I started this thread to describe how the auto industry treats electric vehicles. The ROI strategies they employ (halo, conquest, compliance) are similar to those used for certain ICE vehicles, but they are not the “volume” strategy that EV advocates would like to see. With the arguable exception of Tesla, no EV available today is following a volume strategy. Halo and compliance vehicles are intentionally low-volume; conquest can vary but is typically low-to-mid volume.
While I believe volume EVs are inevitable, this post looks at the previously-noted obstacles to volume deployment and offers some thoughts on how we can encourage a quicker shift to volume electric vehicles. I was hoping something new, simple and exciting would fall out; but alas the ways to help are already pretty well-known. At least this places them in to context, which can help when prioritizing work or explaining why these actions are important to others. The sections below are:
· Executive Summary
· The Market is Already Changing
· Obstacles to Volume EVs
· Obstacle: Demand Uncertainty
· Obstacle: Regulation/Incentive Uncertainty
· Obstacle: Dealer Lack of Incentives
· Obstacle: First Mover Risks
· Obstacle: Versioning Temptations
EXECUTIVE SUMMARY
The market is already moving towards volume EVs, though very slowly. The automakers don’t want to leap in to a volume EV yet because they are uncertain about demand, regulations, and incentives; their dealers are dis-incented to sell them, and it is cheaper to create a cheap version of an ICE car amidst all of this uncertainty. Taking big risks is not common in a low-margin, high-capital, long-turnaround, mature and saturated business.
Some ways that we can help remove obstacles that are keeping automakers from going with a volume strategy include:
· More test drives to help increase and show demand
· More DC charging (without expecting an individual automaker to take the lead)
· Ensure that CARB/CAFÉ regulations will not be relaxed
· Change federal incentive to time-based point-of-sale rebate tied to larger batteries
· Add state/local/company incentives
· Give some of the incentive to dealers for selling EVs
· Convince automakers we want more capable EVs (not conversions) in a variety of versions
THE MARKET IS ALREADY CHANGING
Before discussing what we can do to accelerate the shift to volume EVs, let’s look at a few things that may already have automakers contemplating them:
· CARB and CAFÉ regulations are already slated to require more vehicles in more places, and may get even tighter:
o Concern about CO emissions seems to be picking up steam
o The VW scandal has highlighted some of the serious dangers of other emissions
o The ability of electric vehicles to address these issues has been clearly shown
· There have already been several halo and conquest EVs, so new ones won’t be as effective, and dealers like hard-to-sell compliance cars even less than hard-to-sell volume cars (although it is true that fewer dealers have to deal with compliance cars)
· Battery prices are coming down significantly, and densities are improving
· It has already been shown that there is at least some demand for EVs; consumer attitudes towards them are clearly improving
· It has already been shown that profits can be made, at least at the high end; and the large automakers specialize in making lower-end profits through volume
· Diesels may be more difficult to market as a solution after the VW fiasco
· Autonomous driving will be an important future feature, and it is easier to implement in an EV
· EVs don’t have emissions regulations to worry about, significantly lowering the barrier to entry to new players (though they still must have a ton of capital)
Taken individually, perhaps none of these trends would overcome current EV obstacles. However, as a group they seem to be pushing from many directions towards EVs. I believe EVs are the best solution and they’ll win out in the end; however, I’d like to make it happen faster if possible. How can we do that? First, let’s review some of the factors that are keeping us from quickly switching to EVs now.
OBSTACLES TO VOLUME EVs
Here are some of the reasons why automakers don’t yet employ the volume strategy for EVs. At the beginning of this thread I discussed them in the context of the auto industry as an explanation for why we are where we are; now I’d like to start with them and look at how we can move forward.
· Uncertainty about demand – initial cost, range, charging, fear of the unknown
· Uncertainty about future regulations and incentives
· Dealers (the only legal sales channel) have no incentive to do extra work for volume or compliance vehicles; it’s more profitable for them to sell current ICE vehicles instead
· First-mover risks
· Versioning is cheaper; but EVs are much better when ground-up. A conversion has limited range.
As we saw in the previous section, some of these are already being addressed. But we will look at these issues one by one and consider how we might help remove obstacles.
OBSTACLE: DEMAND UNCERTAINTY
The auto industry is a high-capital, saturated business with a long turnaround. To make money on a new car line, you have to sell a LOT of them. Are you sure that an entirely new type of car is going to sell in high volumes?
