Tesla, EVs, and the auto industry's response

[ChadS]

I sure hope Ford will soon introduce a serious BEV, but like stopcrazypp says, their press releases so far don't necessarily indicate that. The Focus' minor improvements don't look serious - they are just enough to keep up with other BEVs to make compliance numbers - but supposedly they have an all-new BEV to present soon. We'll see.

Over in the Ford Focus thread where this topic was also discussed, I noted that my list of ROI strategies discussed in this thread is a shortened list to focus on what most automakers are doing in this space - automakers do have strategies other than the ones listed above. Here's another example, that could apply to Ford in this case: With their PEVs, Ford seems to be following a "defensive" strategy (I do not know what name they use for it in the industry).

When other automakers like Nissan came out with the LEAF as a conquest car to grab buyers from other automakers (a strategy that is going gangbusters for them), others like Ford built cheap similar cars just to hold on to brand loyalists that might otherwise have jumped ship. This is similar to what GM tried to do with the 1985 Astro van after the 1984 Dodge Caravan appeared. I haven't seen any numbers, but I suspect that most Focus buyers are Ford loyalists that wanted a BEV but didn't want to go to Nissan.

Of course not all Focus BEV buyers are Ford loyalists; the Focus is similar enough to the LEAF that somebody that simply prefers the looks of the Focus may buy it instead of the LEAF. Such buyers would be giving up DC charging (though that may not be available in some areas, or important to some buyers with other cars) and getting less trunk space - and until the new Focus comes out, they are getting less range too. And they might have to work harder to get one through their local dealers, though that varies.

 

[Olle]

I don't know the answers to your questions, Olle, but I'll guess at some of them.

I think Toyota saw a chance to kill a couple of birds with one stone. They had pulled out of their Fremont factory, but felt bad about it not being sold or used, with no prospects for their former employees - they really wanted to see somebody take over the factory (largely to comfort their workers in other factories that their jobs won't completely disappear when Toyota pulls out of another factory). Perhaps they were caught flat-footed without a way to get sufficient short-term ZEV credits - maybe because they assumed the ZEV rules would be relaxed, thought their H2 vehicles would be ready sooner, or had an internal EV project that failed. Maybe they weren't completely flat-footed; maybe they had expected to contract out EV powertrain development to somebody anyway because it's not a technology they needed in-house. Perhaps they didn't believe in EVs for the mass market, but thought Tesla's high-end approach could work short-term. Investing in Tesla helped give Tesla enough money to buy the factory and be able to build powertrains for the RAV4-EV while also having the potential to make money (and hence reduce the EV program cost) for Toyota - which I believe was successful, I think Toyota did quite well on Tesla stock.

There must be some people inside Toyota that have examined the issues and fully understand H2 limitations; and that is no doubt why their plans are to build so few H2 cars - they are clearly just compliance cars (which in turn implies that they expect their HEVs to stick around). However, any regular Toyota employees I have met seem to REALLY BELIEVE that H2 is the future and all cars will be H2 someday soon - like most consumers, most employees don't have any reason to look in to it in great detail, and "it works just like a gas car, but emits only water" is pretty attractive. I would love to see their internal communication on the topic.

As for what BMW will do with their i brand, I'm not positive. In addition to conquest, they're also using it for the halo i8. It does sound like their weak PHEVs will not be i-branded. So is "i" just for the low-volume eco cars? It seems to us Tesla fans that EVs can be good for performance and such, but BMW had said that their "i" and "M" brands will not overlap, rather they will be "opposing bookends". If that's really their long-term plan, I think it's a mistake. But maybe they plan on evolving the "i" brand as EVs become more mainstream; right now it may be more about calming dealer fears and helping BMW note which dealers can sell EVs and which can't.

Thanks for your explanation about Toyota, it makes a lot of sense what you are saying.
BMW is a mystery though. Where are they going with this? Perhaps they will take the i brand from conquest and halo to mainstream as you say. And keep the i brand separated for a very long time, just as they already keep Mini separate, although sharing a lot of components and dealers. Although it would likely be better for BMW to make the main models full BEV sooner (provided that such EV beats ICE on all metrics) , if a true EV platform cannot accommodate an ICE component, it is easy to envision the internal conflicts and fear of loosing market share (customers who only want ICE no matter what).

