TMC is an independent, primarily volunteer organization that relies on ad revenue to cover its operating costs. Please consider whitelisting TMC on your ad blocker or making a Paypal contribution here: paypal.me/SupportTMC

Tesla, EVs, and the auto industry's response

Discussion in 'Electric Vehicles' started by ChadS, Oct 12, 2015.

  1. ChadS

    ChadS Petroleum is for sissies

    Joined:
    Jul 16, 2009
    Messages:
    2,401
    #1 ChadS, Oct 12, 2015
    Last edited: Oct 13, 2015
    While discussing electric vehicles, people will often ask questions about the puzzling manner in which the auto industry approaches EVs. Some common questions include:

    · Why do most EVs look funny?
    · Why are there no long-range EVs competing with Tesla?
    · Why doesn’t anybody make a $20k EV for the masses?
    · Why do I not see EV ads – or, why do the ads not make sense?
    · If EVs are so great, why doesn’t everybody drive one? (This one is rarely a direct question, but often implied by other questions)​

    Good answers to these questions can be kind of difficult, because it requires one to understand the auto industry first. That means there’s going to be a very large wall of text below. Fortunately, it is optional reading. I’ve tried to at least break it up; the sections below are

    1. Executive Summary
    2. Auto industry background
    3. Automaker strategies to maximize profits
    4. Risky strategies that automakers avoid
    5. How automakers are responding to EVs
    6. Specific automaker examples

    I have been thinking of writing a post like this for about 2 years. I mostly put it off because it seemed daunting to do a bunch of research to make sure everything I write is correct and documented. I finally decided it wasn’t going to happen that way; so everything below is just written off the top of my head without research. Sorry - please let me know if you see mistakes.


    1. Executive Summary

    No conspiracy theories are required to explain the current state of the dysfunctional EV market. While there really are groups trying desperately to discredit EVs, simple self-interest of the players given their industry parameters is sufficient to explain why the cars are low-volume, often funny-looking, and have no or strange advertising.

    Automakers have been capable of making good EVs for some time, have some incentives to do so and clearly have the means to do better. They are not trying to do better; the main reasons are:

    · Uncertainty about demand; killer in a high-capital, long-turnaround, low-margin industry
    · Dealers (their only legal sales channel) are unwilling to spend more time selling new technology that will result in lower profits for them (dealer profits primarily come from service, not new-car sales)
    · Cost. This could be addressed with high-performance or luxury halo vehicles, but for some reason automakers have been in the mistaken mindset that EVs are only for highly cost-conscious eco buyers. The media certainly has played a role in perpetrating this myth.
    · The above issues mean the cars are, currently, low-volume. There is no clear direct way to profit on low-volume cars (especially ones with new technology that are expensive to build), so automakers have to employ “tricks” like using the cars for brand image, to attract new customers, or justify credits. This is why EVs look and are advertised differently than mainstream ICE vehicles.​

    The market is evolving. While a lot of automakers are currently ignoring EVs or going a simple compliance route, Tesla has shown the cars can sell and be profitable (on features other than eco-friendliness, no less), and CARB and CAFÉ rules are only going to get stricter. At some point the automakers are going to figure it’s easier to go to volume and make a profit than to try to keep losses low. Even if they stay compliance, they are going to have to improve the cars to stay competitive and sell enough to make their numbers. Low-cost, high-range EVs are on the way (though volumes and marketing approaches may still be in transition for some time).


    2. Auto industry background

    Here are some key points about the auto industry that will be relevant for our discussion. This is not complete coverage of the industry; only a few relevant aspects that we will refer to later. I am lazy so I will focus on the US market, though much of it is applicable elsewhere.

    · Mature. The market has been around for roughly a century. Design, engineering, supply chain, manufacturing, advertising, distribution, delivery, warranties – most of it has been very thoroughly explored. While things have changed over time, current “best practices” are well-known and most of the automakers approach things in very similar ways.

    · Highly regulated. Safety, emissions, dealer relations, warranty and such issues are covered in detail by a mass of regulations. This drives some of the similarities in the cars, which in turn can somewhat reduce innovation since shoppers pay less attention to the regulated details. It drives the costs up (which narrows margins as many consumers are already buying all they can afford). It makes it more difficult to make significant or sudden changes in products. And see the point below about this being a significant barrier to entry.

    · Commodity-ish. Like any mature, highly regulated industry, the auto industry has some elements of commoditization, where the products from each manufacturer are very similar and compete primarily on price. Commoditization lowers margins a great deal and sets strict parameters on what profit-maximization strategies can be used. The auto industry is not fully commoditized, primarily because it is still an evolving market. New performance technology, better materials, manufacturing and distribution methods, new safety and emissions regulations, all mean the products are constantly evolving. The changes are often small, but an automaker can get a temporary advantage in one area with a new product before others catch up. There is also enough difference in what buyers look for in cars that some automakers can focus on specific niches (though that gets harder as they increase volumes).

    · Saturated (in the US). Pretty much everybody that wants a car has one, and many people have more than one. There are always people that can’t afford one, but unless somebody makes a cost breakthrough (difficult due to regulations, and competition with used cars) that’s not a market many are interested in chasing. New customers tend to come primarily from young adults buying their first car. (A recent development is that many young adults are waiting much longer to buy their first car).

    · Very difficult to break in to. Just discovering all the relevant regulations is a very daunting task, much less hiring people to understand and deal with them. You’ll need to spend around a billion dollars to develop your car, and then you still need funds for supplies and distribution before you can see any income. The market is already saturated and low-margin, and the existing players are very defensive; who wants to fund a new entry in to this mess? No wonder Tesla was the first successful US entrant in many decades. Foreign entrants to the market sometimes have help from their national government, or larger industrial parent company, or at least make a name overseas before trying to come here.

    · Dealers are real customers of automakers. While exact regulations vary by state, in general automakers CAN NOT sell directly to customers. (See the Miscellaneous Note on dealer-automaker history near the bottom of this post for more details). Most automakers HAVE to go through dealers…which means automakers can only make cars that dealers will sell. Automakers and dealers are aligned in many respects; the key difference has been that automakers are more focused on volume whereas most dealers prefer higher per-transaction profits.

