The world’s most attended motor show witnessed a significant shift in global OEMs’ strategy towards electrified and autonomous vehicles, i.e. EVs and AVs. The pressure applied by new players combined with increasingly stringent emission standards has forced OEMs to rethink their strategy. Where do they each stand? What did they present and announce in Paris? What will be the bigger impact of these strategic shifts on their business and ecosystem, e.g. on people, industrial assets or the service network?
Why such hype today for battery EVs?
Increasingly drastic emission standards and … Tesla. This major disruptor brought to market a product that traditional OEMs expected to see fail. In addition, Tesla did so with a business approach that is unprecedented in the industry, e.g. “launch fast and iterate” approach, Over The Air software update or direct retail. Tesla’s Model S sales exceed those of the Mercedes S Class in the US. And Model 3 has attracted over 400,000 down-payments when BMW is selling about 25,000 i3s per year. Moreover, Model 3 is expected to offer 345 km under the EPA cycle vs approximately 150 km (closer to real life than the 190 km under the NEDC cycle) for the current i3. By the way, would any other OEMs have dreamt about collecting $400 million from prospective buyers 18 months before delivery? That’s enough pressure to move fast!
Incumbents are forced to reshuffle their product portfolio and transform their business models … and do so swiftly. The announcements made during the show indicate that most OEMs are doing just that, but there is a strong feeling they were caught off guard. These new moves vary from significantly increasing the range of existing EVs, for the few that offer such models (eg Renault, BMW), to announcing a blitz of new ones over the next 10 years (eg Volkswagen AG, Daimler).
How did we get here?
The first electric vehicle was tested 150 years ago; it was a two-wheeler presented at the Paris Exposition of 1867. The first car to ever reach 100 km/h (62 mph) was also an EV: "Jamais Contente" (never satisfied) was clocked at 105 km/h in France in 1899. However, the combustion engine took over because of inadequate battery technology. Government initiatives have been created locally over the past 25 years to introduce zero-emission vehicles. The most ambitious of these was the 1990 ZEV initiative by California’s state agency CARB. As a result, a number of OEMs engineered electrified versions of standard vehicles and GM developed EV1, a purpose-built EV. This triggered significant research but the battery technology was again not ready to meet customers’ expectations. CARB softened their legislation and GM eventually removed all EV1s from the market. There is still one lasting benefit from this early ambition to breathe clean air: Toyota invested heavily in hybrid powertrains and introduced Prius in 1997. Over 6 million Prius have been sold to-date! By the way, Toyota is not betting today on batteries to power their EVs but rather on fuel cells (see Mirai). Even if hydrogen has a promising future to generate and store electricity, no other OEM is communicating on this alternative. Is Toyota getting a head start again when others are playing catch-up on EVs?
Increasing the range of existing EVs
Tesla just introduced a 100 kWh battery pack on Model X. This increases its range from 489 km NEDC with the current 90 kWh pack to 542 km (410 to 465 km EPA), for a base price tag of $135,000. Tesla is a moving target that is harder for premium market incumbents to take aim at.
Renault also announced a much bigger battery pack on Zoe, Europe’s best selling EV; the 22 kWh pack is replaced by a new 40 kWh version which now provides a 400 km NEDC range (300 km stated in real conditions). The retail price increases by 1,800€ to reach about 25,000€, before incentives and battery lease (lease options start at 69 €/month for 7,500 km/yr, i.e. $75 for 4,700 mi/yr). Renault’s 3 other EVs are unchanged, namely an urban compact 2-seater, Twizzy (also available for rent from Scoot in San Francisco), a small commercial vehicle, Kangoo and a notchback, Fluence.
BMW is also trying to close the gap with the autonomy of ICE vehicles; the i3’s new optional 33 kWh pack offers 50% more autonomy at 300 km NEDC (200 km in real life) vs 200 km for the current version. The increase range adds "only" $1,200 to reach a high price of $45,000. It should be noted that the 2 cylinder gas range extender provides an extra 150 km of autonomy … but is in effect used by only 5% of all i3 owners. This option will likely be scrapped, especially with the extended pure electric range.
It should noted that the marginal retail price for the extra kWh on the i3 and Zoe is approximately 100€ (or $). This is evidence of the radical drop in the price of battery packs, which has come done from about $1000/kWh in 2010 to about $200 today.
Launching new EVs
First off the Chevy Bolt, a.k.a. Opel/Vauxhall Ampera-e in Europe. With this second generation, GM goes full electric with what seems to be a very mature product for an expected price of $37,500, i.e. similar to Model 3. The announced range is significant 500 km NEDC / 380 km EPA. This is thanks to a high capacity battery pack, with 60 kWh. This capacity matches that of the entry level Model S, and is much higher than those of the Nissan Leaf (30 kWh, 200 km NEDC), Renault Zoe (40 kWh, 400 km NEDC) or BMW i3 (33 kWh, 300 km NEDC). For comparison, Tesla Model 3 is expected to offer a lower range of 345 km EPA or about 450 km NEDC. Bolt / Ampera-e clearly appears to be a great product, yet GM has not projected its EV vision beyond this first full EV.