 

[ChadS]

I am sorry Olle; you said that "i" was a sub-brand, but I didn't absorb the full implications of that and assumed the "i" was just part of a name to differentiate some of BMW's cars - which would largely restrict its effects to consumer marketing. But elsewhere today I read that "i" is a full sub-brand with a separate marketing budget - so BMW ads should either have BMWs or BMW is, but not both - and is supposedly largely run as a separate company. However, it still uses the BMW name, which means this is not likely a versioning exercise, nor an attempt to build a new brand for another place in the market - they clearly want BMW to be affected by their "i" work in consumers' minds. So why build a sub-brand, with the two major reasons it's typically done excluded by the almost identical name?

If it's not primarily aimed at consumers, then my best guess is that this gives BMW more control over the dealers that sell "i" vehicles. BMW wants to make sure they don't just have one BEV sitting in a back corner of the lot, unwashed and uncharged. Not all dealers sign up to sell the "i" sub-brand, but that's fine - they can work better with the ones that want to first, and over time more will sign up. The main issue dealers have with PEVs is all the extra time it takes to explain range, charging, battery life, etc - more work for small numbers and small margins. Weak PHEVs can go in to the main BMW brand; there's no range concerns, and you can just plug in to a 120V at home, so it's not nearly as big of a deal. This means the i8 didn't have to be an "i" car, and I suspect BMW wanted the halo effect of the i8 to only go to i dealers. BMW is likely hoping non-BMW buyers will go to a i-brand dealer to see the i8, and then end up buying a conquest i3. Either they don't think those interested in seeing an i8 will consider other BMWs (doubtful, given that it's a performance halo car), or they are trying to give a carrot to dealers that sign up to sell the i brand. Or just give the brand more than one car; and the i8 does have a lot of technical details in its construction that link it to the i3.

I suppose it's also possible that it's for risk reduction - if the i brand fails, they hope to be able to cut it off while keeping debts and other issues away from the main brand. Note that the i brand is not just for cars; they are also building software and services to address future transportation issues.

Their "i" strategy is still not completely clear to me, but perhaps it makes a little more sense now. BMW can have more control over dealers that sell BEVs by making them agree to new terms for the new sub-brand, rather than potentially having bad dealers sell i3s poorly. Of course automakers already can do some of this with contingencies for selling any individual car, but if BMW is really planning a lot of "i" vehicles it might be easier to set up a sub-brand to have the same contingencies for each. That also makes it easier for consumers to know which BMW dealers to visit if they want to see i cars. And I need to think through any possible implications of new dealers that only sell the i brand...

Is this different than how BMW handles "m" cars? While they do have an M subsidiary, that might be just for doing the work (it was originally for making racing vehicles). What about the brand - is M advertising intermingled with BMW advertising? I'm searching for details, but reading different things in different places about the "m" distinction.

 

[postpast]

The "i" strategy is interesting. "i" doesn't work as a brand or a sub brand and I can't think of a single comparison in the auto industry. I can't see a stand alone company called "i", and as BMW now produces an i3 and uses the letter i in there normal 3 series, I can't see anyway that they could make an "i" version of the 3 series with the naming making any sense. The only thing that I can see would be stand alone models like they are doing now. It may be a good thing if they are planning more high volume models on completely new architecture.

They probably see that to build an electric competitor that competes with the Model 3 and other future electrics they will have to save some money on the interior, and lose some of the granite like qualities (for weight) they are known for. By keeping the "i" line connection fuzzy they can keep the reputation of their normal cars intact while still getting the halo effect of a competitive (if they push forward) electric brand. A way to advertise electric propulsion, composite construction, and environmentally friendly interior materials to those who care about those things while still separating themselves from things like doors that don't thud, lack of sportiness, and lack of leather wrapped surfaces. If they are serious we will see the i5 by mid 2017 and an all new i3 by mid 2019 that will be competitive with what exists then.

Of-course, the whole "i" think could just be a short term marketing/compliance strategy (Mini, Bugatti, and Maybach prove that Germans are not above such things.); Time will tell.

 

[stopcrazypp]

I think the "i" sub-brand is like Toyota's Prius line. It's not quite a whole over brand like Mini (Toyota's analog would be Scion), but there's still a degree of separation from the rest of the line.

 

[igotzzoom]

My feeling is Ford is being opportunistic with its electrification strategy. FMC was the largest recipient of federal advanced vehicle loans, and up until now, has only showed token efforts toward electrification. I think the company is waiting for massive cost reductions in battery technology, letting other companies be the "guinea pigs" so to speak, and will come in when they're happy with the cost of batteries, and go hard into EVs when they feel the time is right. However, I would caution them not to drag their feet for too long. If the Chevy Bolt turns out to be a major hit, or the Model 3 for that matter, they may find themselves in an uphill battle coming from behind to try and get EV market share.

