ll pay the short term price for the change in reduced profits and stock price but they’ll almost surely be out of the job before the payoff materializes.

Biggest profit hurdle to EV is the battery. Currently, they’re about $120/kWh, slated to be about $100/kWh at lowest (despite Tesla claims for even lower). That puts bottom end price for EV of about 200 miles range. That ain’t happening much lower than $35K.

Story will be different if there’s a battery breakthrough. But extrapolating current trend, legacy OEM won’t be able to make anything compelling. Tesla’s big selling point is the badge which the legacy OEM can’t hope to match. Why buy a Kia Stinger with better performance when low end BMW can be had for similar money?

Can you give us the numbers how many Volts were made Total? Bolts Total? Why did GM farm out the whole drivetrain to LG ? The Infotainment is very good because it is LG right? the Bolt is over 60% LG ,so who makes the Bolt?, maybe they should stick an LG logo on it.It would look good beside my microwave, fridge and stove and washer dryer set,LG I hear Samsung makes good appliances ,and Cellphones too. Oh i forgot my Flatscreen tvs.

Unlike Tesla who refuse to make enough to meet the demand, GM made 500 billion Volts and Bolts (1 trillion cars total), but people only bought about 20,000 per year. Much of the rest went to EV heaven with roughly 5000 sitting on dealer lots at any given time.

As for LG, who the hell cares? Tesla isn’t producing a single $40K EV, let alone $35K whereas GM is producing them in far more than demand.

LOL

GM, like every other legacy OEM, is looking for a segment (or trying to invent one – 4 door coupe EREV Volt, for example) that fits well with low consuner uptake and not competing with any ICEV profit center in their very large product lines.

Your Spark EV, Volt nor Bolt doesn’t compete with GM’s Cruze, Spark, Trax, Sonic or Equinox. This us by design. Model 3 is a SEDAN. The very tyoe of car GM tells ys nobody wants anymore. Mysekf and 450,000 other line wauters proved otherwise. Bolt EV sells 20,000 units because it us A FWD SUBCOMPACT that us neither SUV, sedan or crossover. Do you seriously believe more than 20,000 consumers will line up to spend $35,000-$44,000 for an EV Nissan Versa with no availabke ACC, tiny painful seats and a very hard plastic interior?

I like the Bolt. I understand costs range requirenents and compromise. I, like you, am an early adopter. Joe Consumer is not like you and me. They buy people and cargo hauling capability and damn the fuel source.

Bolt is made as hot hatch competitor against GTI, Focus ST (even RS). At $37K price point and enough range, there’s no way GM could make SUV or CUV or truck. But $25K post fed subsidy (or $23K in CA) for Bolt is highly competitive against GTI, etc. Yet people still don’t buy.

And if GM made SUV with 60 kWh battery getting 150 miles range for ten thousand above similar gasser (but tens of thousands cheaper than Tesla X), you’ll still complain GM is not making what the consumers want. What the consumers want at the moment is Tesla logo, something that GM cannot provide.

YES GM made a lot of 12 volt batteries ,I think DELCO was the name.lol

More than 20,000/yr 12V batteries were sold, so clearly that’s not what I’m talking about.

I just spoke to car god in heaven, and he says we should buy more Bolts, because heaven is too filled with overproduced Bolts to accommodate much else.

“Why did GM farm out the whole drivetrain to LG ?”

Because sales of the Volt (which was developed in-house) turned out to be much lower than GM anticipated, and rather than repeat what GM saw as a mistake, they decided to farm out as much of the R&D on their first BEV to an outside company, to limit startup costs.

Whether that will turn out to be a good idea or not… I think the jury is still out on that. I question it was a good idea for GM to farm that out, because now they don’t have any in-house experience with designing and building their own BEV powertrain. OTOH GM did work closely with LG Chem to develop the Bolt, so perhaps they have picked up some of that expertise. For GM’s sake, we’ll hope so.

…forcing a Korean tech manufacturer to “partner” with a US manufacturer in exchange for access to the US market, thereby transferring proprietary tech knowledge to the US? 설마 그럴 리가요!!

Even the base model 3 competes, or rather out competes the BMW 3 series. That’s the target market.

What’s the average price in that market?

Jean-Baptiste Labelle

Because a Kia Stinger is slower than a S75D, it is much smaller, less equipped, noisier, and of course does not have something remotely close to the Autopilot.
It may cost less…if you don’t drive much though…

Well put. It takes years to develop new models. Many large companies have announced that they are working on major changes. VW, GM, and Ford have all announced intentions to introduce entire lineups of EVs within the next 5 years. If even one of them comes to fruition, it will be a big deal.

