The automotive sector is one of the largest in the world, a market over $3 trillion in value if one also counts in the auto component sector. The market has developed over 100 years, and today has a long, complex value chain spread across dozens of countries for many OEMs.
Tens of millions of jobs depend on it. Some regional – and even national – economies depend on it.
The oil and gas industry earns most of their money from this industry.
The industry globally comprises at least 50 companies (OEMs and dedicated component makers) with revenues of over $25 billion, and over 1000 companies with a turnover of over $100 million.
It employs some of the smartest engineering, technical and managerial talent.
Our specialty focus areas include
There are over 50 industrial clusters globally dedicated to this industry.
The industry counts over 25 different end products (in the form of vehicles). The conventional auto industry (ICE vehicles) comprises over 2,500 components and sub-components.
Into this massive industry enters a new form of automotive, the electric automotive (to be precise, the oldest automotive sold over 100 years back were electric powered, but they never accounted for much, and the last 100 years have been dominated by oil powered vehicles).
Imagine you are the CEO of a company making cars (or scooters or trucks). You have established your firm well in your markets, built a strong brand over the past decades, and built many competitive advantages along the value chain. You had been keeping a watch on electric vehicles for the past ten years, and their growth, while good did not really look like any threat to your business. But things changed since 2017, and in 2021, you feel that a significant portion of your end user segment could shift to electric vehicles by 2030. Well, ten years is not a lot of time left to you to manoeuvre.
Or imagine you are the CEO of a company making components for the IC engines. Your consulting expert comes in one day and announces that thirty years from now, there would be likely no business for you as there would be no need for your product in any automobile. Thirty years might sound like a long time to a neutral observer, but not to the auto manufacturing sector which plans with decades in mind and not months or years. Imagine how you as the CEO will feel on hearing the news.
The above two are perhaps worst case scenarios, applicable perhaps mainly to companies in select OEM markets or those dedicated to supplying components to IC engines, but challenging scenarios exist for many other stakeholder firms in the industry. Every CEO in the tens of thousands of auto OEM or auto component or auto solution provider firms would have asked of himself or herself the following question at least a few times in the past year:
What the heck should I do about this electric vehicles thing?
Having interacted with dozens of auto sector top management in the last few years of my e-mobility consulting, and having analysed hundreds of reports and perspectives from top management worldwide as part of my consulting and while putting together the Electric Vehicle Innovation Intelligence, I’m putting down what I had learnt about the key questions, concerns CEOs have with regard to electric vehicles, and also some of their opinions and strategic perspectives.
I hope this post is of help to all those auto industry CEOs out there.
1. How fast will the market grow?
Well, we all read the same news and we all have the same data on what’s happening right now in the global and key national EV markets.
Global pure electric car sales reached a little over 3 million in 2020 (3.2 million, say some early estimates), thus making the cumulative electric cars on the road to be about 10 million. To give you a perspective, electric car sales were 2.1 million in 2019, about 1.8 million in 2018, 1.1 million in 2017, 0.7 million in 2016, and 0.5 million in 2015. The total number of electric cars on the road (cumulative sales) by end of 2014 was only about 0.5 million.
Globally, about 80 million cars (all cars) were being sold annually since 2015 until 2019. In 2020, sales of cars are likely to have drop significantly, with estimates of about 65 million total.
Which means that from a market share of about 0.6% in 2015 (and much less than that until then), the market share of electric cars rose to about 5% in 2020, a 10 fold jump in market-share. Quite a stunning fact. Even if one were to ignore the Black Swan year, electric cars had close to a 3% market share in 2019, a 4-5 fold jump from 2015, no less stunning.
But I’m sure you would not missed another impressive fact for electric cars in 2020 – while the global sales for conventional cars shrunk by about 20%, sales for electric cars have increased by a whopping 50%. As far as the electric car sales were concerned, it was almost as if the pandemic never happened, or better still, as if the pandemic drove the market towards electric cars while shunning fossil fuel cars.
Going forward, projections for annual electric car sales are in the range of 8-9 million by 2025, 25-30 million by 2030, and 50-55 million by 2040 (based on multiple sources). By 2040, every second car sold will be an electric car, going by these estimates. Growth trends could quite different for other vehicle categories such as two wheelers, buses and commercial vehicles, but don’t be surprised if these are even higher than that those for cars.