 

[stopcrazypp]

My feeling is Ford is being opportunistic with its electrification strategy. FMC was the largest recipient of federal advanced vehicle loans, and up until now, has only showed token efforts toward electrification. I think the company is waiting for massive cost reductions in battery technology, letting other companies be the "guinea pigs" so to speak, and will come in when they're happy with the cost of batteries, and go hard into EVs when they feel the time is right. However, I would caution them not to drag their feet for too long. If the Chevy Bolt turns out to be a major hit, or the Model 3 for that matter, they may find themselves in an uphill battle coming from behind to try and get EV market share.

That probably describes the strategy of 99% of the automakers out there. They think they can just wait for others to develop the technology and then swoop in and be competitive. Previous history with hybrids does not show this to necessarily be the case.

 

[Cyberax]

Ultimately, making an electric car is not that complicated for car manufacturers. Most of them (Toyota, GM, Ford) already have some experience with electric vehicles, and some even have experience with advanced BMS systems and liquid battery cooling. I'd say that BMW is even better equipped than Tesla with evaporative cooling.

So if battery prices go down, then you can expect GM and others to quickly produce EVs. It won't take them more than 2 years to build it, which in auto industry is pretty much nothing.

 

[wdolson]

Ultimately, making an electric car is not that complicated for car manufacturers. Most of them (Toyota, GM, Ford) already have some experience with electric vehicles, and some even have experience with advanced BMS systems and liquid battery cooling. I'd say that BMW is even better equipped than Tesla with evaporative cooling.

So if battery prices go down, then you can expect GM and others to quickly produce EVs. It won't take them more than 2 years to build it, which in auto industry is pretty much nothing.

The mainstream car makers also have to contend with dealers that don't want to sell EVs, car company management is still kind of cold on the idea of BEVs, and they are hamstrung by ICE thinking. Additionally I think to make a true EV will take longer than two years, though they could offer electrified ICE cars sooner. The problem with replacing the drivetrain of an ICE with EV equipment is the car is still laid out as an ICE, which is very inefficient for an EV. Tesla showed the world how to do it with the Model S and some of the newer purpose built EVs are putting the batteries under the floor, but they are still putting where an ICE motor would go in a lot of cases. And it took car makers 3-4 years after the Model S came out to start doing the batteries this way.

I think Tesla will remain ahead for some time to come.

 

[roblab]

The Big Auto car makers are absolutely stuck in a hundred year old business model, outsourcing most everything, selling through franchises, dependent on maintenance and repair to keep them alive. Contrary to what some think, just because they can build a gas car does not mean they can overcome their inertia and head off in another direction as easily as that.

And battery prices will go down. That might help GM, etc. BUT Tesla is banking on the fact that anything built in house is far cheaper than outsourcing, and they are doing it. Battery prices will go down for Tesla a lot faster than for GM.

The statement that large automakers can build a new car in two years is a little hard to believe when you look at what they are doing right now. Sure, Ford, GM, Nissan have EVs. Are they competetive? Evidently not, and, soon, decidedly not.

 

[stopcrazypp]

Ultimately, making an electric car is not that complicated for car manufacturers. Most of them (Toyota, GM, Ford) already have some experience with electric vehicles, and some even have experience with advanced BMS systems and liquid battery cooling. I'd say that BMW is even better equipped than Tesla with evaporative cooling.

So if battery prices go down, then you can expect GM and others to quickly produce EVs. It won't take them more than 2 years to build it, which in auto industry is pretty much nothing.

It's not about the ability to just build in EV. Everyone can do that (as with the hybrids). It's building up your reputation in the market and having just that slight competitive edge (slightly better and/or less expensive implementation). Toyota is able to hold on to the hybrid crown despite late-comers getting really close. The same exact thing might happen with EVs (obviously not Toyota playing that role though).

 

[Cyberax]

Existing car makers have plenty of reputation (good or bad) and huge dealership networks. Sure, dealerships won't like EVs but ultimately they can't do anything about them.

And honestly, right now Tesla's reputation is becoming weaker and weaker. We've already seen cracks in it with CR revoking (and then reinstating) their "buy" recommendation. Unless Tesla _really_ cleans up their reliability issues, they're going to suffer big once they release a mass-market car.