If you look back at Ford’s PR from 3 years ago, they should have already had a better CMAX, a Prius Killer available right now. So, don’t hold your breath.

True, Ford killed the CMax. Which is sad. My wife loves her CMax Energi (despite the poor reliability of it being a Ford). They were never really behind that car. Most people have no clue what it is.

VW and GM are more likely to follow through, despite the negativity towards them around here. VW needs to clean up their reputation, plus they have to install all of these chargers anyway – might as well build cars that can turn ElectrifyAmerica into a revenue source for them. And GM has a good record of following through with some significant offerings. The Volt is still the best-selling plug-in car in the US (for now, until Model 3 overcomes the headstart and blows all previous records away). And the Bolt is a solid car, available years before anyone else could touch 200 miles for less than $40k.

Like a freight train? More like an OIL TANKER, that takes miles to change course , let alone do a 180 about face.
Transmissions? I guess you haven’t heard about Taurus recalls or FCA tranny woes ,even Hondas have them.Most EVs have 1 speed reduction gear ,chuck that 9-10 speed tranny to get what- a 5-10% fuel economy gains that GM &ford spent millions of $$$ on . I’d like to know where Ford is going to be 10 years from now.

F150 Brian. We disagree about the big boys making “big” changes in the past to survive. The big boys fought change at every turn in the road. When their lawyers and lobbyists couldn’t change the rules they made the modest changes. No offense, shifting from RWD to FWD, changing from bolt on bodies to unibody, improving engine/transmission performance, and emissions are “tweaks” in the big picture. These were evolutionary changes without a hint of revolution. The big boys are coming? I disagree they can talk up a storm but they will fall back on their historical modus operandi. Solve the problems with lawyers and lobbyists, not engineers. I for one would prefer Tesla NOT offer the $35K Model 3. I prefer the legacy automakers fight over the $35K ZEV/BEV market. In five years the Chinese will put the squeeze on the bottom of the market. Tesla should focus on improving their build quality, advance their formidable technology, and continue to focus on their customers. And a TSLA owner I would be quite happy if Tesla dominated the $50K+ ZEV market. Does BMW, Porsche-Audi, MB aspire to dominate the sub $35K market? The big boys are coming … like a freight… Read more »

I neither plused or minused your comment because I both disagree and agree.

Going from body on frame to unibody was a giant step. One that was partially motivated by new safety mandates and fueled by efficiency requirements.

A new platform is anything but easy to engineer and manufacture and each new one must be the base of several different models to show profitability. The big boys will come, but only be dragged kicking and screaming by competition. Some of which truly will come from China and S. Korea.

Volkswagen could surprise all of us and actually cause the EV tipping point to come sooner rather than later. They have a lot of penance to pay both in Europe and here due to Dieselgate. Consumer opinion and the distaste for diesels the impetus.

Tesla is driving the change. Chinese manufacturers crossing the pond and perhaps Volkswagen will bring more affordable EVs to lower pricepoints yet Tesla needs to get there too.

Tesla needs more models. Elon’s dream of an everyman EV is not gone. Henry Ford spawned Lincoln and Mercury yet it was the Model T that changed the world and later VW’s Beetle.

Tesla could market a $30,000 and under BEV as another brand, another division of Tesla. The Tesla affordable offshoot brand could include the pickup truck and Corolla/RAV 4 sized sedan and crossover.

Bonus points for dropping an Ayn Rand reference in the EV forum and disclosing TSLA ownership in your comment but I do think they let the engineers operate in a vacuum when developing the BMW i3… pro’s and con’s to that apparently.

“…shifting from RWD to FWD, changing from bolt on bodies to unibody, improving engine/transmission performance, and emissions are “tweaks” in the big picture. These were evolutionary changes without a hint of revolution.”

I completely agree; none of the examples cited were even remotely disruptive tech revolutions. None of them caused anything close to a major shake-up in the automotive market.

As you say, those were just evolutionary changes.

New engines and bodies that used the same parts and same factories. This is a drastic change in raw material or supplier acquisition. It is bigger than the unibody change. The same factory could be utilized. That wouldn’t be any bigger of a change than going from producing a car to producing an SUV in a factory. All different parts, but from largely the same places/raw materials.

Yes and some freight trains can be very slooow. I think the Ford one particularly ….

They will have a lot less time than most people think. Of course, unless they have been developing their pickup truck and SUV under a tight lid without anyone knowing … I seriously doubt it, but we will see soon.

