Spending On Electric, Autonomous Cars Out Of Control-Report.
“A pile-up of epic proportions awaits this industry”
Global automotive players are spending huge sums on electric cars and computer driven ones, but only the shrewdest will make any profits and many will face huge losses, according to a report from AlixPartners.
John Hoffecker, global vice chairman at AlixPartners, which calls itself the global consulting firm, said billions of dollars may be wasted.
“A pile-up of epic proportions awaits this industry as hundreds of players are spending hundreds of billions of dollars on electric and autonomous technologies as they rush to stake a claim on the biggest change to hit this industry in a hundred years. The winners in this free-for-all will be those who have the right strategies and, equally important, execute on those strategies to their fullest potential—as billions will be lost by many,” Hoffecker said.
The report said the industry is pouring much capital into projects which have yet to prove their appeal to the public, or their safety.
“The automotive industry faces the possibility of a monumental capital drain in the near term as hundreds of players, including non-traditional ones, are all pouring unprecedented sums into electric and autonomous vehicles years before those technologies are fully cost-competitive in the market, when consumers are questioning the cost and safety of some of the technologies, and just as the market itself is set to continue a cyclical downturn,” AlixPartners said.
The study finds that by 2023 a whopping $255 billion will be spent globally developing electric vehicles, and that some 207 electric models are set to hit the market by 2022, many of them destined to be unprofitable due to currently-high systems costs, low volumes and intense competition.
Volkswagen 25 per cent target
Volkswagen has said 25 per cent of its sales will be all-electric by 2025. BMW reckons between 15 and 25 per cent of its sales by 2025 will be electric (BEV) and plug-in hybrid electric vehicles (PHEVs). Mercedes’ ambitions mirror this. VW and its brands like Porsche, Audi and Bentley has allocated more than €33 billion for BEVs, autonomous cars and mobility services by 2022. Mercedes has an €9 billion BEV research programme.
But according to forecasts late last year by IHS Markit, combined BEV and plug-in hybrid electric (PHEV) sales will only reach 15 per cent of the big three markets of the North America, Europe and China by 2025, constrained by cell supply chain, infrastructure and, in the case of the U.S., the prospect of a long term low fuel price and proclivity for large SUVs. IHS Market said combined BEV and PHEV sales currently amount to under 2 per cent of those 3 markets, will rise to 7 per cent by 2020, 15 per cent by 2025 and over 25 per cent only by 2030.
AlixPartners said an additional $61 billion has been earmarked for autonomous-vehicle technologies, even though consumers say they are willing to pay just $2,300 extra for autonomy—compared with current industry costs of around $22,900, or about 10 times consumers’ willingness to pay.
On top of that, the study forecasts that the global auto market will grow at an annual rate of just 2.4 per cent through 2025, lagging expected worldwide GDP growth of 3.3 per cent, while the U.S. market continues its cyclical downturn this year, with sales amounting to 16.8 million, down from 17.2 million in 2017, and headed to a likely trough of around 15.1 million in 2020.
The study also finds a lot of reasons for industry players to be optimistic about electric and autonomous vehicles, but not just yet.
Battery-electric vehicles (BEVs) will reach about 20 per cent of the U.S. market, about 30 per cent of the European market and about 35 per cent of the Chinese market by 2030, and that autonomous vehicles will account for 3 million in sales in the U.S. by that date. Almost a quarter of Americans, 22.5 per cent, say they’re “likely” to purchase a plug-in electric vehicle as their next car.
But the study showed that return on capital employed (ROCE) for automakers reached a three-year low in 2017 of 3.6 per cent. It also finds that automotive-related commodity costs are now at six-year highs last year—up 70 per cent, or $884 per vehicle, since 2015.
It finds “robotaxis”—self-driving vehicles sold to companies such as Uber or Lyft, usually at lower profit margins than if sold at retail—will cannibalize retail sales in the U.S. to the tune of 1.6 million in 2030.