What a teardown of
the latest electric vehicles reveals about the future of mass-market EVs
McKinsey
and A2Mac1 analyzed design choices that can help pave the way to profitable
mass-market EVs.
Will 2017 be remembered as the
year when electric vehicles (EVs) made the move to
become mass producible? A thought-provoking question for the industry, and
reason for McKinsey, in partnership with A2Mac1, a provider of automotive
benchmarking services, to deepen our work in the field. Last year, roughly 1.3
million EVs were sold globally. While this makes up only about 1 percent of
total passenger-vehicle sales, it is a 57 percent increase over 2016 sales, and
there is little reason to believe this trend will slow down. Established OEMs
have announced launches of more than 100 new battery electric vehicle (BEV)
models by 2024, further accelerating automotive and
mobility trends, potentially growing EVs’ share of total
passenger-vehicle sales to 30 to 35 percent in major markets like China,
Europe, and the U.S. (20 to 25 percent globally)by 2030. Moving away from
previous “niche roles” such as high-performance sports or midrange city cars,
there will also be a sizable share of midsize and volume-segment vehicles among
the many new BEV models. A prominent, recently launched example is Tesla’s new
Model 3, with more than 450,000 preorders.
What will help EVs gain market share is that OEMs have
reached ranges with their EVs that allow them to focus on reducing price
points, for example, by increasing design efficiency or reducing manufacturing
cost in order to become affordable to more customer segments. As shown We find
that once the average range of our set of benchmarked EVs has surpassed 300
kilometers (or 185 miles), OEMs seem to be able to concentrate on entering
lower-price segments while keeping range up. This indicates that the
long-awaited EV volume segment—“midsize EVs for the masses”—may be on the verge
of becoming reality.
The definition of “good” range varies across the globe,
depending on geography and city archetype.
But average battery range seems to have exceeded the expectations of the largest
customer segments. This, combined with a decrease in prices for electric
vehicles, means the market for
EVs may be close to a commercial tipping point.
Whether an EV volume segment is (or will be) profitable
for OEMs remains a burning question for many in the industry. We estimate that
many EV models in their base version, and potentially even including options,
still may have low contribution margins, especially compared with current
internal-combustion-engine (ICE) levels.
With profitability in mind, and given the fast pace of
technological advancements and new design trends in EVs, McKinsey and A2Mac1
undertook a second benchmarking analysis on trends in
electric-vehicle design .
In this article, we describe success factors on the way
to profitable serial production of EVs and discuss essential practices for
paving the road toward the EV mass market. This includes four high-level
commitments to design and development through the lenses of architecture,
integration, technology, and cost that can help realize a positive business
case for mass-market EVs.
Build a native and
inherently flexible electric vehicle
Despite higher up-front investments—in the form of
engineering hours, new tooling, and so on—native EV platforms have proved
advantageous over non-native models in multiple ways.
Designing the vehicle architecture entirely around an EV
concept, without combustion-engine legacy elements, means fewer compromises and
more flexibility on average.
As native EVs have to compromise less, particularly in
their architecture and body in white, they can accommodate a bigger battery
pack, which in turn correlates with a higher range. This is evidenced by the
fact that native EVs have on average a 25 percent larger battery-pack volume
(relative to body in white volume) compared with non-native EVs. One reason is
that the body structure can be fit around the battery pack and does not have to
be integrated in an existing architecture. This additional freedom in design
typically resulting in larger batteries also leads to other potential
advantages such as higher ranges, more power, or faster charging.
Further, as battery technology evolves quickly, allowing
the newest EVs to have ranges which are not a bottleneck anymore, we see early
indications that EVs are moving toward practices common in mass-market ICEs,
for instance, offering powertrain options. The inherent flexibility of native
EVs plays an important role in this as well. For example, battery packs can
house a varying number of active cells while keeping the same outer shape and
variable drivetrain technologies can allow players to produce rear-wheel,
front-wheel, and all-wheel drive on a single platform.
While this may raise the idea that EVs will start moving
toward modular strategies, as we know them from ICEs, thereby moving closer to
industry-typical mass-production approaches, we still do not see a clear
convergence toward one standard in design solutions. Players will need to stay
agile on their way to mass-market EVs.