So. the EV numbers are all there to see – growing fast, but still a relatively small size of the total pie. The growth is still spurred by the premium markets in the consumer segment. Select B2B segments also exhibiting growth, though clear trends are yet to emerge for these.
2021 is a new year, entirely. CEOs will be watching the EV trends keenly this year as these could provide a much better benchmark – than 2020 trends – on the future growth trends for the sector.
Thankfully for the CEOs, as pointed out above, there are indeed some reliable data points of EV growth since 2015 for many regional markets, for many different types of electric vehicles. But can they use these as indicators of growth for 2020-2030? Can a 40-50% annual growth be sustained for 4-5 years, leave alone ten years? Perhaps it can be, especially if cost parity of EVs with conventional vehicles happens by 2025/26, as many industry experts predict. If an annual 50% growth is maintained, sales approximately double every two years and by 2030, sales could be about 15 times what it is now – that would be about 35-40 million electric cars a year, about 30% of the 120-125 million cars expected to be sold annually by then. That’s humungous, and as you can see from estimates presented earlier, not far from what many industry experts forecast.
While these are the macro data, these alone may not be enough for the CEOs. For one, these data are for cars. Growth estimates for heavier or lighter vehicles could be quite different as mentioned earlier, and estimates could be significantly different for different countries for the same type of electric vehicle. All these estimates can perhaps be obtained, but an answer or estimate that could be more difficult will be intelligence of the sub market segments that will really spur growth in each of the prominent markets.
With so many aspects to consider, precise intelligence on specific growth markets could still be unavailable to the CEOs. And I’m not just referring to CEOs of vehicle OEMs. The question on growth is equally important for component makers and solution providers as well – these companies also need to be ready and prepared to address the changing needs of their customers (OEMs).
Questions to ask:
- What could be the aggressive growth scenarios? It is important to know the answer to this, as some of the emerging industries have a way of surprising even industry veterans with their faster than expected growth. Industry leaders should not be left to be in a position when they are not able to cater to the larger than expected demand.
- What are the key drivers to watch out for? While there are many aspects that can spur EV growth, senior and top management should be able to pinpoint the top 2 or 3 such drivers and keep a close look at how these are panning out. For multinational firms operating across the world, these drivers could differ from one region to the other.
(S: Large companies may not want to wait until the probability of hockey stick reaches 0,5 or 0,6 for their nations, but make their aggressive moves at lower probabilities)
Useful links: https://www.virta.global/global-electric-vehicle-market
2. Tesla factor
What do you do about a man whose company did not exist 20 years back, does not have a car industry background, does not think like a car company CEO, does not work like a car company CEO, and yet runs a car company that is valued higher than that of the next three automakers combined! (and the second and third in the list – VW & Toyota have almost 200 years of combined operational experience)
Tesla may be fascinating to many of us, but the CEO’s of many top global auto OEMs would most likely use other adjectives: bewildering, volatile, and some uncharitable ones might even consider undeserving.
What exactly are Elon Musk’s plans? How does he make the world go crazy about so many of his products, many of which are good but perhaps receive far more adulation than they deserve? Is he building a car that runs on software or software that runs a car? Do his roots in Silicon Valley give him access to secret other automakers do not have? How much of what he is predicting for Tesla will come true in the few years? Most importantly, why on earth is his company valued so high that reminds one of the dot com bubble?
Many CEOs of auto OEMs (or for that matter many other industry watchers) cannot figure out what is making the market go ga-ga over Tesla. But their real concern has nothing to do with ego, though they surely will not mind being in his shoes. With its sky high valuation, Tesla can really flex its muscles and try all the crazy things Elon Musk can come up with – even if two in ten work out, the rest of the industry might be left in the dust. The conventional auto industry, led by sane guys in suits and ties who are taught that pigs will never, ever fly, simply do not have the luxury to work the way Elon Musk does.
So what do you do if you are an auto OEM CEO who is in the direct line of fire from Tesla? Fight conventionally with all your might? Try being innovative like Tesla? Pray and hope that “this too shall pass”?
(S: Don’t play with Tesla’s strengths, identify its weaknesses and build a strategy around it. Inability to retail talent? Unfocussed? Can he take long term views on specific products?)