Already happening:
· Tesla, Nissan, GM and BMW (the best sellers – the ones with cars that are not straight conversions) have shown there is at least some demand for a product that’s not slapped together
· Ford shows you can even sell a decent amount of quick conversions if you offer a variety of vehicle types. No surprise that variety is key in EVs just as in ICEs
· Surveys show that the more you know about EVs, the more likely you are to want one. No surprise, but advertising a car with a volume sales strategy (as opposed to, say, a brand-building strategy like polar bears) will help
· Limited test-drive programs show far improved attitudes and high conversion rates after a test drive
· Studies of buyers and those holding back show similar buying triggers. No surprise, but more range, more DC charging and lower prices (which will come with volume) seem to be the main keys
What we can do:
· More test drives!
· Try to get more DC charging while avoiding first-mover concerns. Alliance, utilities, government, etc
OBSTACLE: REGULATION/INCENTIVE UNCERTAINTY
It takes years to put out a new car, and it will only pay back if it sells in high volume. What if you spend a billion dollars going through the cycle – and by the time it is ready to sell, the rules have changed and consumers are less incented to buy your new vehicle?
Already happening:
· We have a large federal incentive, up to $7500. But it requires tax liability in the year of purchase, takes months to get so initial amount must be financed, doesn’t encourage more than 16kWh, is per-automaker so doesn’t incent first movers, and runs out before automakers get to volume levels
· Many states have incentives too; but most don’t, they are quite varied, and few are funded for long
· NHTSA and CARB seem to be holding firm on regulations, and in fact seem more likely to tighten rather than loosen them
What we can do:
· Keep pressure on NHTSA and CARB to ensure regulations won’t be relaxed. This may be easier after what VW did.
· Convince more states to add incentives. For most states, it’s an investment, not a giveaway – EVs purchase clean local fuel rather than dirty imported fuel, so less money is spent, what is spent stays local, and mitigation work can be avoided
· Change federal incentive to a time-based point-of-sale rebate linked to larger battery sizes. I.e, $2500 to $10,000 deducted immediately from price of car (as in Cash for Clunkers), based on kWh from 15kWh to 60kWh until 2020. In 2021 and 2022, half that incentive. None after.
· The incentive doesn’t all have to go to the consumer – see the next section on dealer lack of incentives.
OBSTACLE: DEALER LACK OF INCENTIVES
EVs are new technology, so dealers have to spend far more time with consumers (most estimates are in the 3x to 4x range) than they would to sell an ICE. Dealers get almost no profit from new car sales to start with; they’d rather sell easier cars that require more maintenance (where most of their profit comes from).
It makes no sense for a dealer to put in extra work to sell a volume or compliance EV that is just cannibalizing an easier and more profitable ICE sale. They may consider halo EVs (they don’t really have to sell any; just plop one in the showroom at a high markup, wait for traffic, they try to sell them an ICE) or conquest EVs (still more work and little profit, but at least they get NEW customers, as long as the EV design is non-cannibalizing like the LEAF and i3).
Automakers have to sell through dealers. To get to volume, dealers have to get an incentive to sell volume EVs.
Already happening:
· Some automakers are doing halo and conquest cars (automakers don’t mind the extra work for those so much; they sell very few halo cars, and conquest cars bring in new customers)
· A few dealers are going gangbusters with conquest cars, and some other dealers are starting to want a piece of the action
What we can do:
· Part of incentives could go to dealers instead of consumers
· Automakers could increase spiffs. (They will only consider if they are trying to go volume; otherwise they are trying to keep costs down. Spiffs could help drive volume, which can then benefit the automaker through accelerated capital payback).
OBSTACLE: FIRST MOVER RISKS
The first automaker to take steps like installing infrastructure, training dealers, and marketing to consumers bears higher costs than later automakers that can leverage that work. This encourages everybody to sit around and wait for somebody else to go first.
Already happening:
· Tesla/Nissan/GM/BMW have already done much of this and removed a fair amount of the risk
What we could do:
· Utilities, government or an automaker alliance could get involved with infrastructure and consumer marketing (including test drives)
· Convince NADA to work on marketing to dealers?
· Change federal incentive from per-automaker units to time-based industry incentive.
OBSTACLE: VERSIONING TEMPTATIONS
It’s cheaper and safer to convert an existing car. But a conversion is never as good as a dedicated platform. For example, because of space and weight capacity, it is difficult to get a conversion to be able to carry enough batteries for more than ~100 miles of range. ~100-mile cars worked at first, but higher available range will definitely help get to higher volumes.
Already happening:
· Tesla Model S and BMW i3 are on new platforms, and they are both great examples of what is possible. Nissan LEAF was a heavy platform modification. Chevy Volt was more than a straight conversion, though it wasn’t a huge modification. Those four are, no surprise, the sales leaders in the US. The others are all either straight ICE conversions or intentionally low-volume halo cars.
What we can do:
· Convince automakers that short-range conversions won’t be competitive and sell in required volumes
· Convince automakers to use versions to increase volumes of a new EV platform: offer both long and short-range versions of a new platforms to span a wide price range
