This flood of electric vehicles is coming despite the fact that the automotive industry loses money on EVs, which suffer from lack of scale, limited consumer appeal and high component costs. But automakers are approaching a major tipping point. EVs could soon be cost competitive with traditional cars and profitable. In fact, GM expects its electric cars to become profitable by 2021.
Economies of scale will come as the auto industry invests more than $100 billion through 2030 to build up capacity. Other cost improvements will extend from the powertrain and design studio to the supply chain and factory floor. A global push to phase out internal combustion engines and to offer "robotaxi" services should further open the floodgates of demand and the door to profits.
"Battery costs are coming down, and OEMs and suppliers are developing lower-cost motors and electronics," said Navigant Research analyst Sam Abuelsamid in an interview. "As battery capacity increases, the vehicles become more appealing, which will all combine to improve demand and profitability."
IBD Newsletters
Get exclusive IBD analysis and action news daily.
SIGN UP NOW!
Electric Car Industry Growth
The rush to roll out electric cars may seem curious, given lagging demand and margins for traditional passenger cars in North America. Ford plans to abandon passenger cars here for the most part and instead focus on high-margin trucks and SUVs. Meanwhile, GM and Tesla are estimated to be losing thousands of dollars per unit on their electric cars. And Tesla Model 3 production is struggling to ramp up to targets.
But automotive industry forecasts point to electric vehicles taking a 40%-50% share of the global auto market by 2040, up from around 3% today. GM plans to sell 1 million electric vehicles a year by 2026, including electric trucks and SUVs. Tesla aims to build 1 million cars in 2020 (though its targets are notoriously optimistic). Volkswagen sees up to 3 million a year by 2025. Toyota eyes electric vehicles and hybrid sales of 5.5 million by 2030. Even truck king Ford (F) is investing $11 billion in electrification, with Chairman Bill Ford saying "We're all in now."
But the auto industry still has work to do to turn a profit from their electric cars.
Kelley Blue Book analyst Rebecca Lindland told IBD it's "very, very difficult to make a profit, but not impossible." She says Toyota reportedly needed more than 10 years to turn a profit on the hybrid Prius. GM will take at least that long for the plug-in hybrid Volt. She estimates the Bolt EV could turn profitable quicker because it borrowed technology and lessons from the Volt.
Industry Analysis Of Electric Cars
UBS analysts performed one of the most comprehensive EV cost examinations ever last year with a Chevrolet Bolt teardown.
GM's Chevy Bolt
GM's Chevy Bolt electric car. (Darren Brode/Shutterstock)
UBS estimated that GM was losing $7,400 on every Bolt EV based on its $37,000 price tag before government incentives. (Those incentives will be phased out as manufacturers start to reach their cumulative sales volume caps.)
By an easier measure, Tesla's higher-end Model S reportedly carries a marginal cost of $30,000 excluding the company's fixed, upfront costs, implying a hefty marginal profit vs. its $70,000 sticker price.
But UBS estimates Tesla loses thousands of dollars on the Model 3, which is priced at $35,000 before incentives. A customer would have to buy $6,000 in additional options for Tesla to break even on each sale after all expenses. Meanwhile, Tesla as a company loses money overall.
And if Tesla hopes to reach CEO Elon Musk's goal of generating 25% gross margins on the Model 3 by the end of this year, a customer would have to cough up $16,250 on extras for a total of $51,250, UBS said.
For its part, GM should have by 2028 a margin of 5% on earnings before interest and taxes for the Bolt, UBS predicted.
"The cost of making batteries is going to dictate whether you make a profit or not," Lindland said.
Electric Cars: Battery Costs
The Bolt's battery pack, which includes cells, assembly modules, control and cooling systems, costs $12,300. By 2025, UBS sees that dropping 37% to $7,800. Savings should come from cell chemistry, higher energy density and lower assembly costs.
GM has revealed little about how its next-generation batteries will drive down costs, apart from increasing energy density.
Higher density means a battery offers more energy generation, faster recharging and a longer useful life, while also reducing material and assembly costs.
Tesla Model 3
Tesla's Model 3 electric vehicle. (Tesla)
Solid-state batteries promise to more than double the energy density of current lithium-ion technology. EV maker Fisker, Toyota, LG Chem, appliance maker Dyson and several Chinese companies are working on the technology.