2016 story Chevy Bolt – https://www.wired.com/2016/01/gm-electric-car-chevy-bolt-mary-barra/
Tesla’s unique business models – https://www.investopedia.com/articles/active-trading/072115/what-makes-teslas-business-model-different.asp
VWs failed bid to unseat Tesla – https://www.livemint.com/companies/news/how-volkswagen-s-50-billion-plan-to-beat-tesla-shortcircuited-11611140563437.html
Questions to ask:
- Is it possible that Tesla’s massive mindshare could be temporary? If that be the case, should the CEOs wait a bit longer before trying to decipher key lessons from the company?
- Is Tesla’s success mainly the result of one man’s genius or was it the result of a carefully crafted strategy over years? (Remember, Tesla was started in 2003, so it was hardly an overnight success)
- Apart from the fact that Tesla was an early mover and had the benefit of going big on software thanks to its headquarters in the Silicon Valley, what are the other strengths and assets that Tesla brought to the table that other auto companies too can?
- How can large auto OEMs look for unique partnerships to take a lead over Tesla?
3. Batteries
Many in the EV industry are assuming – perhaps quite justified too – that Li-ion batteries will rule the roost at least for a decade. A decade! That looks like a long enough time in the EV industry for these leaders to relax a bit and hit the bar.
Not so fast! For both OEMs and battery makers (and also for those making solutions around batteries such as the power electronics companies), there is still a big question that remains: Which chemistry will win?
That’s a fairly important question especially for companies investing in battery cell making. It could mean putting together quite different lines of machineries and technologies. And hiring additional specialist talent for their R&D.
As of 2021, the chemistries dominating the Li-ion batteries for electric vehicles are NMC, LiFeP & LCA. But there’s a lot of churn in the offing. There are innovators coming up with graphene batteries where graphene is coated on Li cathode for higher energy density and higher efficiency. And then there’s LTO which could be the chemistry of choice for batteries that will be using DC fast charging.
(S: Similar to solar, look at having multiple, modular lines to derisk)
A large list of battery tech – https://www.pocket-lint.com/gadgets/news/130380-future-batteries-coming-soon-charge-in-seconds-last-months-and-power-over-the-air
Questions to ask:
- If Li-ion batteries will be the mainstay for EVs for at least a decade, what chemistries within this genre will likely dominate and have the largest market share in the e-mobility segment?
- If non Lithium batteries could get commercialized within 2030, what could these most likely be? And who could be the companies that could be leading these technologies?
- What are the chances of a completely unknown battery technology arriving on the scene? What could drive such an unforeseen happening?
4. What product to launch, when
For OEMs, there are plenty of electric car (or scooter or SUV or van) models they can choose from, but which do they start with? It’s an optimization problem, but a tough one.
Small electric cars are easy to make – they require smaller batteries, can perhaps make do with normal AC charging overnight at residences – but will the corresponding mass market segment go for it, given that electric cars cost 50% higher than ICE cars?
Large, premium electric vehicles (the Tesla zone) offer much higher margins per car sold, and the end user market doesn’t care too much about the price – otherwise why would they a buy a product that costs 5-10 times more than mass market products? But the sales volumes could be quite small. In many countries, with a poorly defined EV charging infrastructure, the premium end users might find it a real drag to charge their cars and would perhaps wait before they invest – these are folks used to getting everything they want right then, and there.
CEOs would love to find those markets that have a clear propensity for electric cars and are large enough to justify increased focus and customization, but our experience shows that finding these market segments are quite challenging in most countries worldwide.
Well, the CEO could of course wait until their is more clarity, but surely no company is paying a CEO those top dollars so that they could simply decide to wait out on important market opportunities!
(S: One way for smaller companies, especially for 2 and 3 wheelers could be to look at white label powertrain providers)
Questions to ask:
- One question is of course to figure out what the competition is doing, but if it happens to be a room full of blind men, there might be no one worth following
- The way the EV market has been growing worldwide, no leading auto OEM can afford to wait and watch and hence, they will need to launch something soon. What are the immediate products – at least reasonably relevant to your long term goals – your company could launch at low risk and efforts? An answer to this question could ensure that you are able to make an entry into the market and learn first hand, without burning your shirt in the process.
5. Which product to cannibalize
Related to the question on what specific EV product they should introduce is the question on which of their current products they can afford to cannibalize.
It would be tempting as a CEO to take the worst selling product and electrify it – a fairly safe way to experiment, what do you lose anyway? But then, that could backfire. Electrification could be badly aligned to that product category, and if your conventional vehicle is not selling well enough, the EV version would do probably worse, and that would be a real bad start for your EV foray.
