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Pent-up Demand Will Accelerate Electric Car Sales-McKinsey

Pent-up Demand Will Accelerate Electric Car Sales-McKinsey.

“Consumer demand is starting to shift in favor of electric vehicles, with strong disruption potential”

Here’s a prediction for 2017. More forecasters will say electric car sales are about to take off, but actual sales will remain in low gear.

Admittedly, before the end of the year, Tesla’s little Model 3 will likely appear and generate much excitement and hype amongst early adopters. And by then a Chevrolet Bolt will have been seen on the road by many. But the framework for battery electric take-off will still be threadbare as car buyers measure electric car utility against the amount of money they are willing to part with.

Another report is released today, from consultants McKinsey, on the eve of the Consumer Electronics Show in Las Vegas. This report predicts a glowing future for battery electric cars and reckons it has discovered pent-up demand for electrified vehicles.

“Consumer demand is starting to shift in favor of electric vehicles, with strong disruption potential,” said the report.

But the evidence cited is a touch flimsy, or maybe hopeful.

“Around half of consumers in the U.S. and Germany say they know how electrified vehicles and related technology work versus 100% of consumers for internal combustion engine (ICE) powered vehicles. Between almost 30 and 45% of vehicle consumers in the U.S. and Germany respectively consider an electrified vehicle purchase today,” the report says.

Considering before rejecting is clearly better than outright dismissal.

The report did acknowledge consumer doubts.

“Consumers are excited about electrified vehicles today, but are concerned about driving range; high costs for battery packs make the cost of offering ICE range prohibitive,” it said.

McKinsey isn’t publishing any actual forecast for electric vehicle sales, saying current ones, which fluctuate widely, show how hard it is to make sensible predictions.

Sudden increase
Recently investment bank Morgan Stanley suddenly raised its estimate for battery-only global electric car sales to between 10 and 15% by 2025. That was more than 3 times higher than the average of current expectations then. Volkswagen expects this to hit 25%. Currently global market share is barely perceptible at less than 2%.

The report said automakers may find it difficult to find the capital for electric vehicle investment as they are forced to simultaneously finance conventional models, and develop new technologies such as connectivity, autonomous driving and meet tough new fuel consumption regulations, at least in Europe and China.

“Cracking the code for electrified vehicle profitability will be critical for automakers as they roll out broader e-mobility strategies and new EV models to meet emission and fuel economy targets and consumer needs for range, convenience, and affordability,” the report said.

The report said range anxiety was a perceived problem by those thinking about buying an electric car but was markedly lower amongst actual users.

Electric car buyers are excited by the driving performance and lower cost of ownership. Good news for established automakers – up to 80% of buyers in Germany and the U.S. are more likely to trust electric vehicles from established manufacturers, but before the likes of GM, Ford and VW get too excited, this is likely to be premium manufacturers rather than mass market ones.

McKinsey senior partner and author of the report Stefan Knupfer said demand for electric cars is about to take off.

“Many people don’t find it very attractive to buy electric cars – except Teslas – but that will change in the next two, three four years. Every manufacturer is investing significantly. New trends will help too with connectivity, shared mobility, autonomous driving and electric cars,” Knupfer said in an interview.

Ban ICE Cars From City Centres
Changing demand patterns will also help, as more people move to cities around the world which means different qualities compared with traditional ones. More than 50% of future sales growth will come from city dwellers, as politicians seek to ban ICE cars from city centers. That’s a plus for electric power. 

Autonomous cars will benefit from a growing demand that fatalities from traffic accidents are unacceptable.

“90% of fatal accidents are caused by driving errors. In an autonomous car the system learns from its mistakes and any car using the same system will benefit,” Knupfer said.

The biggest challenge is faced by the manufacturers.

   “How do you build a cost efficient electric car that will allow the manufacturers to make money? The technology is not a challenge, but if you build a volume car that needs to go 300 miles that’s a very expensive undertaking and might be better suited to hybrids. Other segments like city cars would be electric,” Knupfer said.

“There is latent demand out there. Look at Tesla 3; people were willing to buy even without knowing what it will look like,” said Knupfer.

After Elon Musk unveiled the Model 3 project, Tesla took about 370,000 pre-orders for the car, production of which will start late this year with first deliveries in 2018.

“We are saying there is a healthy future for electric cars for all the reasons we describe. If you are an OEM (manufacturer) today you have to invest and they are all investing significantly more in all the four technologies we describe (connectivity, electric, autonomous, shared mobility). We are about to see changers in the industry we haven’t seen in 25 years,” he said. 

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