And the big companies will have just as much success as a freight train racing a supersonic jet would have.

I think you forgot the Semi powered by a Falcon Heavy. :<)

Guess it depends on what you’re looking for in your transport… The freight train isn’t going to get anywhere fast, but it’s far cheaper to transport, and transports far more than the supersonic jet…

Much as I’d like to believe it was the success of the TM3 that has caused German auto makers (especially VW) to suddenly start talking seriously about converting much of their production to making EVs, I’m pretty sure the more stringent European emissions standards coming in 2020 have a lot more to do with that.

I also rather doubt that the success of the TM3, spectacular though it is for Tesla as a business, had much to do with GM deciding to shut down assembly plants making sedans, whose U.S. sales are falling dramatically in favor of SUVs, CUVs and pickups.

The hurdles for a legacy OEM to design, engineer and build EVs are vastly overstated. Selling them is the real problem. Tesla’s magic is their brand. Mainstream buyers don’t want an EV, they want a Tesla. Tesla represents the future, green-ness, space flight and Mars.

How does Mary Barra match that?

Not necessarily… I’m a mainstream buyer whose been watching the EV space intently for about three years now. I think Teslas are great and I love Musk for forcing the hands of other car makers. While I wouldn’t turn down a free Tesla if I won it in a contest, it is simply out of my price range. I want an EV with acceptable range and isn’t tiny. The Bolt came close, but the Niro EV (I refuse to call it e-Niro) is right in my sweet spot. I just hope I can scoop one up when the time comes.

Don’t take this the wrong way, but simply being on this site and “watching the EV space intently for three years” completely disqualifies you as a mainstream buyer.

Why? A mainstream buyer cannot inform himself/herself prior to the second-largest purchase most people make (second only to their home)?

Mainstream buyers don’t spend three years reading about anything before a purchase. It’s certainly not a pejorative to note that you are pretty clearly not a mainstream buyer; you’re much better informed.

Agreed. Pretty much everyone posting on here is the EV equivalent of a BMW enthusiasts that talk about BMW’s by their codes (i.e. e98 etc).

You may be looking for a mainstream car, but you’re certainly not the average buyer.

[insert “Tesla is the Apple of cars” text here]

Agreed. And as for your question about how Barra counters, I have no idea. She’s running a company that’s the poster child for big, old, dimwitted, evil car companies/dealerships. If she tries to make GM play by anything close to Tesla’s game plan it will be a spectacular disaster, akin to the square old white guy (like me) who gets liquored up at his niece’s wedding reception and decides he’s going to show “the kids” how to dance.

If I were advising Barra, I’d tell her to pull a page out of Lee Iaccoca’s book and do ads. I’d have her say, “The car world is changing faster than ever, thanks to the arrival of electric cars and self-driving cars. Do you think GM is going to sit around, watch everyone else have fun and lead the way, and be left behind? Hell no! Here’s what we’re doing right now, with a lot more to come” [lots of product images and detail]. “Join us. The future’s going to be a blast.”

Ron Swanson's Mustache
Thing is, the legacy automakers have been engaging in that sort of gee-whiz marketing about how awesome their future cars would be ever since the debut of all of those high-finned, bubble-topped, fighter-jet-inspired concept cars of the late 1950s. They’ve done that sort of marketing every single year since then. As a kid, I remember seeing promotional stuff from the Big Three touting everything from self-driving to hydrogen-powered, to mag lev, to turbine-powered vehicles. In the early 2000s I was lucky enough to go to the Detroit Auto Show to see all of the fantastic and futuristic concept cars. And what comes of all of that gee-whiz marketing? At the end of the day, the interiors get changed around a bit, and maybe they integrate some technology features like CD players or Bluetooth years after those technologies have gone completely mainstream everywhere else. If you read the comments here (and on other, more mainstream, car enthusiast sites) there’s a completely cynical response every time a manufacturer comes out with some awesome looking concept, because the odds that it’ll actually make it to market in anything like the form that was shown off as “the car of the future.” Then Tesla… Read more »

I completely agree with this. People want Teslas because they are really cool cars. Tesla’s success is due to making hip, sexy, fast, cool, fun to drive cars. Their success is not because Teslas are electric. If Tesla’s Model S was just an electric version of a BMW, they would have never succeeded. They succeeded because the Model S looks fantastic and futuristic, and has autopilot and a huge screen, and you can summon it, and …

Part of the brand is also the anti-establishment silicon valley we’ll do things differently mentality. They deliver fixes to problems with an over the air firmware update. They deliver new FEATURES this way!