On the other hand, trying to electrify your best selling model could be hara-kiri. What if your end user segment gets confused between the conventional and electric, and ends up buying neither – and to rub the proverbial salt into your company’s wound, goes on to buy your competitor’s (conventional) car?
(S: You might want to launch electric versions of your popular model; your customer segment accepting a higher price product is unlikely to cannibalise lower price product sales)
Questions to ask:
- Are there products that are at the intersection of poor future prospects and with good potential for electrified versions?
6. ICE component makers
For those components making components for the IC engines, it is really a do-or-die. Unless they believe in fairies, they better start getting their act together.
While many large companies have diversified component offerings, and not just for the IC engines alone, there are thousands of component makers worldwide who supply mainly for the engines. These could be companies making components around crankshafts, pistons, connecting rods, spark plugs, valves, exhausts and the like.
These are the companies directly in line of fire. They need to diversify. But the big question they have is: into what?
The electric powertrain has a fraction of the components that an oil based drivetrain – including ICE – has (20 vs. 2000). It’s not as if these firms have a lot of choice!
Obvious domains to diversify into are the electric motors or the batteries, but these are products they know little about, and besides, these product domains already have a fairly competitive landscape.
So, what then?
(S: Use their OEM relationships to find a way, along with their manufacturing expertise and other relevant assets that had been built over the years)
Questions to ask:
- What are the timelines during which I can expect gradual phasing out and timelines during which I can expect drastic phasing out of ICE vehicles?
- Will talking to my customers (OEMs, mostly) and exploring possibilities of joint ventures for foraying into the EV space help?
- Is it worth considering unrelated diversifications? In some cases, for some countries, this could be a useful question
7. Non ICE component makers
These companies are in a far safer zone than companies making ICE components.
Electric vehicles need most other parts other than the IC engine and the associated components – they do need the wheels, tyres, seats, steering and the brakes.
But will they need it exactly the same way as conventional vehicles do?
EVs have regenerative braking, so is this something brake manufacturers should tweak their products for?
Electric vehicle OEMs are keen to have all the interiors to be made of sustainable materials. What does this mean to seats and seat cushion makers?
Then there are guys talking about putting motors on wheels. Surely the wheel makers should consider innovations like these?
And finally, even for those non ICE component makers who feel relatively unthreatened by the advent of EVs (seat makers, for instance), there’s this nagging feeling that they use EVs as an opportunity to make a new start and offer products that can fetch higher premiums. I remember a CEO of a leading car and 2-wheeler seat maker wistfully tell me – “I wish someone would give me more than the 4% margin I get on my products. I’d getting a better deal putting my money in the bank”. I’m not sure if his company will make much better margins supplying seats to electric cars and electric scooters, unless of course he is willing to rethink his seat product as well and offer something that is valued much more by the OEM.
(S: For smaller companies keen on diversifying into newer offerings for EVs, it might be a good idea to wait rather than rush in. They can, in the meantime, build stronger relationships with the EV divisions of their existing customers and get new EV customers. They can this way learn more about market needs without having to take undue risks, and when the right idea arrives, they already have enough customers in EV market to sell it to. Exceptions for these could be in cases where there’s someone in the family who is a whizkid in some EV technology)
Questions to ask:
- What are the current and more important, emerging trends, in sustainability in general and sustainable transport in specific?
- What can we learn from opportunities for incumbents from other industries that transitioned from one technology to another?
8. EV charging or battery swapping?
For CEOs of companies working in the downstream value chain of electric vehicle charging, one critical question is: Will it be charging or battery swapping that will dominate in future?
Depending on whether one is investing in swapping or charging, quite a few things will be different in terms of setting up and running the business.
Sure, battery swapping also needs battery charging, but the processes and infrastructure requirements can be quite different. It is even possible that swappable batteries are charged at an offsite location, perhaps using solar power.
Which of the will succeed could depend on how quickly fast charging becomes commonplace. It could also depend on whether seamless interoperability between batteries at various battery stations becomes feasible, and importantly, acceptable by the vehicle owners.
The answer is not clear right now on which of the two will win. Or perhaps both will co-exist, even in the same region.
Even assuming charging becomes the dominant model, there are questions that remain:
- How quickly should I ramp up my infrastructure, as this is a classical chicken-or-egg case – more charging stations could lead to more EVs sold, but to have many charging stations operating profitably one needs many EVs on the road in the first place?
- How quickly will fast charging will become commonplace?