    · Automakers push dealers towards volume. Automakers still have a fair amount of legal leverage, plus competing dealers of a single automaker form a clear commodity market that naturally drives out most dealer profit anyway. So while dealers don’t like it, volume is the primary focus (which is driving a dealer consolidation trend). In the US, most dealer profit comes from service, and then used-car sales, with new-car sales typically barely above breaking even. This means dealers do not want to spend more time and effort on any kind of sale; they like cars that are really easy to sell. And ideally ones that will need service.​


    3. Automaker strategies to maximize profits

    Given the industry, what does it make sense for automakers to do to try to maximize their profits? Keep in mind that these are strategies, not cars. Any car's purpose and use can have elements of more than one strategy.

    · Volume, volume, volume. While the number obviously varies, it typically costs about a billion dollars to roll out an all-new car – that’s fixed costs before you build the first one. If you only sell 10,000 cars, that’s $100,000 in overhead per car! If you sell 1,000,000 cars, it’s only $1,000 per car – much more manageable. In a low-margin environment, getting those costs down are key. So high-volume cars are extremely important to the automakers.​
    o Current EVs are pretty low volume (and most automakers expected them to be lower than they are). Pretty much any new high-priced market would be. So for now, at least, automakers tend to focus on other strategies below for their EVs. This is the short reason why EVs are treated differently than mainstream ICEs.


    · Brand-building. As Proctor and Gamble and others discovered a few decades ago, you can prosper in a commodity market if you have a strong brand. Especially if you are in it for the long haul, as customers tend to be unreasonably brand-loyal. While some advertising is to drive buying a specific car, some is just to make the brand more attractive so you are more likely to pick their car over a competitor’s similar car. This is a lot of what racing and concept cars are about – making you think more highly of the brand. And much of the charitable and eco marketing.​
    o Halo cars, an example of brand building. Halo cars are low-volume cars which wouldn’t make sense solely based on sales; but are also used to help improve perceptions of the brand. If Dodge doesn’t make a per-car profit on the Viper, they can write off the loss as a marketing expense to make customers think of Dodge as a performance brand. A halo car shows off what the brand can do, often with great looks and performance (though it could be another feature, like extreme offroad/towing ability, or record-breaking MPG). Because it’s not about volume, it can have a high price and low utility (i.e., 2 seats, a small trunk and poor visibility). It is much like a concept car, but by putting it to market it sends a stronger message and reaches a lot more than just dedicated auto enthusiasts.


    · Traffic-driving. Not everybody is brand loyal; and a surprising amount of car sales are impulse purchases (well, generally they know they want a car; but they often don’t decide which one until they are sitting in a car with a dealer coercing them). Both automakers and dealers benefit from having more potential customers visit showrooms. This is another reason for halo cars – even if most customers won’t buy them, a lot of people with go in to a showroom to check them out. They will be impressed by the automaker. And then, hey – what about that car over there? It looks practical.

    · Stealing share from others. Given the overwhelming importance of volume, getting more customers is key. In a nearly saturated market, the only real place to get them is from other automakers. Sometimes an automaker times a new development so they can introduce a car with a new feature ahead of others, and steal customers until the other automakers catch up.​
    o Conquest cars, an example of stealing share. A conquest car is a new type of car for a brand to entice shoppers that would normally avoid the brand. The main idea is to win customers from other brands. The easy ideas for high-profit conquest cars have already taken, so often in practice this ends up being a low-profit model, like an eco car or something niche using a new expensive tech. While they desperately want the new customers, it would be counterproductive to cannibalize their existing higher-profit customers. So they try to carefully design the conquest car to make sure it only attracts new customers without diverting their existing customers – this often means a compromise, like reduced performance, utility or appearance.


    · Versioning. Like any other industry, the automakers want to get the maximum profit from each customer – they can produce cars with a wide variety of capabilities, and various customers can/will spend a wide spread of amounts on their cars. They want to put as much of the good stuff that buying decisions are based on as they can – good looks, performance, high utility, tech features, safety – in to the high-profit vehicles. But because volume is so important, they still want to sell a lot of low-profit vehicles to people unable or unwilling to spend more (often because their competitors are driving prices down doing the same thing). To increase manufacturing volumes while drawing more profits from those willing to spend more, they create versions of cars based on the same platform but that have a lot more goodies rolled in – and more than priced to match for the improvements. Automakers want to simultaneously compete on price with other automakers while enticing some customers to buy the higher-margin high-quality version. Appearance is easy to change (easier than, say, performance or utility) and the thing that consumers are most likely to be willing to give up for a lower price, so low-profit, high-volume cars are often less attractive than their higher-profit versions. Versioning can reduce the cost of any car, volume, halo, conquest, compliance, etc. Think of it as an ROI accelerator by reducing costs.​



    4. Risky strategies that automakers avoid

    Here are some strategies that automakers rarely follow because their industry structure tends to not reward them.

    · Take risks. The market tends towards evolutions rather than revolutions. It can take several years and a billion dollars to roll out a new car – if it’s very different are you sure people will buy it (and remember, you need a LOT of people to buy it)? What will the economy be like when it comes out? Will regulations have changed? What will the competition have produced in the mean time? With so much money at stake for so long, and so much uncertainty, and all for low margins - small changes that you know will help are a lot more likely to get approved than radical departures.

    · Be a first mover. If you are making any sort of change, you’ll have to bring all of your dealers up to speed. You’ll have to do a bunch of advertising to educate customers. It will take time for them to adapt. You will make mistakes and learn lessons along the way. And after you have spent all that time and money getting the market ready – your competitors will dive in and do the same thing you are doing. No one automaker wants to spend the time and money to get the whole industry prepared for a change.