The most drastic announcements were naturally made by Daimler and Volkswagen AG.
Daimler currently offers two BEVs, the Mercedes B200e with a 200 km NEDC range and the Smart Electric with about 140 km NEDC (17 kWh), both fitted with Tesla-supplied battery packs. Mercedes has also three plug-in hybrids (PHEV) powertrains in production. These are used on different vehicles and offer up to 30 km NEDC in electric mode with 8.7 kWh (GL500e). The next move is bold and is named EQ, a new sub-brand of products and services (mobility, energy storage for private and even industrial networks). The show car on display is the first of 10 EVs to be launched by Daimler (Mercedes and Smart) by 2025. The small crossover presented has a range of 500 km and will be launched in 2019. Daimler CEO Zetsche aims for an EV mix of 15-25% of global sales by 2025. This looks quite ambitious only 6 years after launching the first product. Another sign that a deep transformation is underway: Zetsche’s Silicon Valley dress code during his press conference, i.e. jeans and a buttoned down shirt!
Volkswagen Group currently offers two BEVs (e-Golf and e-Up) and 4 PHEVs (Golf and Passat GTE, as well as Audi A3 and Q7 e-tron). VW displayed their two existing EVs, which benefit from increased range at 300 km NEDC for e-Golf and 145 km for e-Up. This is just the tip of a massive 2-pronged portfolio makeover for VAG. 17 new PHEVs will be launched within the next 2 years and … 30 new battery EVs by 2025! An ambitious goal of 20-25% of group sales has been set for 2025 — not too different from Daimler’s. The first radical new product is I.D., premiered in Paris. This 600 km (NEDC) hatchback is based on the new EV-specific MEB platform and gives a first glimpse of a vehicle to launch in 2020. It will offer inductive charging. The concept car also offers full autonomous driving capability, which is intended for 2025. VAG’s very costly product campaign comes at a bad time, as they must spend over 20 B€ to address their Diesel issue. Lastly, new products will be joined by new services: VAG will create a 13th brand responsible for developing new mobility services.
BMW has yet to announce their bigger plan beyond the “i” initiative (i3, i8). EV are meant to go mainstream within the product range rather than be a parallel offering. But BMW is mute so far and its management board reportedly skipped the motor show to work on their EV strategy. The clock is ticking.
How about hybrid powertrains?
PHEVs are becoming increasing ubiquitous and represent a good solution given the architecture of existing vehicles. They offer a much better overall solution than “simple” HEVs, with a really useful capacity in electric mode. The longest full electric range of any PHEVs presented in Paris comes from Audi Q7 e-tron; it reaches 55 km (17 kWh of battery). Daimler, BMW, VAG, Volvo, Ford, Mitsubishi, Hyundai and obviously Toyota and Lexus each offer at least one PHEV. Lexus Europe reports that 98% of the 70.000 vehicles sold in Europe are HEVs or PHEVs, thanks to a line-up of 10 cars and crossovers. PHEVs will be increasingly common as a natural transition towards full EVs. However, Nissan, Renault, PSA, FCA, Jaguar-Land Rover, Honda and more have yet to show their PHEV hand.
How will these radical portfolio shifts impact OEMs and their ecosystem?
Daimler and VAG announced that 15-25% of their 2025 group sales will come from EVs. Assuming EVs replace combustion engine vehicles one-for-one, that is about 2,5 million units of engine capacity that must be converted just for these 2 OEMs. This means massive write-offs on their balance sheets and an investment in equivalent capacity for e-motors and other EV-specific hardware — this comes again at a very bad time for VAG. The supply base must also find the financial resources to accompany the dramatic shift.
There will be also a massive impact on people, whether they be in engineering, sourcing, manufacturing or parts and service activities. A combination of retraining and reallocating the existing workforce as well as recruiting will be needed, but will there be enough capacity on the job market?
The EV shift will also significantly impact the service network, in terms of both quality and quantity. Most small workshops have disappeared due to the increasing electronics content and overall product complexity. EV maintenance obviously requires new skills and certifications; you don’t work with 400+ volts the way you do with 12 volts. In addition, EVs generate less service and repair activity. As a result, dealer networks must also prepare for a bumpy ride!
In conclusion, the 2016 Paris Motor Show marked a clear shift in the strategy of traditional OEMs. Their moves are swift and of significant amplitude. This drastic transformation will have a massive impact on the industry at large, way beyond the initial objective of meeting emission regulations and curbing global warming.
Marc Amblard
Also published on LinkedIn (https://goo.gl/8nlKtE)