- Which of the charging protocols should I go for – CHAdeMO? CCS? Or a regional protocol?
(S: In both, batteries need to be charged anyway, so this is a skill interested companies should acquire; there’s no reason why a company should not get into both, but offering each to different target segments)
9. China
I have been witness to many companies in the solar power industry crumble not because of any mistake they did, but because they were crushed by the Chinese juggernaut. The magnitude of Chinese onslaught on the solar industry has to be seen to be believed.
Until 2010, China had no company in the global top 10 solar panel makers. By 2020, 9 of the top 10 panel makers were Chinese, with America’s First Solar alone just about holding out (in the 7th position).
Chinese companies play by their own rules which are quite different from those of rest of world. In 2015, I remember comparing the cost of production of solar cells in India and China, starting with basics. If one went solely by input costs alone, Indian solar panels were cheaper to produce than Chinese panels, but the latter were imported into India at a cost much lower those of Indian products. The magical price reduction happened in the form of a variety of declared and undeclared subsidies and other financial incentives from the government. Whether these are acceptable business practices is debatable – we have many folks employed at WTO to do that analyses – but there need be no debate on whether it is a reality. And that reality will continue to be so.
Many countries’ solar production got wiped out, notable among these being the German solar cell production industry. Even low cost economies such as India found it difficult to resist the Chinese onslaught and as a result, we have in India today a badly bruised and limping solar cell production sector. In hindsight, a country such as India should have done better, but the government simply was not aggressive enough. The governments we had in India had all the right ideas in terms of supporting the solar industry, but very few saw the light of day. I guess, proposal is the same as implementation in China. Not so in most other countries – blame it on democracy.
Even though COVID has changed the perceptions of many global leaders with regard to both China and also the need to support local industry, CEOs will be only too aware that public memory is short. And the memories of democratic government leaders are even shorter, only as long as the next election.
(S: China problem will not go away. Without strong national policies, it will not be possible to defend against China. First Solar, USA example)
Questions to ask:
- Which of the value chain components – batteries, power electronics, motors, OEMs… – will the Chinese competition affect the most?
- How can I impress upon my government to ensure policies that provide my country’s EV industry with the protection that is rightful and justified?
10. Startups
In the past two years, at least a dozen auto industry CEOs had asked me the same question: Would I be knowing of a great EV startup (preferably in its early stage) their company can invest in or acquire?
The auto sector is full of smart people – be they engineers, designers, marketers, managers – but they had been working in highly structured and reasonably stable environments. I had been a dot com entrepreneur earlier in my career, and if that experience is anything to go by, many auto industry professionals would feel highly uncomfortable in such environments. The daily uncertainties, the speed at which decisions (and mistakes) are made, chaotic work environment, aggression of the founders in getting things done even if that meant forcing stuff down throats – all these will be jarring to most industry professionals, and especially to those from a highly professional, disciplined and structured industry such as automobiles.
This probably explains why people most in the auto industry cannot relate to Tesla – can you imagine the CEO of Toyota or VW sleeping on the office floor, under his desk for several nights, the way Elon Musk reportedly does even now? Musk obviously considers Tesla to be still a startup (but one that generates over $25 billion in annual revenues).
This is also perhaps why startups achieve stuff that large corporates can only dream of, and why EV startups could end up achieving remarkable, innovative results. And with electric vehicles becoming a lot more than automotive – especially with software being all over inside and outside the vehicle – it is no surprise that the CEOs are keen on investing in startups.
But finding the right startups has not been easy for many corporates, even for large ones. And investing is only one part – nurturing it so great success is quite another, and more difficult than acquiring for large corporates. But what indeed is the point in acquiring a startup only to have the entire brains walk out in a year or too because of the culture clash?
(S: Companies can take this as an opportunities to seek out intrapreunerial talent, and nurture them; working with university researchers, especially at their local universities could be a low hanging fruit with minimal investments for small companies that seek to invest in startups; for those keen on investing in startups with significant valuation, it makes sense to understand the founders much deeper before investing. As any venture capital worth his salt knows, a strong founder team is more important than a strong idea)
Questions to ask:
- What are the startups working in domains that are less discussed?
- What are the startups that are looking not just for financial but also strategic investments?
- Which are the startups that are being run by real mavericks?
11. Specialty talent
Related to the point of acquiring startups is the need for CEOs to acquire top talent.