You can’t look at the success of Tesla and say, oh, people want more EVs. That’s not the case. People want hip, sexy, cool fun to drive cars. No other EV or PHEV built by any other automaker is in high demand.

Mary Barra could have matched that by selling the Bolt in Europe where it had fantastic sales for the few seconds it was on sale there before they withdrew it. It’s much better suited for Europe than US especially if fitted with a DC charger which was inexplicably offered only as an option rather than standard.
I’m a Soul EV driver and will be buying another Kia EV not because I don’t want a Tesla as such but because Teslas are either too expensive or too big (or both)

Restart Saturn with company owned stores. Hire software engineers from California, not Detroit. Reward its managers for increasing revenues and never penalize for cannibalizing LICE GM sales. Design vehicles around a central computer with software defined everything, not traditional outsourcing each little box to suppliers. That’s bare minimum.

Disassemble many Model 3’s and a few BMW i3’s, and be humiliated, then get to work.

You’ve got the tail wagging the dog. A large part of the reason why Tesla cars are so much in demand is that they are actually designed to make driving a pleasure, with both functions and controls integrated in an intuitive way that no legacy gasmobile ever has been.

No legacy auto maker comes even remotely close to making their cars so much “more than the sum of their parts”, as Tesla cars are. They have had since 2012 to imitate Tesla in that regard, and it’s not “vastly overstated” to observe that not a single one of them is even trying to design and build cars that way.

From article: “… “the legacy automakers are facing a hard choice: “Keep making ICEs and slowly watch your profits get eaten by Tesla, BYD, Nio, etc, or risk a dangerously expensive crossing through a transition period of cash burn and negative margins.”…”
——————

Most traditional car makers are splitting the baby down the middle thus continuing to make and support legacy ICE while slowly (which is quickly in traditional auto time scale) transition to EV.

Considering the deep set legacy constructs traditional car makers are tied to (such as an independent dealer franchise network relying on ICE repair services for a substantial portion of the dealer’s profits) legacy car makers will in reality not be able to refactor their organizational structure to compete against a more nimble Tesla that started out with a clean blank sheet.

Likely EV start-ups such as Tesla will end up owning the majority of the consumer and commercial car making market share within next 10-20 years and in the process there will be several new EV maker entrants that raise a bunch of cash and not make it to sustainable production. Only a very few EV entrants will long term survive.

Agreed. Can’t be understated what a hurdle dealerships will be for legacy automakers. In the US, they did strike a deal with the devil from the inception. I don’t know how legacy manufacturers get around this.

Simple solution would be to increase the profit margin on their cars, so the dealers can offset the 10% gross profit loss in their service departments for maintenance.

Non company owned consumer sales infrastructure is the dominant method of sales for a reason. There’s a reason basically every other manufacturer (cars, electronics, food etc) move to and continue to sell through third party owned shops.

“Non company owned consumer sales infrastructure is the dominant method of sales for a reason.”

That reason is the power that dealerships have over local governments. Historically the most powerful businesses influencing and funding local political races are real estate developers and car dealerships.

Dealerships and dealership protection laws were forced on the big 3.

Most car companies use 3rd party dealers in other parts of the world where laws don’t require it.

I’m sure Elon & Tesla thought about the whole thing , that’s why they did what they did,From sales ,Dealer& Service infras. and future proofing and battery supply chain..Like his mom says Elon thinks years ahead probably a decade

Or in a fancier term – vision, grand and long term vision to be exact. It’s documented in Musk’s Master Plans.

The only thing missing are the design engineers who apply ICE vehicle design rules to an EV car. This explains why so many of their EVs look like repackaged ICE with poor aerodynamics and mock grills. A rule of thumb, there is an inverse relationship between EV grill size and efficiency.

So the OEMs spend the money only to produce a clunker car. Sad to say, BMW laid-off or ran-off their BMW i3 design team and went retro like the 530e and i8.

It’s not a matter of will; it’s a matter of wanting to remain profitable.

Most car companies switched to SUVs/CUVs pretty quickly because people want them and they make money. Ford – for one – has even dropped its sedan lines. That’s pretty bold, but it’s really just a matter of profitability.

When they see Tesla bleeding money for years, and cars like the Leaf and Bolt losing money, they’re gambling that EVs won’t flourish enough to make the economies of scale worth the investment. They may be worried now, however, because Tesla is showing how big you have to get to become profitable.

No the switch to SUV/CUV is all about LOWER government regulations, esp. on fuel economy standards. They simply stock more SUV/CUV on the lot, and when people wall into the lot, that’s your choice. Take it or Leave.