    · Build cars their dealers don’t want to sell. The dealers are the only way for most automakers to sell cars, and if the dealers don’t order a particular car, the automaker is stuck – even if not with actual cars, then still with the enormous costs to launch a car. Often the automakers and dealers want to push pretty similar types of cars; the main difference tends to come from regulations where automakers are required to build certain types of cars – but dealers aren’t forced to sell them and customers aren’t forced to buy them. More on this in the next section.​


    5. How automakers are responding to EVs

    Elon Musk has said that when compliance cars were first sold in California (1998-2003), he figured electric cars were taken care of. But he grew concerned when the automakers canceled their programs in April 2003 when CARB rules were relaxed. In July 2003 owners that later formed Plug In America held a mock “funeral” for EVs, and Musk was struck by consumers holding a vigil for a product – “a GM product, no less”, Musk wryly noted. He said he knew then there would be a market for a high-quality EV.

    · Tarpenning and Eberhard founded Tesla Motors in 2003 (they bought the domain teslamotors.com the same month CARB relaxed its ZEV rules). Musk invested in 2004. Tesla announced the Roadster in 2006.

    · Bob Lutz’s book Car Guys and Bean Counters claims he was furious to learn in 2006 that some startup could make an EV with good performance and range when his team had been telling him it was impossible. He insisted that GM build another EV; he wasn’t really concerned about Tesla, but very concerned about showing up Toyota with its eco-cred from building the Prius. An employee convinced him that a PHEV would solve some problems (infrastructure, consumer reluctance, dealer reluctance) they experienced with the EV-1, and so the Volt was born.

    · CARB and CAFÉ regulations tightened again. Note that automakers are NOT required to build EVs – or anything at all, as they could always buy credits. However, they are required to meet these extremely complex set of ever-tightening regulations around emissions and fuel economy, and the general consensus is that this is already difficult without hybrids, and in a few years even hybrids won’t be enough. CAFÉ was originally about using less petroleum for national security and economic reasons, so alternatives like CNG might make sense. However, due to CA’s particular problem with smog, CARB rules are more about point-source pollution, which tends to narrow solutions down to EVs and H2.

    · CARB and CAFÉ are largely the products of well-meaning and hard-working bureaucrats. They are constantly and vehemently opposed by the automakers, who repeatedly say (sometimes honestly, sometimes not) the rules are too complex, too costly, and too optimistic about technology. The bureaucrats are under considerable and very understandable pressure to release “realistic” guidelines; but as they are primarily not engineers or automakers and not flush with time to investigate, it is sometimes hard for them to evaluate the automaker claims. It is common for rules to be relaxed, delayed, or to allow alternative approaches suggested by the automakers. This dynamic is still very much in play, but Tesla’s vehicles have shown that some pieces of what the automakers said couldn’t be done can actually be done, so CARB and CAFÉ may now be a little less likely to give in than they used to be. (However, they do still offer more credits for H2 cars than they do for EVs).

    · If an automaker doesn’t see a way to make money with low-volume EVs, but figures it is cheaper to build them than buy credits, the simplest way to proceed is with a new type of car – a compliance car. It is solely made to comply with the law; it is not a volume car so the automaker does not expect to make money (though even a technical loss per car is worthwhile; how much depends on the credit value). Now instead of making money on volume, they are trying to lose as little as possible by making low-volume cars. To keep costs down, they will put as little money in to development as possible – just expect a quick conversion of an ICE for a pure compliance play.

    · Of course, if you are looking to minimize your losses on a compliance car, you might as well dual-purpose the things and try to do something else for your brand. No car is purely a compliance car, just as no production car is completely a halo or conquest car – everything serves as many purposes as possible; these “types” of cars are just simplifying concepts. Can you make it a conquest car and try to capture some customers you never had before? (Automakers doing this all focused on eco customers, even though others might be interested in EVs). Can you make it a halo car and show off how green and/or high-tech your brand is? Remember that dealers don't like doing more work for less money, so they hate compliance cars, and aren't really interested in volume EVs either (if there were any). However, dealers might be interested in conquest cars because at least that's more work for a NEW customer that is in addition to their current customers. And they are likely interested in halo cars; they don't even really have to sell those, just park one in the showroom and when people come to look at it, try to sell them something else.

    · Very, very roughly speaking, large automakers without much green cred tend to make eco-conquest compliance cars. They tend to be kind of ugly to make sure they don’t cannibalize existing brand customers. High-end and/or small automakers tend to make halo EVs.

    · Automaker reactions are in flux. I have mostly described the first-generation responses above. As time goes on, automakers will have to do more, both to keep up with tightening regulations and to keep up with the competition.​


    6. Specific automaker examples

    They are not all taking the same approach, but so far none of them have really tried for a volume car – as you might expect in a conservative industry where demand was an unknown and nobody wanted to be the first mover. Nissan and BMW might be laying the groundwork for one. GM sounds like it with the Bolt, but doesn’t have the battery capacity for it really to be a volume car – they are using it to build their brand image.

    Many automakers first built a conquest car. That’s great, but once everybody has one, they tend to lose their effectiveness so we should be seeing different efforts in the future.

    · Nissan – the LEAF is largely a conquest car. Nissan announced the LEAF program the month that CARB stopped giving credits for H2 research (maybe late 2008?); it started as a conversion of a Versa. (The production LEAF platform clearly came from the Versa’s platform, but it has been extensively modified – Nissan calls it a new platform). They include a DC port. Nissan has been very clear at dealer events that the LEAF was designed to bring in new customers (i.e. from other brands), and help fill in the missing “eco” cred in the Nissan brand. At dealer events, Nissan has been proud of how well this strategy has worked. While it is also a compliance car and Nissan gets many credits for the LEAF, it is not primarily compliance as they sell it worldwide, not just in ZEV states. Credits aside, volume is not high enough that Nissan is likely making money on the car yet, but they may be close and seem determined to get there. Ironically Tesla may have slowed them down; they had planned an Infiniti sedan with the LEAF powertrain but shelved it - likely in anticipation of how it would look once the Model S was released. Their CEO has publically stated that to get larger volume (a key goal of his, so they can make a profit on the cars themselves rather than rely on credits, brand image, etc) they will have to produce better-looking and longer-range EVs.