Personally, I see Tesla leading the market next 5 years or so. But then they'll probably be sidelined by more experienced auto manufacturers. The best they can hope for is to become yet another competitor along with Toyota, Nissan, GM, Ford, Chrysler and others. Not that there's anything bad in this.

 

[stopcrazypp]

Existing car makers have plenty of reputation (good or bad) and huge dealership networks. Sure, dealerships won't like EVs but ultimately they can't do anything about them.

And honestly, right now Tesla's reputation is becoming weaker and weaker. We've already seen cracks in it with CR revoking (and then reinstating) their "buy" recommendation. Unless Tesla _really_ cleans up their reliability issues, they're going to suffer big once they release a mass-market car.

Personally, I see Tesla leading the market next 5 years or so. But then they'll probably be sidelined by more experienced auto manufacturers. The best they can hope for is to become yet another competitor along with Toyota, Nissan, GM, Ford, Chrysler and others. Not that there's anything bad in this.

I'm not talking about general automaker reputation. I'm talking about reputation as an EV maker. Honda has an excellent reputation as an automaker. However, they failed miserably in the hybrid market vs Toyota because Toyota was able to get the Prius brand solidified as the number one hybrid choice. Toyota still holds that position after 15 years with no sign it'll just become "yet another competitor" despite many competitors coming out since it was out.

Tesla is looking like they are going to hold a similar position. Nissan could have done that with the Leaf, but unfortunately the short initial range and battery degradation issues made it so their reputation is mixed today.

Basically I don't buy the argument it'll just be a cake walk for another automaker to take first place by taking the wait and see approach.

 

[wdolson]

Existing car makers have plenty of reputation (good or bad) and huge dealership networks. Sure, dealerships won't like EVs but ultimately they can't do anything about them.

And honestly, right now Tesla's reputation is becoming weaker and weaker. We've already seen cracks in it with CR revoking (and then reinstating) their "buy" recommendation. Unless Tesla _really_ cleans up their reliability issues, they're going to suffer big once they release a mass-market car.

Personally, I see Tesla leading the market next 5 years or so. But then they'll probably be sidelined by more experienced auto manufacturers. The best they can hope for is to become yet another competitor along with Toyota, Nissan, GM, Ford, Chrysler and others. Not that there's anything bad in this.

Have you seen the edition of Consumer Reports Car Talk done just after the reliability ratings came out a couple of months ago? They put everything in perspective and made the point that whenever a new car is introduced, reliability scores always drop, sometimes by quite a bit and sometimes by just a bit. One example they cited was Ford was among the top brands a few years ago, but they introduced quite a few redesigned cars in the last couple of years and they slid to the bottom 3rd of car brands. They also pointed out Ford has been coming back up since the big reintroduction.

Tesla had a surprisingly low level of problems for an all new car with brand new technology from a new car company. CR's rating system is also geared towards ICE issues and ranks the drive unit replacements equal to replacing the entire engine on an ICE. If replacing an ICE engine was as simple as a drive unit replacement on a Tesla, we'd probably see more engine replacements on ICE cars under warranty. It also appears at least at some point Tesla was replacing DUs that had only minor problems and sending them back to Fremont for analysis to figure out what the problems were.

When other car manufacturers start making EVs in large numbers, they will have teething problems too. In at least some cases, the problems will certainly be more severe that Tesla has seen.

Tesla is working hard to fix all reliability problems and unless they screw up they will likely remain ahead of the pack for quite a while to come.

 

[Cyberax]

Yes, Tesla is doing OK compared to other car manufacturers introducing new cars. Not great, mind you, but OK-ish. Other car makers do better, GM did a stellar job with Volt, they are extremely reliable even though they are way more complicated than Teslas.

Now imagine that Tesla puts out a Model 3 that has the same DU issues as the Model S. This is not going to fly for a mass-market car. And yes, a DU replacement is pretty much like a major engine problem on an ICE car from consumers' point of view. That's speaking from a point of view of someone who had been stranded by a failed DU.

Add to this problems with heating that _still_ plague cars, poor infotaiment systems and an average interior design of current models. Tesla still has a ways to go even for the current production models.

- - - Updated - - -

I'm not talking about general automaker reputation. I'm talking about reputation as an EV maker. Honda has an excellent reputation as an automaker. However, they failed miserably in the hybrid market vs Toyota because Toyota was able to get the Prius brand solidified as the number one hybrid choice. Toyota still holds that position after 15 years with no sign it'll just become "yet another competitor" despite many competitors coming out since it was out.