It’s both, really. The OEMs have incentive to push them. People genuinely want them. I’ve wondered which is the stronger factor. If the upside-down regulations were fixed, and smaller cars were more appealing to sell, would the family sedan make a comeback? Or is the genie out of the bottle, and people will continue to want more CUVs and SUVs?

Most people have realised how impractical sedans are for families. They had their place when there was a choice between ok handling (the sedan) or awful handling (the SUV) and fuel economy differences were huge.

Now the SUV/CUV handles not dissimilar to a car (due to driving aids and tech and the fact most are just lifted cars) but has more practicality. The sedan is still more efficient and handles better, but the former is only incremental when comparing internal space and the latter is only really relevant to car nuts, not the average vehicle buyer who is far more interested in not having to worry about every pothole and dodgy parking entrance.

People may move back to the sedan in future if efficiency goes back to being significantly greater – compromising practicality for money saving – but they may not.

“WHY BIG AUTO JUST CAN’T SQUASH TESLA?”

They shouldn’t be trying to “SQUASH TESLA”. If they want to make money selling EVs, they need to partner with Tesla.
If you can’t beat them, join them! Keep your friends close and your enemies closer.

NPNS! SBF!
Volt#671 + BoltEV + Model 3

It’s not like legacy auto got caught with their pants down, it’s more like they did not even have any on.
I don’t see them coming out with anything compelling that matches Tesla for years. They have yet to
produce anything in volume that matches Tesla’s earlier efforts with the “S” or “X”.
I rarely use this word but in relation to Tesla legacy auto is simply gobsmacked.

The likes of Ford, GM and VW don’t need to “match” Tesla. They’re in a totally different market. Most people buying one of those are not looking for an expensive blisteringly fast accelerating car. They’re looking for something reasonably priced, reasonable to drive and practical.

The likes of BMW and Audi are direct competitors, but even then they are (rightly IMO) playing to their strengths, the “prestige” and “luxury” that conventional buyers want. They’re in a more precarious situation than the mainstream manufacturers, but still have the benefit of the next couple of years, due to most of their sales being SUV/CUV’s now, not the sedans that Tesla are manufacturing.

For BMW/Audi/MB as long as handling and (broadly) performance match Tesla, and they still have the conventional luxury advantage, they don’t need to match or beat Tesla on range, they just need to get reasonably close for the price.

All that is true for this moment in time, but that is not the plan at Tesla. I think it was brilliant to start at the top and work down. It was really the only way to be profitable for one, but it also established them as a brand of desire. I have no idea what the average sales price will be for the Model 3 SR, but I would bet money that you will be able to buy a base model for $35,000 in 2019. Paint colors will be $1,000. I hope they don’t make heated seats an option for that is a must in a BEV. There are destination fees and then you are driving a Model 3 which is better than anything else in its class for that price. They say they can’t build them profitably now for $35K and that may be so. Still, I don’t know a manufacturer that would if they were still getting orders for $50K – $60K. Smart for them to build the autopilot sensors in as standard for people are going to want that in the future. Even now at a very advance Level 2 AP it is worth it. I… Read more »

The issue is, at $35k the Model 3 SR is still 30% more than a similar mainstream car. It’s still not “affordable” in the general sense of the term. It’s a BMW priced competitor, priced similarly to the lower end 3 Series, not a mid level Accord, or similar Sedan. It’s the age old argument of do you go for a high trim mainstream vehicle, or a base model “luxury” vehicle. Some people choose the latter, but most stick with the mainstream vehicle.

Perhaps in a decade they will be producing cheaper cars, but that’s a long time away.

Sure, Autopilot is great, but it’s still Level 2, and will be so for the forseeable future. There are plenty of similar options available right now, and level 3 options are available just about now (look at Audi’s new system in the A8 for example.

A lot of what Tesla are offering is a lifestyle choice, not an economic one (choosing a BMW over a Honda is also a lifestyle choice), and it’s unlikely to change for the foreseeable future. Plenty of time for the mainstream manufacturers to have the EV’s they are promising out.

Jean-Baptiste Labelle

you are speaking of this system of the Audi A8 that will come in 2019?
https://www.youtube.com/watch?v=WsiUwq_M8lE&t=7s

Well, that is still a long way to go for Audi to match Tesla AP 😀

“Most people buying one of those are not looking for an expensive blisteringly fast accelerating car. They’re looking for something reasonably priced, reasonable to drive and practical.”