    · BMW – i3 is a conquest car, i8 is a halo car. BMW’s Active-E program started the same month the LEAF program did for the same reason. It was a limited-term non-renewable lease of a converted Mini. Then they did the same thing with a converted 1-series. These test programs provided BMW with credits (they got the same credits for short-term test leases that other manufacturers got for selling cars) while they developed new materials, an all-new platform and new manufacturing methods for their “i” vehicles. They even have an optional range extender that turns their BEV into a PHEV, unique in the industry – especially given that they asked for, and got, a special rule to allow BEV credits for the PHEV (largely by limiting power and range in gas mode). They include a DC port. BMW has repeatedly said – not just to dealers, but at consumer events – that the i3 is not meant to attract existing BMW customers. Being an all-new platform and sold worldwide, it is clearly more than a compliance car; given the non-cannibalizing design, it is mostly for conquest (and it is working very well). The i8 PHEV, with its incredible looks, great performance, low utility and high price, is clearly a low-volume halo car designed to draw customers in to showrooms and build the brand. It appears that BMW is serious about their new “i” brand, and while they say they intend to offer PHEV versions of their entire product line, the initial conquest and halo cars neatly work around common dealer objections to selling EVs. Unfortunately BMW claims the “i” and “M” sub-brands will not overlap; they still see “I” cars as primarily for the eco-set and not for performance.

    · Chevrolet – Spark is primarily a compliance car; production is limited and it is only sold in ZEV states. (Though obviously where sold, it doubles as a conquest car). Lutz was very clear that he wanted the Volt to be a halo car to show GM could out-Prius Toyota; but the price had to be too low to be a good halo car given the Prius as a competitor, and costs were too high to make money so they weren’t excited about volume. They sold just enough Volts to barely claim PEV sales leadership until the Cadillac ELR (based on the Volt) arrived as a better halo car – better looking, more expensive, less utility. When the ELR arrived, GM announced that people should no longer expect the Volt to be the PEV sales leader, and sure enough, sales dropped. Since Lutz left the GM marketing team has seemed very confused about the first-gen Volt. They have clearly not been concerned about sales via the Osborne effect as they have been relentlessly touting how much better the 2016 Volt will be for well over a year now. But margins should be much better on the second-gens that just appeared this week so it will be interesting to see how they handle it. Though note that 2016s are (sigh) limited to CARB states; next March 2017s should (!) show up everywhere. GM is also making much hay about their up-and-coming long-range Bolt BEV; once again clearly showing that building their brand’s image is more important to them than sales of their current offerings.

    · Mitsubishi – the i-MiEV was a “survival” car. When Nissan and BMW announced their electric vehicle programs, US Mitsubishi dealers started clamoring for an answer from their brand. Mitsubishi had already been working on an electric kei car for the Japanese market. It hadn’t been intended for the US, but at the time Mitsubishi almost had to pull out of the US market and showrooms were nearly empty of vehicles and customers. Mitsubishi adapted the i-MiEV for the US market, included a DC port and made it available everywhere; aside from the Tesla Roadster it was one of the first EVs available. It was not intended as just a compliance car, but is not well-suited to the US market (appearance that plays better in Japan; very small size and short range –OK in Japan where DC stations are everywhere) so volumes have been very low. Mitsubishi has developed an AWD PHEV version of their Outlander CUV that is very popular overseas and could do well here too, but its US introduction has repeatedly been delayed as they can’t get enough batteries to meet demand.

    · Mercedes/Smart – the B class is a conquest car (low volume, conversion of an existing car, car chosen was not previously deemed suitable for US, typical compliance-car specs, no DC port), the SLS is a textbook halo car. The Smart ForTwo ED is also a conquest car; while technically available everywhere, it is low-volume, low-range, simple conversion with no DC port.

    · Kia – the Soul is a conquest car. It very nearly matches the LEAF, including a DC port and range above 2015 LEAFs but below 2016 LEAFs. They claim it will be offered everywhere, but was initially offered only in ZEV states. Very recently it became available at select dealers in a couple of non-ZEV states; word is a few non-ZEV dealers are clamoring for it as they see nearby Nissan dealers going gangbusters with the LEAF.

    · Ford – they are walking a fine line. They desperately don’t want to be seen as compliance car sellers, so their offerings are technically available everywhere – but only advertised in ZEV states, and good luck finding a dealer that offers one (and has it charged for test drives, and doesn’t try to talk you out of it) in a non-ZEV state. To their credit, they do have three offerings – a Focus BEV, and Fusion and C-Max PHEVs. All are very quick conversions (putting batteries in the trunk!) and none offer a DC port. No one car is a big seller, but collectively Ford is moving a fair number of PEVs and they haven’t spent much. It is possible (but only a rumor) they are biding their time and working on a long-range BEV in secret to be a fast-follower and not Osborne their current vehicles before the new car is ready.

    · Porsche – they are small enough they don’t have to sell BEVs yet, but they do sell PHEVs to improve their fleet MPG for CAFE and have been demonstrating some EV concepts to build the brand.

    · Volvo – they are small enough they don’t have to sell BEVs yet, but very recently introduced a high-end PHEV version of their new SUV, likely as a brand halo and to increase fleet mpg.

    · Chrysler/Fiat – their Fiat 500e is a fairly pure compliance car. They converted an existing car, did not include a DC port, and only sell it in California. The Fiat CEO has been very vocal that he does not want to offer this car, and says he is losing a lot of money on each one (of course, it is low-volume; and it is still obviously worth doing for the credits). However, the car is an extremely nice driver, had class-leading range when introduced, and selling dealerships included a nice kiosk with a phone direct to headquarters so potential customers could talk directly to Fiat rather than asking dealers questions about the car.

    · Honda – their Fit EV was a pure compliance car. They converted an existing car, did not include a DC port, only leased (it was not available for sale) it in California, and stopped making it as soon as they’d sold the minimum number.

    · Small automakers like Mazda and Subaru – CARB doesn’t apply yet; so they are doing nothing. Well, they did petition CARB to delay the requirements so they could keep doing nothing longer.