I don't think the market is going to be segmented this way. We don't really have strong "this automaker produces great SUVs and this one makes great convertibles" divisions in the current market. I bet this is going to happen with EVs - some model years and lines will be known as poor ones the others as good ones.

And Honda sells quite a few of hybrids, they just don't have such cult following as Priuses.

 

[wdolson]

I don't think the market is going to be segmented this way. We don't really have strong "this automaker produces great SUVs and this one makes great convertibles" divisions in the current market. I bet this is going to happen with EVs - some model years and lines will be known as poor ones the others as good ones.

And Honda sells quite a few of hybrids, they just don't have such cult following as Priuses.

Toyota still dominates the hybrid market. According to the 2014 data, Toyotas make up more than 50% of hybrids sold in the US.

https://en.wikipedia.org/wiki/Hybrid_electric_vehicles_in_the_United_States

That's a pretty impressive record, but one advantage the Prius has is it's one of the few cars out there built from the ground up as a hybrid. Toyota doesn't make an ICE only Prius. As a result, it's better laid out than most hybrids most of which lose cargo space for batteries. There are other purpose built BEVs out there, but Tesla has the best layout of any BEV on the market. Others are beginning to catch up, but Tesla remains the best after three years of production.

 

[Bangor Bob]

I don't think the market is going to be segmented this way. We don't really have strong "this automaker produces great SUVs and this one makes great convertibles" divisions in the current market. I bet this is going to happen with EVs - some model years and lines will be known as poor ones the others as good ones.

Maybe eventually - but consider the situation today: If you want a full-size pickup, generally you don't go to Toyota or Nissan. If you want a sporty convertible you generally don't look at GM or Ford. Changing the prime mover isn't going to change a brand's engineering choice tendencies. Toyota EV's will likely handle as crap as their other cars, GM interior trim and switchgear will still have horrible pebble textures and fall apart, BMW's will still have (shudder) i-drive, Chrysler ball joints will still get recalled every 3 or 4 years, etc...

 

[stopcrazypp]

I don't think the market is going to be segmented this way. We don't really have strong "this automaker produces great SUVs and this one makes great convertibles" divisions in the current market. I bet this is going to happen with EVs - some model years and lines will be known as poor ones the others as good ones.

And Honda sells quite a few of hybrids, they just don't have such cult following as Priuses.

When people think of EVs, one of the first brands that comes into their mind is Tesla, similar to how they think of the Prius line-up when they think of hybrids. I wouldn't underestimate this factor.

Also Honda (and Ford) selling hybrids is because they didn't take the wait and see approach. Both of them were fairly early players in the light duty hybrid market (Honda with the original 2000 Insight, Ford with the 2004 Escape Hybrid). However, even given that, Toyota is still firmly in number one. And the "cult following" is the major factor in this (as is their long experience in hybrids giving them slightly better technology).

 

[Cyberax]

Keep in mind that hybrids are still about 3% of the total market in the US. It's not insignificant, but still very much a niche. So other car makers are just not that interested in investing a lot of money and effort into it.

And in the non-niche areas like SUVs, trucks or sedans all the automakers are pretty much on an equal footing.

(my prior example with convertibles is not a good one - convertibles are a premium market, served by premium brands)

 

[stopcrazypp]

Keep in mind that hybrids are still about 3% of the total market in the US. It's not insignificant, but still very much a niche. So other car makers are just not that interested in investing a lot of money and effort into it.

And in the non-niche areas like SUVs, trucks or sedans all the automakers are pretty much on an equal footing.

(my prior example with convertibles is not a good one - convertibles are a premium market, served by premium brands)

The EV market is likely going to track like the hybrid market for a considerable time. I'm not under the illusion that it'll be anywhere near majority share anytime soon.

Tesla's goal for Model 3 is for it to be a 3 series analog. 3 series sells 500k worldwide and 100-150k in the US. That's pretty much like the Prius liftback alone. I think that along with Model S and Model X will keep Tesla on a strong footing in terms of number one for quite a while. The previous number 1 in 2014 was the Leaf at 30k units in the US, this year probably Model S at ~25k.

I'm not sure how to make the analogy to "non-niche" as that is talking about a market that is more than 100 years old (general car market). I think the 15 year old hybrid market is a better analog. The EV market is about 5 years in.