If it was possible to make and sell a “reasonably priced” BEV at a profit, then companies like Th!nk and Coda and Aptera might have been able to survive. The reason Tesla has survived where the other recent EV startups have not, is because they started at the high end of the market and only gradually worked down. Even Tesla can’t yet make and sell a $35k car at a profit.

GM made a good effort at a “reasonably priced” BEV with the Bolt EV, but wound up with a car which makes so little profit that GM doesn’t even bother to make enough of them to satisfy market demand outside U.S. CARB states.

This is so stupid article. It is much more complex to build ICEs and it is much easier to reconfigure them to make EV cars.

Did you even read or understand the article? Many people including myself in the past thought it’s easy to make EVs, big manufactures can start producing EV anytime because it’s easier than building ICEs. Years later, why none of them deliver a nice EV that can compete with Tesla? Because now they know they can’t, and it’s not easy.

It’s very hard to design efficient and economical power electronics and top end software for EVs. The complexity is microscopic in the chips and invisible in the software. It’s not gears and tubes that are the hard part any more.

Tesla recognized the “long poles in the tent” a decade ago and decided to get great at these and adequate at everything else: battery (obvious to others), software (less obvious), power electronics (“huh? Can’t we buy standard chips off the shelf?”).

Yup. Designing the mechanical parts of a BEV is relatively easy. Designing the electronics and software for a truly compelling, competitive BEV are much harder, and are generally outside the expertise of legacy auto makers.

We’ve seen what happens when a legacy auto maker takes a gasmobile and tries to shoehorn an EV powertrain into it.

Bad compromises don’t make compelling products, and generally speaking, conversion cars can’t compete with cars designed and built from the ground up to be plug-in EVs.

The move to electric vehicles is relatively minor compared to what automated driving and Mobility as a Service are going to do to the auto industry. Very few OEMs are going to survive in current form. Manual driving a car might even become illegal outside of designated areas. Not looking forward to that.

I hope manually driving a car does not become illegal in my lifetime. Maybe in future generations, when there is no joy left in driving because the earth has turned into Coruscant (i.e. one giant, continuous city).

I’d argue the opposite for the latter two sentences. Manual driving may become illegal in designated areas. I can see manual driving being made illegal in inner cities and certain major roads, but still being legal everywhere else.

By the time that happens manufacturers will be able to buy off the shelf products from OEM’s like Mobileye, if they aren’t already partnered up with them.

It’s going to be a very long time before most people don’t own a car though, although there may be less two car households around.

Ron Swanson's Mustache

TL;DR: It’s hard to change course when you’re at the helm of a really big ship.

The difference is that Tesla is a true manufacturer where the ICE auto makers are assemblers that sub nearly every part out to have them made.
Tesla has been designed from the ground up where ICE makers just cobble together a mish mash of companents.
Tesla is an idea, a way of life, ICE makers just assemble stuff in hopes some sucker will buy it.

You do know that that’s how most industries work right? There’s a reason for it too, it’s cheaper to subcontract things out to specialists than control everything in house.

Except when it’s really complex and you get cost and conceptual efficiencies by doing it all in one. Boeing found out.

And SpaceX (similar Musk philosophy) is blowing away legacy competitors on their costs, even before reusability.

Great Article!

How much money did Tesla have to burn through to become profitable? How many billions? Those billions were able to create a company that was unique, cool, and not like existing automakers. Teslas are gorgeous, sexy, high tech cars made by a hip company. I’m not sure how the existing automakers can combat that.

The legacy automakers have always resisted change, especially when it was driven by outside forces. So while some of this is true, they certainly haven’t done all they could. They have massive resources, talent and ability. What they lack is the will.

The legacy automakers did have some pretty good electrics all sponsored and funded by the public and Government. They spend billions fighting the California mandate and won. Then they crushed all the cars they could get back. It just shows even with free cars we paid to develop they don’t want electric cars.
Automakers also could not and did not sell them, don’t understand them and don’t want anything to do with charging them. As you stated they only want the old system and profits they make. EVen now they are stopping production of cars and going with just BIG SUV and Trucks. They would still be giving away the HUMMER H1 if the incentives of $100K was not cut.
With all the automakers now producing at least one or two models of electrics the numbers are just small compliance amounts. They still don’t think Batteries or Charging are their part.
THANK GOD for TESLA. They are changing the World.

They’re beholden to CEO’s that only are concerned about quarter to quarter earnings and their golden parachute. They see the EV battle as a future CEO’s problem, to the long term detriment of the company and employees.

Far easier for them to crank up the performance of ICE engines to match the spec performance. Little cost for them to do so, and in fact this would increase parts and service sales as they wring out more power, which would lead to shorter engine lives.