    · Toyota – they have the most to lose as EVs both cannibalize current hybrids that they are the leaders in, and future H2 cars that they hope to be the leaders in. Their 2[SUP]nd[/SUP]-gen RAV4 EV was the strictest example of a compliance car available; it was a quick conversion, had no DC port, sold only at select dealers in 4 metro areas in CA, they stopped producing them when they reached the minimum number, and they went beyond other manufacturers to warn dealers outside of California that they would not honor warranties on RAV4-EVs unless they were in California. They built a Prius PHEV, but it had the world’s lowest EV range, a ridiculously high price, their executives wondered aloud “why they made it”, and was only advertised in California to take advantage of HOV lanes while PHEVs were getting stickers. They have repeatedly trash-talked EVs, both in interview and advertisements, and have helped start an H2 consortium that has hired popular EV industry writers to promote H2.​
     
    • Informative x 3
    • Like x 1
  2. TexasEV

    TexasEV Active Member

    Joined:
    Jun 5, 2013
    Messages:
    3,782
    Location:
    Austin, TX
    That's a great report. It will be helpful for people to see this all in one place. One addition I would suggest is explaining that traditional auto makers don't want to make an EV that would cannibalize their ICE sales, because they have so much invested in ICE technology. So if they make an EV beyond a compliance car it is only to attract buyers who are specifically shopping for an EV, but not one good enough that it would attract mainstream car buyers. Only a new company without a large investment in legacy technology would want to do that.
     
  3. ItsNotAboutTheMoney

    ItsNotAboutTheMoney Active Member

    Joined:
    Jul 12, 2012
    Messages:
    4,502
    Location:
    Maine
    He really covered that with volume and conquest.
     
  4. ChadS

    ChadS Petroleum is for sissies

    Joined:
    Jul 16, 2009
    Messages:
    2,401
    I tried to thread the needle with that one. While I mentioned one particular vehicle sale cannibalizing another vehicle in a specific sense, and made an allusion to the more general issue, I didn't generalize explicitly to EVs displacing ICEs as a category. I am sure that automakers have thought about the issue, but I didn't get in to it because I'm not convinced it's really driving their approach - at least, not yet. I don't think PHEVs displacing ICEs is scary for them - in a PHEV, the ICE is still there, just augmented by electricity so they've got a better product that still has the same infrastructure and service needs, no big deal. An all-BEV future would be scary (especially given that many automakers have outsourced so much other than their engines), but I think most of them suspect that is so far off they are not terribly worried.

    They know most consumers are scared of BEVs, and most dealers don't want to sell them, so don't see how BEVs could take off quickly. And people in any entrenched industry often underestimate how fast changes to the zeitgeist can come. So they probably don't fear imminent displacement. And as long as they are considering BEVs as solely eco cars, why would they? They know eco buyers are very limited. And if anybody wants range, every ICE they already sell solves that problem, so they don't want to worry creating a new solution for BEVs, especially since then they'd run in to the first-mover problem. Just keep selling ICEs, ramp up the PHEVs, and worry about that BEV stuff later.

    I think that's another reason why so many automakers are going with conquest cars - they think, we'll get a new customer with this short-range BEV. Then when they need a new car for road trips, they will buy one of our ICEs too! That is how conquest cars have worked for them in the past, but I think that strategy is not going to work here - BEV buyers want more and better BEVs, rather than to go back to an ICE.

    At some point, not only will the automakers have to produce good, low-price, high-volume long-range BEVs just to stay in the game, but they'll have to start providing some sort of long-distance solution, like Superchargers or battery swapping or whatever. THEN they will have no way to avoid confronting the displacement problem. But I suspect there will be a lot of denial until then. BMW may be one of the few that is taking it seriously, though I don't have much in the way of concrete evidence for that.

    (I could be wrong, maybe some of the automakers - in addition to Toyota, though they are more just worried about HEV and H2 niches rather than their whole ICEdom - are already terrified and purposely trying to slow down BEVs now).
     
  5. voyager

    voyager Member

    Joined:
    Apr 28, 2009
    Messages:
    405
    Location:
    Amsterdam, Netherlands
    #5 voyager, Oct 13, 2015
    Last edited: Oct 13, 2015
    That's a great overview. My compliments. Perhaps you can condense it a bit. Whatever people might think about EVs, time is on their side (EVs I mean). Even more if some disrupting new battery technology will make its debut. Tesla proved that you can make an attractive-looking EV. In the past it often looked like car makers were doing their best to scare away customers by weird-looking EVs, like the Leaf. The Chevy Bolt for instance looks much more promising. If Tesla is serious about popularizing electric drive (to justify the mega investments in the Nevada mega factory), it should look for a game-changing smaller EV that may fit the bill also in other ways Musk seems serious about: shared mobility and robo-drive.
     
  6. FlatSix911

    FlatSix911 918 Hybrid

    Joined:
    Jun 15, 2015
    Messages:
    2,347
    Location:
    Silicon Valley
    Good summary ... well done!
     
  7. ChadS

    ChadS Petroleum is for sissies

    Joined:
    Jul 16, 2009
    Messages:
    2,401
    #7 ChadS, Oct 13, 2015
    Last edited: Oct 14, 2015
    Yeah, definitely. I'm going to take out the section about the 1998-2003 EVs (interesting history, and relevant even - but you can still understand what's going on now without it). I'll paste it below if anybody is interested.

    I'm also going to take out the "extra notes" and put them below as well. It will make the original post seem less daunting.

    And hey, here's a picture. (I apparently just missed the 24-hour window to edit the original and put this in). This is of some of the profit-maximizing strategies that automakers use:

    Profit Max.jpg

    Note that those are strategies, not cars. Any car may fit any strategy partly or in whole, and any car may partly address multiple strategies. That said, here's an attempt to stuff some of the current cars into their best-fit categories:

    EVzamples.jpg


    DELETED SCENES FOLLOW:

    How automakers responded to EVs in the first wave (1998-2003)

    In January 1990, GM announced an all-electric concept called the Impact at the LA Auto Show. (My wife, taking a picture of my newborn son, captured me reading an article about it). While just a concept to show their engineering prowess, CARB (the California Air Resource Board) took notice – they had a huge smog problem they needed to get under control. If manufacturers could build electric cars, this could be a solution. CARB created rules that year saying starting in 1998, larger automakers had to sell small numbers of EVs; over time the number of cars and affected automakers would rise.