Keep pushing the
boundaries of EV powertrain integration
Our benchmarking reveals a continued trend toward EV
powertrain integration, with many parts of the power electronics moving closer
together and being integrated into fewer modules. Yet, as players keep
searching for additional design efficiency, one “mainstream” EV powertrain
design has not yet emerged—either for overall architecture or for the design of
individual components.
A good indicator of the increased level of integration
is the design of the electric cables connecting the main EV powertrain
components (that is, battery, e-motor, power electronics, and
thermal-management modules). When looking at the weight and total number of
parts for these cables across OEMs and their EV models, we observed a decrease
in both cable weight and the number of parts in the OEMs’ latest models
compared with earlier vehicles, which reflects the higher integration of more
recent EV powertrain systems.
In addition to the physical integration of main EV
powertrain components, we also observed a move toward more simple and efficient
thermal-management solutions across said components. However, while some OEMs
are on a consolidation charge here too, others still rely on multiple systems,
and we do not see a clear convergence of designs yet.
Beyond the fact that technology is still maturing, the
EV powertrain design variety may also be aided by its intrinsic, higher level
of flexibility, as the components are generally smaller and the degrees of
freedom based on available space in the underbody and front and rear
compartments are higher than for ICE powertrains. To give just one example of
different EV powertrain architectures: the Opel Ampera-e seems to leverage an
ICE-like positioning of its powertrain electronics, including ICE-typical body
and axle components, whereas the Tesla Model 3 integrated most components on
the rear of its battery pack and the rear axle directly.
It is worth pointing out that such freedom in the
positioning of components also gives more flexibility in overall features
offered, for example, choosing to have room for a bigger trunk or to offer
superior driving performance due to a lower center of gravity.
In their ongoing pursuit of mass marketability, EV
players therefore might identify further opportunities in high-level
integration of their EV powertrain systems. Doing so could help them capture
potential benefits, such as reduced complexity in development, lower material
and assembly costs, and weight and energy-efficiency improvements.
Stay ahead in the
technology game
McKinsey
research has shown that many electric-vehicle customers are
very tech savvy. At the same time, new technologies are largely getting mature
enough to be put to practice. This creates a great testing field for the new
technologies that OEMs and other players hope to push into cars. But it also
almost obligates EV manufacturers to equip their vehicles with the highest
levels of technology around advanced-driver-assistance
systems (ADAS), connectivity, and other trends that are redefining the
driver experience and travel strategies.
Next to increasingly introducing ADAS technologies, OEMs
meet the needs of their EV customers by enhancing the
user interface and infotainment systems. Specifically, they
are increasingly integrating the control of a wide range of interior functions
into a more central, “smartphone-like” user interface (HMI). For example,
controls move from buttons to continuously growing touch screens—a concept that
was first tried in a few models from US car manufacturers in the late 1980s and
now seems to have reached sufficient levels of technological maturity and
customer interest. We observed EVs in our benchmark that have as few as seven
physical buttons in the interior, compared with 50 to 60 in many standard ICEs.
A key enabler of such advancements is the rapid rise in
computing power. While traditional cars often show many decentralized and
standardized electronic control units (ECUs), the latest EVs seem to rely on
ever growing and increasingly centralized computing power.
ADAS technology, for example, requires a lot of
computing power for the real-time signal processing of the various sensors.
When putting the latest ADAS solutions—such as adaptive cruise control,
autonomous braking, and potentially even autonomous driving capability—in the
context of increased ECU centralization, it seems that EVs equipped with such
ADAS technology further drive consolidation of ECUs in comparison to equally or
less ADAS-equipped ICEs or EVs.
An OEM’s decision for a centralized or decentralized ECU
architecture can be a strategic question and will be driven by different
factors. One reason for a centralized approach may be the choice to “own” a key
control point in the vehicle by becoming an integrator, which could facilitate
advanced software development and potentially open up new revenue streams, for
example, from over-the-air updates.
