Automakers are on the cusp of seeing consumer demand grow sizably for electric cars, but they're being stifled by competition from conventional powertrains, automation, and mobility services.
This is according to a new global consumer study by McKinsey & Co. that points to strategies global automakers can adopt to tap into these market trends and build off consumer interest in plug-in electrified vehicles (PEVs).
Automakers face the challenge of making more investments in manufacturing and marketing the next generation of PEVs. Competition for spending has been increasing by research and development costs in new fuel efficient technologies to meet global government rules for emissions reductions; and fascination with new and expensive technologies for connected, autonomous vehicles, and shared mobility services of the future.
McKinsey conducted an online global survey on PEV consumer preferences in two studies. One surveyed about 3,500 consumers in the U.S., Germany, and Norway; and the second study surveyed about 3,500 consumers in China. The focus of the study was delving into consumer perceptions during the buying process, comparing potential PEV buyers to actual PEV owners.
Interest is very strong among both study groups, and understanding of the technology is getting better. About half the surveyed consumers in the U.S. and Germany say they understand how PEVs and related technology work. Between 30-and-45 percent of vehicle buyers in the U.S. and Germany, respectively consider a PEV purchase today; and strong demand is being seen in Norway and China.
Reaching that other 50 percent of consumers not yet familiar with PEVs and related technology points to a vast opportunity for automakers to run focused marketing and consumer education campaigns, McKinsey said.
Technology developments are helping increase PEV sales and consumer support. Decreasing battery prices, increasing range, and accelerating the charging infrastructure is starting to see results. Increased urbanization in crowded cities and governments toughening up on emissions regulations are playing their part in PEV sales growth, as well.
Barriers in the Market
However, serious challenges are keeping PEV sales stuck around 1 percent of the total in the U.S. and other key markets. "Unfavorable battery economics" is the first challenge the study profiles. McKinsey reported that the price is still too high, with a 60 kWh battery being a $13,600 component of the car last year. You also have to add in additional costs of building a PEV including e-motors, high-voltage wiring, on-board chargers, and inverters.
Automakers are still seeing better return on investment in deploying new, advanced technologies for fuel economy gains. These would include transmission improvements, lightweighting, aerodynamics, stop-start, turbocharging, and downsizing vehicles. Automakers are on the edge of having to increase their investments substantially to go the next level with more aggressive downsizing and other enhancements.
Another challenge is facing what the study calls a "capital crunch," where investing in autonomous, connected technology puts carmakers in a situation where R&D budgets are being tapped into with little left for PEV development. Opening up another plant, tooling, R&D spend, and "go-to-market" strategies need a lot of capital.
McKinsey sees another problem to overcome as the "supply/demand mismatch. The premium vehicle market is being well served by Tesla Motors and a few other luxury electric models on the market. For the consumers surveyed in the study, some needs are not being met for smaller cars, SUVs, and crossovers.
Looking at Solutions
The institutional changes behind companies testing autonomous vehicles, along with shared, connected, and electrified systems, also offer a set up opportunities for automakers. As the table below shows, these new developments will cost a lot in capital but do open doors for meeting emissions regulations and better serving growing market niches.
Diversifying the PEV product offerings will be a big part of seeing sales grow, along with addressing consumer misconceptions about how the technology works. A large gap exists among those studies between perceived and real-world range for owners of PEVs. That's also where experiences of current PEV owners can come to play with much of it coming down to how they drive their PEVs; they understand how much battery power they typically use, depending on their own driving performance, and how charging is typically done.
Another opportunity is to address misconceptions about PEV maintenance costs and vehicle reliability. Based on a comparison in the study of five PEVs from five different automakers and their comparable sized internal combustion engine counterparts from these same brands, PEVs typically had 20-to-40 percent lower maintenance costs over a five-year period.
The study found that traditional automakers have a lot more opportunity to compete with Tesla than they think they have. On the premium and luxury vehicle side, Tesla still has the advantage with consumers. What was surprising for McKinsey was how consumers in the study indicated that their highest levels of trust in PEV models overall come from established automakers. The potential is great for those established global automakers who can develop PEV-specific brands or sub-brands, according to the consulting firm.
Long-term, McKinsey sees that most successful automakers will be the ones who can integrate new automated technologies, electrification, and growth in mobility services and shared rides. This will be built around better targeted marketing campaigns reaching different consumer segments.
For example, consumers in cities want to see more options in "less costly, purpose-built EVs with smaller battery packs and shorter ranges." McKinsey sees real opportunity in serving consumers who want more basic mobility solutions.
Other consumer segments studies want more of the other option – they have high expectations for driving utility and want to see longer range per charge. These large consumers groups were labelled in the study as "urban families," "trendy families," "high-tech status seekers," and "feature-focused buyers."
New Business Model
Coming from a new business model will also be necessary for automakers to succeed in the fast-changing global market, the study said. Instead of focusing on purchase prices or traditional lease rates, automakers should switch over to the total cost of ownership (TCO) business model. They would be selling the reduced cost of owning a PEV versus a traditional gasoline-engine car over the lifecycle in fuel and maintenance costs.
Growth in ride-hailing, carsharing, and peer-to-peer car rental also points to another opportunity for automakers to change their way of thinking about the corporate business model. For example, companies like Uber and Lyft may find the fleets entering the ride-hailing business may find PEVs more attractive with lower operating costs than traditional ICE vehicles. The study found that more than 30 percent of those surveyed would prefer a PEV model over an ICE when using "e-hailing" services; and about 35 percent would pay a premium to ride in a PEV.
Tesla was founded with an EV-centric business model.
Automakers and other companies can maintain a PEV fleet for carsharing services. Consumers who subscribe to their service, such as Maven, Zipcar, and Car2go, can be incentivized to choose a PEV and would likely enjoy the experience. They could also choose a large SUV for weekend road trips then go back to a PEV during the week. This business model could also present a solution to automakers complying with zero emission vehicle and other clean vehicle mandates around the world.
P2P (peer-to-peer) car rental is another concept looked at in the study. Some Tesla owners already use this model today, renting out their Model S on P2P sharing apps for one week per month, according to the study. This could be another way to reach consumer segments such as those living in cities who don't want to own a car, but occasionally need access to one. It also provides a side income source for consumers who own a PEV and are willing to rent out their electric car when it's not being used in the owner's household.