Look at Audi and BMW. Suddenly their 0-60 times have improved with the launch of the Model 3 to look as good on a spec sheet. Their strategy right now is to avoid attrition, not lay out a long term plan to stay relevant.

Must be frustrating near Tesla its share price stuck and you right in the middle of it. Maybe you would rather try with an good old Apple taking over Tesla article again, maybe that would help your money better? Other than that, Tesla will never get overtaken, because it owns nothing one can´t do it as well and, even better! And, within taking over this overpriced company one would admit two thinks, first , he can´t build cars by it´s own, and man is complete idiot paying such money for a company not even being able to build a car with symmetric gaps! That is why your case within Tesla it´s shares is pretty much closed and hopeless there pal.

Wow, that’s some serious word salad. I can’t even tell if you are pro-Tesla or anti-Tesla.

Gentle readers, this is another sad example of why one should not post while intoxicated. 🙄

There is also the problem that “the decision to – purchase a new car – is separate from and independent of the decision to – purchase an EV instead of an ICE vehicle -“, as Ross Tessien points out here: https://seekingalpha.com/article/4225153-evs-oil-ice-impact-2023-beyond
He postulates that the overall car market will actually go down around 2025 as people who have decided to buy an EV won’t buy an ICE car anymore and instead just wait and postpone the purchase. Very interesting chart on page 2 of his article. This means that the big OEMs will lose their revenue streams.

His entire premise is goofy. If the sedan sales decline is due to people waiting on EVs then why are CUV sales going through the roof?

I agree with this article. I’ve said similar things myself. The only way to be competitive with EVs is to jump in head first. The legacy auto-makers have just been dipping their toes. Some are ankle deep. I think a few manufacturers like Nissan, BMW and Jaguar may be knee-deep. But this approach by all of the legacy brands has led to disappointing vehicles at high prices. Granted, I think the Volt was a great car. But clearly GM wasn’t interested in selling very many due to the low margins on it. When they jump in head first and “bet the company” on EVs, they will be in a world of hurt. But ultimately it may be the only way they can survive the transition. If they keep wading out into the water slowly, companies like Tesla are going to be so far ahead of them in market share that the rest may never catch up.

Tesla’s lead is going to get larger and larger against ICE mfgs in the EV marketplace. Nobody else has access to batteries like Tesla.

OEM’s Can’t Compete Because…, N0 GIGAFACTORY , Very Little EV Expertise , Almost Zer0 Computer Building , Programming & Program Writing Skills. Zero Space Technology Knowledge , Tesla Is Working On Their Own “AI” … Cars That Teach Themselves & Learn …

A point of contention on nomenclature…OEMs when talking vehicles are selling their own stuff. Tesla is an OEM, just like Ford.

There is a “KODAK Moment” Coming for Most OEMs In the not so Distant Future

Kodak manufactured film. Car manufacturers don’t manufacture oil of fuel.

If you’re talking the camera market (where Kodak only made a small portion of it’s profits) then it’s worth pointing out again that Kodak were the number 1 seller of digital cameras in the early 2000’s and invested billions in it. They lost their marketshare when cheaper cameras came from Asia and went bankrupt due to the lack of film profits.

So if you’re arguing that a first adopter of e technology needs to be careful then that’s Tesla, not they established manufacturers, who have a far more diverse portfolio… 🙂

Alternatively the Kodak moment isn’t really relevant to car manufacturers, and is more relevant to the oil producers who need to invest their billions from oil sales into renewables.

KODAK Invented The Digital Camera , But Held Back On It, to Protect Their “Film Business” ….The Japs R&D’d Their Own Digital Camera & Left KODAK In The Dust When they Started Mass Producing Digital Cameras . KODAK Was Too Late To The Party & KODAK Put Themselves Out Of Business…. That is how it Happened….. * 🙂 *

Kodak would have still gone BK even if they had put everything they had into digital cameras.

When’s the last time you bought a digital camera?