Meanwhile, Munro & Associates, which partnered with UBS on the Bolt teardown, also tore down the Tesla Model 3 recently. The benchmarking firm lauded Tesla's battery, rating it higher than batteries from Samsung SDI (a BMW i3 electric car supplier) and LG Chem (a Bolt supplier).
But the costs of metals used in batteries could be an obstacle, with cobalt supplies tight and dependent on risky African trade. Lithium is abundant, but mining projects take time to develop. China's dominance of rare earths also looms over the auto industry.
Electric Vehicles' Powertrain Savings
While the battery represents the biggest source of savings for electric cars, other powertrain modules offer potential too.
The electrical drive, including the e-motor, transmission and motor housing, costs about $1,200. UBS sees that falling 10% by 2025. New e-motors with fewer moving parts should cut machining and labor costs. They also could reduce or even eliminate the use of costly rare earths. Toyota recently developed a new magnet for electric motors that halves the amount of neodymium required.
Power electronics, including the e-motor controller, converter and power distribution unit, make up another $1,200 in costs. Here, UBS foresees savings of 25% by 2025, driven by innovations in semiconductors. Chipmaker STMicroelectronics (STM) replaced standard silicon with silicon carbide in its inverters and onboard chargers to make EV electronics more efficient.
Other miscellaneous components, for thermal management, charging and cabling, add more than $1,500 to costs. Potential to reduce costs is sizable in some cases and limited in others, UBS estimates.
EV Platform Optimization
The auto industry is also looking afresh at the entire design and production process.
Redesigning vehicle architecture allows companies to imagine mechanically simpler, more efficient electric cars, RBC Capital Markets analyst Joseph Spak wrote in a May 11 note.
Ford, for example, expects its next EV lineup to slash footprint in the final assembly area in half. That should produce a 50% cut in capital costs and a 30% improvement in labor hours per unit.
GM will use its new EV platform across cars, crossovers, SUVs and self-driving vehicles, streamlining production costs.
A highly optimized EV platform also could eliminate unnecessary elements that carried over from traditional cars, Navigant's Abuelsamid said.
Electric Vehicles: Industry Trends & Mandates
UBS estimates the Bolt's price tag could be $13,200 lower by 2025, with economies of scale a key driver of the reduction.
Scaling up will be pivotal to cutting battery costs, which is why Tesla is building its "gigafactory" to mass produce them.
RBC's Spak says global EV battery production capacity will surge to 346 gigawatt hours in 2025 from 143 GWh last year. Such growth will produce economies of scale that should allow manufacturers "to gain fixed-cost leverage and lower costs."
A major catalyst for mass production is coming from the global momentum against auto emissions. China, India, Norway, Britain and France plan to slowly phase out gas and diesel vehicles. (Sales of electric vehicles in China, the world's biggest auto market, are already on pace to hit 1 million this year.) California lawmakers have toyed with a similar mandate.
"Automakers are forced to reach to develop and offer EVs that are really expensive to make and that people don't really want to buy," said KBB's Lindland. "That's why we continue to see incentives on these."
Fleets Of Self-Driving Electric Cars
Alphabet's Waymo robotaxi
Alphabet's Waymo unit is developing a robotaxi service. (Waymo)
A concurrent trend is improving the business case for electric cars: autonomous taxi service. GM calls robotaxis a multitrillion dollar market. Morgan Stanley sizes the personal transport market at $10 trillion, far bigger than the car market.
Electric vehicles are envisioned for these future fleets of shared autonomous cars as they would be easier and cheaper to maintain.
Waymo, owned by Alphabet , plans to launch a driverless taxi service in Arizona this year. It has tested in Texas, California, Michigan, Arizona, Washington and Georgia. GM plans a similar service next year, and tests in California and Michigan with plans for Manhattan next year.
GM's service may be why it has a bullish 2021 timeline of achieving EV profitability.
"As a pure consumer retail play, profitability is a stretch in that time frame, especially since they are on target to use up all federal tax credits by early 2019," Navigant's Abuelsamid said. "As a service play I think they can get more volume and revenue."
He added that several of GM's 20 forthcoming electric cars "will probably be focused on autonomous mobility applications where the potential for recurring revenue changes the business model and the way you calculate profitability."
No comments:
Post a Comment