Diversifying into e-mobility will in most cases need talent outside of what a conventional auto sector company already has. Even some of the large auto OEMs might find that they do not have all the skills needed. You might think that’s surprising – after all, these are companies that have built many specialised research teams over decades. But which auto company would have thought of building a team with expertise in Blockchain – this concept has not been around for long (though the first whitepaper on Blockchain was released by Satoshi Nakamoto in 2009, it was only a couple of years later that the real applications of this concept began).
You get the idea.
In many of my consulting assignments with medium and large auto component firms, I found that the management had already assembled external expertise on domains such as batteries, motors, and some, even on power electronics. While these were indeed good starts, I felt that most of such talent were from the conventional firms. What could differentiate the winners from losers in EVs could be the application of next generation of technology in many components of the value chain. Achieving this might require far more specialized talent.
As OEMs scramble to match innovations of pioneers such as Tesla, as component providers rush to get specialty technical expertise around IoT, Cloud, Wireless, nanotech etc., and as downstream auto firms such as sales and marketing firms start wondering how to get Virtual Reality and those zippy things as part of their marketing strategies, expect the market value of specialty talent to zoom.
If you are the lad who knows how to make a car dance using a smartphone app, you are in luck.
(S: For medium and large companies, finding and acquiring such talent may not be so difficult; for small companies, it could be worthwhile looking at good engineering and sciences colleges in their localities and invest time in identifying graduating students who have aptitude and interests in specialized domains – these companies will still need someone with experience, but they may not be able to afford to recruit too many with experience, so a young but talented and passionate team could be a great support system)
Questions to ask:
- Where should I look for the specialty talent?
- How can I identify specialty talent from within my company or group companies?
- How best can my most talented engineers and scientists be trained to quickly get some specialized talent?
12. Fuel cells
The debate around fuel cells is one that should be keeping some of the largest auto company CEOs far longer in the meeting room than most other debates around electric vehicles.
Should their company invest in battery based EVs or fuel cell based EVs?
Hydrogen and fuel cells have been famously called the technology that has been consistently ten years away since 1980, but that joke might be coming to an end, if what we have seen around the world since 2017 is anything to go by.
Fuel cell buses are running in some parts of the world. Fuel cell cars are no longer in pilots – there are select models of fuel cars already running on some countries. Companies such as Rivian (with facilities in Michigan and Silicon Valley) are talking fuel cell vans and trucks in the near future.
Has the hydrogen economy arrived?
If it has, it has a far higher chance than batteries of being the transportation low-carbon fuel of choice, and batteries suddenly present a relatively poor business case.
But, has it arrived? Will it be soon arriving? Or once again, would fuel cells promise only to disappoint?
(Large companies in countries like Germany or Japan may get together and want to leverage govt support to put in serious Manhattan Project kind of efforts, else China might do it)
Questions to ask:
- What are the perspectives of the top management and top engineers of the companies that are already operating fuel cell based electric vehicles? What are their business plans?
- What are the top 2-3 challenges that need to be overcome for fuel cells to become a commercial success? What are the technical developments taking place in order to overcome these challenges? What are the realistic timeframes when these could be overcome?
13. Government
“I’m from the government, and I’m here to help you” – words most entrepreneurs, businesses and corporates dread.
While you will hear about how some great businesses were built because the founders knew how to work (with) the government, more often than not, we would want governments off our backs.
But perhaps not always. Governments and businesses intersect in a big way when it comes to designing policies for the growth of a new, infrastructure-heavy and capital-intensive industry, more so when there are many uncertainties facing the industry.
Can you imagine the Manhattan Project being implemented by a bunch of corporates alone? We would still be seeing just PowerPoint presentations on how nuclear power will not be able to compete with coal. In some cases, governments work better than corporates – unbelievable, but true.
The e-mobility sector can do with large doses of enabling policies and mandates. Accompanied of course by even larger doses of financial support – be they in the form of subsidies, tax incentives or even grants for R&D projects. Companies in some countries may also want to have whatever protection can be provided from imports and other threats from outside its borders – post COVID, WTO is likely to be a bit more lenient.
CEOs of some of the largest firms in the world interested in electric mobility know that they have a role to play in helping the government frame such policies and support systems. While some surely have been successful, others are perhaps wondering how to bridge the gap between what their government keeps saying it will do and what it actually does.