    · The automakers’ first reaction was to fight. They complained about complexity, cost, the single-sided mandate, California’s rules being different than federal rules, lack of consumer demand, the government’s role in infrastructure, etc. Some of their points were valid, some not; but like any industry they fought new regulations tooth and nail. They (joined by the Bush administration) sued CARB in 2002. They created lobbying organizations with astroturfed names, and brought in busloads of paid “citizens” to complain at meetings.

    · CARB initially stuck to their guns enough that the automakers started building cars. The largest automakers had to jump in first and produce the most cars (though numbers were generally in the hundreds, at most a couple thousand). GM Impact became the Saturn EV-1, the only dedicated (rather than converted) EV and the one with the best range and performance. GM also converted the S-10 pickup and Ford converted their Ranger; these became fleet favorites. The Toyota RAV4-EV conversion was well-loved for its passenger utility. There was also the Honda EV+ and the Nissan Altra. Many of these vehicles were only offered only on lease.

    · Most of the automakers had a customer screening process. Employees involved (excited about the cars!) later relayed dismay that their company was asking the employees to explain all negative points to potential customers in great detail, a stark departure from the normal car sales process. The automakers nevertheless sold (well, leased) every one of the small number of cars they built, and many had waiting lists. They continued to tell CARB that there was no demand.

    · In April 2003 CARB finally relented. The automakers canceled their programs the next day.

    · The automakers started refusing lease extensions and crushing the cars, despite protests and cash buyout offers from owners. This started in 2003 but reached a head in 2005. While GM is famous for this because the 2006 movie “Who Killed the Electric Car” showed a GM official promising the cars would not be crushed and then obtained video of piles of them crushed, they were just the unlucky ones caught on video – others were doing the same. Under pressure from the group of owners that later became Plug In America, some automakers started moving the cars overseas instead. Toyota, after crushing about half of their RAV4-EVs, moved others to some test programs and promised to let remaining lessees keep their cars; but still crushed them when voluntarily returned. As of 2015 Toyota has again started refusing lease extensions of the first-gen RAV4-EVs, and they still crush the returns.


    Miscellaneous Notes (just to make this post longer):

    · PHEVs: I am largely though not completely glossing over plug-in hybrids (PHEVs) to focus on battery electric vehicles (BEVs). I think PHEVs are a very important part of the transition away from petroleum, and while they share a number of commonalities with BEVs, for the type of points covered here PHEVs should be a lot more watered-down – that is, closer to internal combustion engines (ICEs) – than BEVs are. Of course, that’s “should be”; an awful lot of consumers (and dealers, who are people too) are still confused by the differences.

    · Dealer-automaker history: around a century ago, the US had hundreds of tiny automakers. As mass production ramped up, there was a wild frenzy of consolidation and expansion. In order to expand quickly with a minimum of capital and remote management (which was a lot harder back then), the automakers enlisted local dealers. For any automaker, this was a great way to grow – but once they’d covered the country, they suddenly started resenting these middlemen taking a cut, especially since they didn’t always represent the automaker as desired. So the automakers started trying to sell direct. Of course, it’s never fair when a manufacturer competes directly with dealers that have invested in the brand, and the dealers were generally more local than the automakers so laws to protect the dealers were passed in every state. Tesla has never used dealers so there are none to protect, but in some states the laws weren’t written very well.

    · Working around dealers to sell EVs: as noted above, most dealers aren’t very excited about selling EVs. While there are some dealers working hard on it and more will convert over time, in the early days this was sometimes considered the largest barrier to the industry, and simply called “the dealer problem”. The launch of the earliest plug-in vehicles has some interesting examples of how the first modern plug-in automakers (say, Jan 2011 and before) worked around the dealer problem:

    • Tesla started a new company and didn’t use dealers at all.
    • Nissan sold direct and used dealers as a delivery point; while technically illegal, nobody cared because volumes were so low and the dealers weren’t interested. There was an enormous dip in sales when Nissan stopped selling direct and let the dealers take over.
    • Chevrolet understood the importance of the EV driving experience, and did a good job of delivering that for the customer while still delivering a car with all the gas trimmings that could be sold and serviced normally so their dealers should have welcomed it – too bad the dealers were confused, especially when the car unfortunately became a political football.
    • The other early EV was Mitsubishi; they used dealers like normal but then at the time Mitsubishi dealers were desperate as the brand was almost defunct. And it’s been one of the slowest selling EVs - though it has challenges (range, appearance) other than the sales model, despite having some great packaging and impressive value engineering in the powertrain.


    · I am not a historian. I am not trying to log and document every detail. My purpose – how I generally approach history in general, and in particular here – is to pull out salient points that explain how things got to be the way they are. This, by necessity, means simplification – there are many factors that I am glossing over or ignoring completely. But this post is already too long; I think it would be counterproductive to add more stuff. Though if you have relevant details, or corrections to what I have written, I welcome them.
     
  8. green1

    green1 Active Member

    Joined:
    Mar 25, 2014
    Messages:
    4,116
    Location:
    Calgary, Alberta, Canada
    Just out of curiosity, you list the Cadillac ELR (hybrid) but not the Chevy Volt (which the ELR is based on) in your table. It also appears to be the only vehicle in your list that is hybrid only and can't be had in a pure EV.
     
