Are We at the Electrification Tipping Point Yet?

The automotive media believes we are. Automakers at the industry’s recent Management Briefing Seminars disagree.

Tesla Inc.’s recent Model 3 rollout is generating media excitement about the future of electric cars, but much of the auto industry doesn’t appear to be buying in yet.

At last week’s Center for Automotive Research Management Briefing Seminars, many automotive engineers and executives from around the industry were still skeptical about the near-term prospects for electric cars.

“The general perspective of speakers, policy people, and industry engineers was that we’re not anywhere near the tipping point yet,” said Brett Smith, a program director at the Center for Automotive Research, who moderated panels at the event. “We asked the panelists, ‘Is the Model 3 proof that we’ve turned a corner?’ And their response was basically, ‘If you want to spend a lot of money building a car, not making a profit on the car, and then essentially giving it away, then the answer is, yes, we’re there.’”

Brett Smith of CAR: Automotive engineers “know it’s really tough to do an automated, electrified vehicle, and have someone pay enough for it to make a profit.” (Source: Design News)

A CEO of a major supplier at the seminars bluntly suggested that the auto industry is overhyping electric and autonomous cars. “Quite frankly, auto companies can’t tell publicly what they really believe,” Don Walker, CEO of Magna International was quoted as saying in Automotive News. “They know what’s going to happen, but they have to say what is going to be popular to be perceived as a progressive company.”

The views of industry executives at the seminars, however, contrasted sharply with those of journalists covering Tesla’s Model 3 rollout, which took place days earlier on July 28. Wired, for example, wrote, “This car feels like an automotive tipping point, a sign that electric vehicles – and hopefully, the infrastructure that supports them – have finally come into their own.”

Similarly, The Washington Post wrote that “Tesla is single-handedly pulling the automotive industry into the present,” Engadget called the Model 3 “the car that will bring electric vehicles as a whole into the mainstream,” and Bloomberg said there’s “little doubt that the age of electric cars has arrived.” Finally, Motor Trend’s Kim Reynolds opined, “Magic, I’m telling you. Magic.”

The deep division between the views of journalists and those of automotive engineers lies mostly in the economics. The majority of automakers have invested hundreds of millions of dollars in their electric car and battery development programs. Yet, sales of EVs has remained flat. In 2016, sales of plug-in vehicles (which includes pure EVs and plug-in hybrids) reached 159,139 in the US, accounting for about 0.8% of the overall, according to figures from InsideEVs. Sales of battery electric cars was similarly disappointing at approximately 0.4% of the overall. Sales this year have gone no better, with 104,863 plug-ins sold through July. Even the much-publicized Chevy Bolt has turned lukewarm numbers, with just 9,563 sold this year.

Automakers fear that the small demand, coupled with the growing number of EV programs, will lead to a glut of unprofitable vehicles and big corporate losses. Even Tesla, which has captured the public’s imagination with the rollout of the Model 3, is failing to turn a profit. The upstart automaker lost $330 million in the first quarter of this year and $336 million in the second. The company forges ahead, however, thanks to Wall Street’s belief in its vision for the future.

At the Management Briefing Seminars, which drew hundreds of automotive engineers and executives from around the world, Smith compared electric automakers to surfers riding a wave. After posting a photo of the huge waves at California’s legendary Half Moon Bay, he followed with a picture of a dozen dogs on a single surfboard – a reference to industry’s growing competition for the small EV market.

For now, Tesla plans to be the big dog in the EV market. CEO Elon Musk has called for his company to sell 430,000 Model 3’s by the end of 2018, and 10,000 a week after that.

Still, industry analysts are skeptical. “They would need to execute almost perfectly to reach those numbers,” noted Sam Abuelsamid, senior analyst for Navigant Research. “Realistically, they’ll be hard-pressed to produce more than 100,000 of these next year.”

Abuelsamid cites manufacturing concerns, and points out that the company is playing in a new market arena, where many of the customers own only one car. “The consumers who buy a Toyota Camry or a Honda Accord don’t buy those cars because they’re sexy,” he said. “They buy them because they know every morning when they get in the car and press the start button, the car will fire up and reliably take them where they want to go.”

Navigant predicts a gradual increase in demand for EVs, not a huge spike. Earlier this year, its forecast called for 4.6 million battery-electric cars to be sold worldwide by 2025 out of a global total of 105 million vehicles. That’s a fraction of slightly more than 4%.

 

Earlier this year, Navigant Research’s forecast called for 4.6 million battery-electric cars to be sold worldwide by 2025 out of a global total of 105 million vehicles. That’s a fraction of slightly more than 4%. (Source: Navigant Research)

 

Smith of CAR believes EV sales will rise more significantly in a decade, when batteries reach parity with the costs and functionality of internal combustion engines. But he said that isn’t going to happen in the next five years. “The engineers, the people developing the technology, are working their butts off to get there,” he told Design News. “But they know it’s really tough to do an automated, electrified vehicle, and have someone pay enough for it to make a profit.”

Analysts plan to carefully track the EV market in the coming months to see if the excitement generated by Tesla’s Model 3 will spread to more consumers, and not just to electric car enthusiasts. “For all of us, that’s the billion-dollar question,” Abuelsamid said.

 


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