Your argument doesn’t negate anything I said. Their film camera business didn’t really make them any money. Almost all of their profits were from film, which is the consumable. In the car world the car isn’t the consumable, the oil/fuel is. Car manufacturers don’t make oil, they make cars. The Japanese did indeed do their own R&D, but that doesn’t negate the fact that Kodak spent billions on Digital, after inventing it, becoming the major player in the digital space early on. “When Eastman Kodak (EK) vowed in 2000 to become a leader in digital cameras, the idea seemed ludicrous. The old-line Rochester (N.Y.) company had film and print all through its DNA. Yet by 2005, Kodak ranked No. 1 in the U.S. in digital camera sales. Its digital sales surged 40%, to $5.7 billion, even as its film-based businesses fell 18%. The key: product innovation, something Kodak knew how to do oh-so-well. The company designed one award-winning breakthrough after another to make digital photography nearly as simple as pointing and clicking.” https://www.bloomberg.com/news/articles/2007-09-14/kodak-mistakes-made-on-the-road-to-innovationbusinessweek-business-news-stock-market-and-financial-advice So, the number 1 Digital camera maker in the early 2000’s, the market leader and major innovator, was the company that went bust… They weren’t late to… Read more »

-20 in 40 minutes… Is someone multi downvoting?

Fujifilm recognized they were a chemical coatings company and survived.

Kodak spun Eastman Chemical off in 1994. It survives today and never went bankrupt.

You have a good narrative, but some of the facts don’t match it. If Kodak was ever a leader in selling digital cameras, it was either early on when they were a low-pixel novelty rather than anything really useful, or a bit later when Kodak did sell some high-end professional grade cameras. Kodak most certainly was late to the consumer grade digital camera revolution, and that’s what really transformed the camera industry. And despite your rather condescending remarks, lots of people are still buying digital cameras. Taking pictures with cell phones isn’t for anyone who wants quality pictures. However, Kodak (with its film business) may be a better analogy for auto dealers than auto manufacturers. Dealers don’t make that much of their income by selling cars; they make most of it by servicing cars and selling parts. Of course, even BEVs need service and replacement parts; they just don’t need as much of those. One of the ways Tesla is trying to transform the auto business is by making their service shops revenue-neutral. I don’t know if that is a realistic business plan, but if that sort of thing catches on, then that’s going to make it impossible for the… Read more »

LOL … another good comment.

Look at canon and Nikon. Both are still here today. They were the leading cameras in film and are still the choice for professionals today with digital. That is more similar to the oems position. Some may not make it, but I would guess most will.

The landscape is changing in unpredictable ways: private car ownership will decrease without a doubt, transportation within cities will move to scooters, public transit or Uber. Bicycles are making headway again. Drones may soon take us places…. I am not nearly smart enough to know who the losers and winners are going to be in twenty years from now. What I do know though is: every dollar earned today by legacy auto makers is a dollar in their bank.

Great article, clear thinking. I suspect also that the sales and marketing people holding leadership positions in these companies bring their own bias. They might have underestimated the effort required to make a superior product.

what does OEM stand for? Why not spell this out the first time you mention it in your article?

Original Equipment Manufacturers. It’s used to refer to legacy automakers. Sorry about that. It’s never stated as Original Equipment Manufacturers these days since that doesn’t even really make much sense even when spelled out. It has just become a sort of standard way to say Big Auto.

seems sloppy and improper… seems like a term that’s mis-used and should be dropped… Just call it Big Auto, if that’s what it is…

It’s a term that’s used all the time. Big Auto and Big Oil are overused as well. There has to be some variety. The article uses both, so we picked one for the title. Sorry that it was confusing.

Hey I was just talking about the “gap” on this site a couple of days ago 🙂

And the other gap the article doesn’t mention is car buyers waiting to buy an EV, i.e, they’ve made decision to not buy another ICE.

“If and when the automotive giants do start producing EVs in volume, their woes will be just beginning… every buyer of an EV will be one less buyer for a dinosaur-burner. That means the automakers will be cannibalizing the ICE business that they are still paying big money to operate.”

Yup, legacy auto makers are caught in the same dilemma that afflicts every established market leader in a disruptive tech revolution; a quandary which has been labeled “The Innovator’s Dilemma”. This concept, this meme, has been “out there” for awhile now. Nothing wrong with a popular press article going over the concept gain, because many people haven’t been exposed to the concept. But this article is saying very little if anything new.

https://en.wikipedia.org/wiki/The_Innovator%27s_Dilemma

Why Can’t OEMs Dial It Up And Overtake Tesla In The EV Race?

Unlike Tesla, they are making money on ICE vehicles and can take their time getting their feet wet in the EV market. These batteries aren’t as good as they’d like. Neither is the cost of them. I won’t be interested in an EV until solid-state batteries hit the production line.

Only reason I know you missed is, the people, funds, and companies that own much of the incumbent stock own far more in oil stock and options. Yeah you’d lose a little making the small investment have a future, but you lose nearly it al in your larger investment. The boards of companies are dependent upon keeping shareholders, particularly shareholders who can vote as a block, happy.