  9. FlatSix911

    FlatSix911 918 Hybrid

    Joined:
    Jun 15, 2015
    Messages:
    2,347
    Location:
    Silicon Valley
    Chad,
    I agree with your strategy chart for the various EV automakers. Well done!
    Have you considered that the Tesla Model S and X may be conquest cars that will lead to the Model E volume cars.
    I would make the case that none of the current BEVs or PHEVs are in volume at this time when compared to the total US sales of 16M/year.
    http://insideevs.com/monthly-plug-in-sales-scorecard/

    2015-sales-chart-september-vfinal.png

     
  10. ChadS

    ChadS Petroleum is for sissies

    Joined:
    Jul 16, 2009
    Messages:
    2,401
    #10 ChadS, Oct 14, 2015
    Last edited: Oct 14, 2015
    Yes, I was kind-of-sort-of ignoring PHEVs in general, as at least theoretically (though not so much in practice because of customer & dealer confusion) they can fit in to existing dealer strategies without disruption. There is no need for a special long-distance strategy, no need to worry about consumer range anxiety, no need for dealers to spend more time than "plug in to 120V at home if you want to" on charging, and all the regular ICE service requirements are still there. There's no reason automakers can't turn PHEVs in to volume cars now without changing their current strategies (although they do have to be careful about marketing, as the assumption is that HEVs suck and PHEVs must be worse).

    The Volt and its upscale version the ELR are hard to ignore though. While I am a BEV guy, if Tesla didn't exist (or we couldn't afford one, or fit it in to our garage, or whatever) my wife would most definitely be driving a Volt. GM did an awesome job with that - it delivers the regular EV experience as long as possible (and longer than any of the PHEV competion; compromised i3 REX excepted) while calming all consumer and dealer fears about range and charging. GM has done a poor job with marketing and the Volt became a political football, but the Volt has still done comparatively well volume-wise. And it had the highest-ever customer satisfaction score until the Model S came out.

    The ELR is easy; it's a clear halo car (high cost, good looks, low utility, low volume, an impressive feature for the segment); too bad it wasn't introduced first. I didn't put the Volt in to a strategic category because it doesn't fit very cleanly in to any of them. While it's clear that Lutz orginally intended it to be a brand halo, it doesn't meet traditional halo car criteria very well, largely because the target price was low so they could call the Prius a competitor. GM clearly uses it for halo, compliance AND conquest means, and may have toyed with real volume if only their per-car costs were lower. (It sounds like they have addressed their per-car costs for 2016; although for an unnamed reason they are treating 2016s as compliance cars and only selling them in ZEV states. They promise the 2017s will come very early and be available everywhere).

    - - - Updated - - -

    Yes, there is an argument for that. By definition, any customer Tesla gets (other than Roadster owners) is a conquest; and Tesla's volumes are low compared to other manufacturers. If you just compare cars and try to put them in to categories, some might say that Teslas look like conquest cars.

    But I was trying to consider motivational strategy, rather than product results which can be limited by other factors (like capital, supply chain access, etc), While determining anybody's motivation is a tricky business (especially an entity comprised of many individuals) I don't think the conquest aspect drove Tesla's strategy. I think they are building the S and X in as large a quantity as they can, the idea being to make a profit directly on the cars. Which they will then invest in capital to make even higher-volume, lower-cost cars in the future.

    By being higher volume, the Model 3 will indeed be a better example of the "volume" category. (Even though it too will include a large number of conquest customers).


    Indeed (and my frustration with that is why I spend time on things like this!). Although Tesla has lower launch costs than most automakers, and higher per-car margins, so they can successfully use the "volume" strategy at lower volumes than most other automakers can. Porsche might be the closest automaker to compare them to.
     
  11. ChadS

    ChadS Petroleum is for sissies

    Joined:
    Jul 16, 2009
    Messages:
    2,401
    So far most of the questions I've had (not just in this thread) centered around the differences in the purpose and implementation of the various ROI strategies (volume, halo, conquest, compliance). I created some charts to help out; but they’re a little busy.

    ------------------------------------------------------

    Automakers, like any industry, use multiple strategies to see a return on investment of their money. For a few automotive ROI strategies (volume, halo, conquest, compliance) this chart shows the purpose of each strategy – which strategy you choose depends on what you most want to do.

    Of course, it’s possible to only partly go with a strategy, and/or to go with multiple strategies on a single car (or more likely, on versions of a single platform).

    strategy pic.jpg

    You can look at these strategies this way:

    Volume: bread-and-butter car sales. Sell enough cars to pay back all of your fixed and variable costs. Car should be reasonably good at many things, but probably not exceptional at anything.

    Halo: more advertising than car sales – showing how cool your brand is by building an exceptionally fast, attractive, or useful vehicle. (You don’t even have to sell it; it could just be a concept car, though that’s obviously not as effective). A strong brand means some future car of yours might be more likely to be chosen than a similar car from another brand.

    Conquest: Customers are brand-loyal and we need more volume to lower costs, so we need to steal customers from other brands. Our brand is known for X; shoppers for Y typically don’t come to our brand, so let’s make a car with a lot of Y. But let’s not give it any X so our existing customers stick with out existing high-margin cars rather than these new low-margin ones.

    Compliance: I will do the least amount of work to meet the letter of law. I will lose money on this program, but by doing so will be allowed to continue other aspects of my business.

    Choose one of these ROI strategies determines how you will approach designing, building, pricing, and marketing the car. Some of the things you’d typically do to make one of these cars are listed in the chart below:

    strategy pic 2.jpg
     
  12. RobStark

    RobStark Active Member

    Joined:
    Jul 2, 2013
    Messages:
    2,918
    Location:
    Los Angeles
    In your rundown of automakers you discuss Porsche but not VW/Audi. They are owned by VW Group and treated as one entity by CARB and CAFE.

    eGolf and A3 etron as well as Panamera PHEV and Cayenne PHEV balance out the 911 Turbo S and Panamera Turbo S.

    In the last round of CARB meetings Volvo,Mazda,and Subaru will have to offer PEV by 2017. Mazda is currently evaluating whether to do PHEV or BEV. Seems like Subaru will do a bare minimum PHEV possibly a rebadged Prius PEV from new partner Toyota.
     