(S: It could be critical to be identify the right people within government who really understand what is going on and what’s needed. This may not be the top bureaucrat who may be more of a visionary but may not be practically useful. It cannot be a very junior bureaucrat either, as it could take forever to get the business case moving. In many cases, it could some middle level bureaucrats who really appreciate what is going on and could act as an influencer for the large companies to get their recommendations to the right place in the right way).
Questions to ask:
- What are the key priorities for the government in the context of electric vehicles – priorities that present such big pain points that the government will act on them regardless of the industry’s requests and recommendations?
- What are the government policies, mandates and pronouncements that are unrealistic and unsustainable that my company should not rely on?
14. Mass market
The top management at all the auto companies know the numbers by heart about how many EVs are selling worldwide and in their regions. For all the noise, they know that only about 2% of total vehicles sold worldwide are EVs, and only about 0.2% of all road vehicles on road worldwide are electric. Some countries such as Norway of course have much higher numbers, but Norway buys about 150,000 cars (of all types) in a year, less than 0.2% of total cars produced worldwide.
Tesla is still selling well only in the premium markets. The same is true to a large extent for some of the other prominent EV & hybrid EV makers as well – Toyota, GM, Renault Nissan, VW, Hyundai…
In the context of mass market cars, two key questions pop up in the CEOs’ minds:
1. When will these markets start opening up?
2. How should I prepare my company for this?
The first question is perhaps the easier of the two. 2025 (some say 2026) is the year in which electric vehicles will achieve price parity with conventional vehicles. This is an important milestone, which has the potential to become the inflexion point in EV adoption. Should the charging times and battery range improve significantly by then, and should also the EV charging networks expand to cover a lot more of urban landscape, who knows, we could start seeing the much-loved hockey stick growth post 2025.
The second question (how should I prepare my company for this) is a bit more tricky. Because it isn’t as simple as a number that was the answer for the first question. Not only does the answer depend on your company’s aspirations, it also depends on what your competitors are aspiring for (or perspiring for, or even conspiring!)
For the 2020-2025 period, should you follow the Tesla strategy and focus on the premium market? Should you just focus on building internal capabilities? Or should you take the plunge and attack the mass market, thus establishing an early mover advantage (or could it be disadvantage, as some pessimistic eggheads might opine?)
(S: The answer to this depends on the size of the company and also the extent of ambition/risk taking the company is willing. For very large auto companies that are leaders in their national or regional markets, the decision is almost taken out of the hands of the CEOs – they have to start focussing on the mass market for EVs sooner rather than later. For smaller or firms that do not have their leadership reputation on the line, it is actually a tougher decision to make. They can afford to keep playing in niche segments for a while, but they might be foregoing an opportunity to take a lead over the big boys. But taking a decision to move faster into the EV mass market could also make them risk losing their shirt)
Questions to ask:
- What are the mass market sub-sectors attractive to my company in the context of EVs?
- Could there be underserved lower ends in the mass market that could benefit from EVs?
- What role can my company play in breaking the “charging infra first or EVs first” chicken-egg dilemma for the mass market?
15. Connected, shared and autonomous vehicles
Connected. Shared. Autonomous.
Three words that every auto industry CEO needs to utter in order to show that he/she is clued to the times and trends.
The first two are already a reality.
Your car is already a lot more connected – both intra-vehicle as well as with the external environment – than you realise.
Uber started not just a car hailing revolution, it also accelerated the shared transportation phenomenon.
But out of nowhere, driverless, autonomous vehicles seem to be springing up everywhere. Was it because of the two chaps at Alphabet who conjured it up because they had a heck of a lot of brains, money and spare time? Was it the maverick Elon Musk once again? Or could it be that the staid auto industry somehow got inspired to exhibit this leap of faith? Whoever or whatever made it happen, autonomous vehicles suddenly appear to be as inevitable as the burger at the neighbourhood Mac.
The CEOs now somehow have to wrap these three trends – Connected. Shared. Autonomous – around their EV strategy. Interestingly, none of the three has anything specific to do with electric vehicles, but the sheer coincidence of timing has made it seem as if these were made for EVs.
These three trends are of course exciting, but the CEO knows that incorporating these big trends in his EV strategy to create a strong differentiation may not be easy as it looks.
(S: As it is likely that these technologies will be sourced from outside by many players including the leaders – or at least the core of these technologies – it is not clear how much of differentiation is possible within the technology itself, except for the top few who can afford to have their own proprietary tech. For the rest, the differentiation might come in the value added services they offer around these three aspects)
Questions to ask:
- Which of the three – connected, shared, autonomous – is most relevant for my company? Or are all these equally relevant?