Besides strategic considerations, the ECU architecture
may also affect weight and cost. For example, centralization may optimize
wiring and sourcing efficiency via increased bundling. Because they require
simpler protocols and fewer connections compared with multiple, decentralized
ECUs—thereby also reducing the number of operations that could go
wrong—centralized ECUs can increase reliability. On the development side, more
ECUs also mean more teams who must collaborate and communicate efficiently to
ensure quality across systems. Fewer teams and simplified processes can result
from centralizing ECUs, and this simplification can lead to shorter development
cycles. Further, central, high-power ECUs could be the backbone for developing
fully autonomous driving, thereby equipping EVs to be ready for future
mass-market characteristics and potential customer expectations.
Ultimately, however, the ECU architecture choice will
depend on the OEMs’ individual strategy, and as centralization may require
significantly building up additional skills in-house, it will always be an
individual business-case decision.
Apply design-to-cost
lever
Achieving profitability is still a struggle for EVs,
especially due to high powertrain cost. Since OEMs seem to have reached
acceptable ranges by now, rigorous design to cost (DTC) will become more
important to pave the road for EVs to successfully enter the mass market. That
is, it could help achieve an attractive price point, while not jeopardizing
margins for the OEM.
Cost efficiency seems to be the home turf of established
OEMs and suppliers, who may be in the best position to leverage their
experience and knowledge in traditional DTC levers.
Therefore, it may come as little surprise that ICEs and
non-native EVs seem to be more proficient in DTC than native EVs due to the
makers’ track record of continuous cost optimization and the possibility to
carry over highly optimized components from previous models.
Yet the latest native EVs may be able to quickly catch
up. For example, because of advantages in battery-pack advancements, native EVs
now appear to switch from lightweight to more cost-efficient material
solutions, such as steel elements in the body in white. They also seem to apply
more rigorous despecification and decontenting (for example, in controls and
air vents on the instrument panel) and to invest in mass-production processes,
such as high-strength stamped steel instead of bent-pipe seat-structure
designs.
As the move toward the mass market continues, EV
experiments are increasingly becoming a serial-production game. Nontraditional
OEMs will likely study the DTC practices of traditional OEMs, for example,
including sourcing industry-standard parts, to identify better ways to close
the gap in cost performance and thus increase their profit margins from the
product-cost side. Nonetheless, achieving a superior cost performance might still
be a competitive advantage for established OEMs and thus comprises an
opportunity to step up against potential new market entrants.
Outlook: Can OEMs
make money in the volume EV market?
Most recently, EVs have gained a significant share in
the new product announcements of many OEMs. At the same time, EV models
individually have not yet offered much in the way of contributing to overall
profitability compared with ICEs. As the global market share of EVs inevitably
grows, their margins increasingly move into focus.
Taking the four steps in EV design outlined in this
article into consideration may help OEMs to reduce the higher manufacturing
costs (including materials, production, and final assembly) of EVs. With a
focus on simpler and more flexible platforms, along with a fresh approach to
technology and design, we believe that a positive mass-market business case for
EVs may exist.
In fact, based on our analysis, the delta from total
manufacturing cost to list price for sufficiently well-equipped (including
hardware and software options such as nonstandard color, range extension, and
different software settings), midsize EVs could potentially reach a level of 40
to 50 percent. While powertrain-independent components and final assembly
appear similar in their cost structure to ICEs, major cost drivers still lie in
the EV powertrain itself and in related uncertainties in the development of
battery cost.
This also highlights that for an overall attractive
business case, additional measures—for example, in optimizing the offering
logic and channel strategy—will still be necessary.
In summary, we may see an era of profitable mass-market
EVs on the horizon, driven by design trends toward flexibility, integration,
and simplification that maximizes customer value, and under the clear
governance of cost efficiency for mass producibility.
March 2018
By
Antoine Chatelain, Mauro Erriquez, Pierre-Yves Moulière, and Philip Schäfer
https://www.mckinsey.com/industries/automotive-and-assembly/our-insights/what-a-teardown-of-the-latest-electric-vehicles-reveals-about-the-future-of-mass-market-evs?cid=other-eml-alt-mip-mck-oth-1803&hlkid=863fbd151b2143ccb2d5823d950a5f0f&hctky=1627601&hdpid=9e025d56-3b17-4ca1-8abc-d5dfd2752302
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