  13. renim

    renim Member

    Joined:
    Apr 6, 2013
    Messages:
    449
    Location:
    Oz
    If the definition of modern EV includes DC fast charging and li ion batteries, then Subaru was the first manufacturer to release to the public a modern EV. The Subaru Stella EV

    The triumvirate of Subaru, Mitsubishi and Tepco inaugurated the modern age of city electric vehicles with their Kei class EV, circa 2009 Subaru Stella electric vehicle goes on sale in Japan The Mitsubishi entrant arrived less than a year after the Subaru EV, and since the Mitsubishi both cost less and had nearly double the battery of the Subaru, the market of the Subaru totally transferred to Mitsubishi, leading to the withdrawal of the Subaru EV. But as a pioneer, Subaru stands as THE first EV to market for sale, with DC charging and Li ion battery.

    With Toyota's rising influence at Subaru, Subaru EV ambitions have waned, but the torch was passed on to Mitsubishi and Nissan. When Subaru returns to making EVs or PHEVs, they will do so with a decade of reflection to benefit from, and a lot of assimilation of thought from Mitsubishi and Nissan.
     
  14. ChadS

    ChadS Petroleum is for sissies

    Joined:
    Jul 16, 2009
    Messages:
    2,401
    #14 ChadS, Oct 17, 2015
    Last edited: Oct 17, 2015
    Thanks RobStark. I just plumb forgot to cover VW & Audi as I was just typing off the top of my head (actually VW at least came to mind, but I put it off because of curiousity about how dieselgate might affect it, and then forgot to come back to it). I knew they were the same group as Porsche, but wasn't sure whether CARB and CAFE treated them the same - thanks for that.

    - - - Updated - - -

    Thanks, renim. I was sticking to the US market out of laziness, but the Stella is an interesting piece of history - and it does make me curious what Subaru might do. Subarus are very popular in my area; I am sure my wife would like to own an electric one.

    I'm not familiar with the forces that drove Subaru and Mitsubishi to develop EVs for the Japanese market before things (other than Tesla) got moving in the current wave in the US market. But it is interesting to note that major automakers got started there when nobody wanted to try here; there must be some significant difference in the markets or regulations. I do know that one (unrelated) Japanese regulation - significant incentives for a well-defined set of small, low-power cars - resulted in the kei cars being popular over there. (When I'd return from a business trip and complain about all the cool cars we couldn't get, my wife would encourage me to move there). Japanese automakers took a lot of share in their home market because of the kei cars, but they didn't sell well in other countries - which eventually led the government to realize they were hampering their automakers by making them make cars that weren't really high volume. Last thing I remember (this was a few years ago) was that they were thinking of changing the regulations, but I'm not sure if they ever did.
     
  15. FlatSix911

    FlatSix911 918 Hybrid

    Joined:
    Jun 15, 2015
    Messages:
    2,347
    Location:
    Silicon Valley
    Here is a summary chart of the EV/PHEV cars available in the US

     
  16. RobStark

    RobStark Active Member

    Joined:
    Jul 2, 2013
    Messages:
    2,918
    Location:
    Los Angeles
    Kei Class cars are not be legal for sale in the USA and in much of the industrialized world.

    And in 1996 GM launched the EV1.

    After the Arab Oil Embargo GM was ready to mass produce the Electrovette in 1980 if gasoline prices hit $2.50 per gallon($8 in today's money).

    Point is tiny volume, no volume, and Galápagos vehicles don't mean #$%#.
     
  17. renim

    renim Member

    Joined:
    Apr 6, 2013
    Messages:
    449
    Location:
    Oz

    Kei class cars are legal in much of the industrialised world if the power and engine size restrictions are lifted, MB's SMART would classify as kei compliant except for its engine. i Miev and twins are legal all over EU and EU/Aus/JDM are strictly Kei.
    Suzuki Alto is for sale in both EU and Australia.

    So Kei class cars are legal for sale, it is however a very competitive, low differentiation, low profit market.
     
  18. RobStark

    RobStark Active Member

    Joined:
    Jul 2, 2013
    Messages:
    2,918
    Location:
    Los Angeles
    Small does not equal Kei class.

    They have far lower safety standards and do not meet international safety standards.

    Smart is far superior in safety.

    When iMiev is modified for sale in US it increases cost significantly and it is no longer a Kei car.
     
  19. renim

    renim Member

    Joined:
    Apr 6, 2013
    Messages:
    449
    Location:
    Oz

    Peugeot iOn, Citroën C-Zero, Mitsubishi i-MiEV are all strictly Kei cars, and were sold in EU/JP
    Suzuki Alto is strictly Kei when it has Kei compliant motor, but is also available with non-Kei compliant motor, its sold in EU, JP, Aus

    Kei cars defiantly meet international standards, and are significantly easier to homogulate to international standards then say a Ford F150.
    real world, only martyrs would drive kei cars if F150 locally popular.

    but back to topic, non US car companies had a vision to pursue EVs that were focused on city use of cars, I'll try to dig up some Renault slides, they present a very different view on EVs than Teslas, and essentially represent Renault/Nissan's motivation for spending 4bill Euro (5bill US$) on developing the 100mile/160km range EV.

     
  20. renim

    renim Member

    Joined:
    Apr 6, 2013
    Messages:
    449
    Location:
    Oz


    Peugeot iOn , Citroën C-Zero, Mitsubishi i-MiEV are all strictly kei cars, and were sold in EU and Japan
    Suzuki Alto is strictly Kei when it has a Kei compliant motor, but is also sold with a non Kei compliant motor. Its sold in EU, JP, Aus etc

    Kei car do and can meet international safety standards, its more natural to make a Kei car to homogulate to European (global) safety standards than US vehicle like the Ford F-150.

    The US spec Mitsubishi i is not the same car as the global spec i MiEV, it demonstrates the divergence between global safety standards and US safety standards. It is a different discussion, as to which safety standards are more relevant for real safety, but the safety standards between Japan and Europe tend to be closer than USA to Japan/EU.


    back to topic, non US car companies had a city car view for EVs, since they have a city car view for ICEs anyway. I'll dig up some old Renault PDF, very different perspective to Tesla, and was the justification for about 4 Bill euro (US$ 5 bill) investment in EVs by Renault/Nissan
     

Share This Page