- How can I collaborate – with both complementary solutions providers and competitors – in providing an effective solution built around connected, shared and autonomous mobility?
- If I can get solutions for these dimensions from external vendors, how do I build a competitive advantage over my competitors – who could be using the same vendors?
16. Hybrids
There has been a raging debate in many countries on this: What should be emphasised in the first phase of powertrain electrification? Hybrids, which appear like a good transition technology, or fully electric?
Companies such as Toyota have shown a clear preference for hybrids (at least partly influenced by the fact that they own the largest selling hybrid in the world) while those such as Tesla have clearly bet on full electric.
Globally, many prominent automakers have hybrids in their portfolio – Toyota (Prius, Camry, Avalon), Honda (Insight, Accord), Hyundai (Ioniq, Sonata), Ford (Fusion), Kia (Optima), Chevrolet (Volt)…
Hybrid electric cars have been outselling pure electric cars by a long mile for the past decade, though that gap is closing. Toyota alone has sold over 15 million hybrid cars cumulative by end of 2020 – the global stock of pure electric cars from all makes by end 2020 was only about 10 million.
For end users, buying a hybrid electric car seems a far more comfortable way to go electric – they can hit the bed with the satisfaction they are doing something for the environment without having to lose sleep over the amount of charge left in the battery. For this, they are even willing to pay a premium for hybrids, at least a small premium.
All these make hybrid cars an important entity for the 2020-2030 period.
So, car makers will need to ask this question of themselves: Should I invest in developing hybrid electric vehicles or pure electric?
I have a feeling that pure battery electric has gained significantly over hybrid electric since 2018. It could be because batteries were becoming cheaper. It could be because trends in fast charging is accelerating faster than expected. Or it could simply be because auto OEMs have decided to take more risks and go for gold.
But transition technologies have quiet power – it is quite possible that companies making hybrids, out of glare of the media lights, could be carrying home piles of cash without making any noise – and why would they!
(S: Consider whether early adopters would like hybrids while innovators might go for fully electric)
Questions to ask:
- For my markets, how do hybrids really perform on the (green) value for money compared to ICEs (both oil-based and natural gas based) and pure electrics?
- Which of the genres should I consider within hybrids – plug in hybrids, pure hybrids, mild hybrids, micro hybrids?
17. Electric scooters
Electric scooters!
Who would have thought that they would be seeing fancy looking bikes lying on pavements, roadsides and less thought-of locations in Paris and San Francisco?
But that was precisely what happened when vehicle rental / sharing intersected with the growth of electric scooters in these cities. Users of these e-scooters took to heart the advertisements that you can take your bike from anywhere and leave it anywhere you want – literally.
While this has certainly led to some concerns about the e-scooters market, I feel this will be a transient problem. Electric scooters present an excellent low carbon transport solution to urban travel all over the world – much better than electric bicycles which perhaps cannot go far beyond the hyper-local and micro-mobility market segments.
Simple as they are electric scooters yet present a wide range of vehicles – from low-end $250 electric scooters which are perhaps nothing more a small battery and motor with a small place to stand on, to jazzy stuff with analytics dashboard and all that can set you behind by $3500.
To the CEO looking at this market, the question is not whether this is a growth market – it most likely is for most countries worldwide – but whether it is a market they should enter.
E-scooters (and electric bicycles) are fairly simple products to make. The competitive dynamics in electric two wheeler market is very different from those in cars and heavier vehicles. If your company has been making conventional motorized two-wheelers, entering this market is a no-brainer. Else, it is not an easy decision to make.
(S: This is more a marketing game, and companies that are very good at developing large frachise and sales and distribution networks are the ones ideally who should invest in this)
Questions to ask:
- (Especially if electric scooters are not currently having a large market in your country) Are there very different end user markets for electric scooters? For instance, are there really premium markets and purely economy driven markets?
- How do electric scooters fit in with the rest of my electric vehicles or EV component product portfolio?
18. Sales and marketing
How do I sell a product that costs more that it conventional cousins, has operational constraints, and brings with it other uncertainties?
One way could be to sell it to user segments that buy them for values beyond just the core utility – let’s call these aspirations. Most EV makers (whether for cars, scooters or trucks) are targetting these markets.
If you are targetting aspirational markets, it makes sense to make your sales and marketing process aspirational as well. Make EV buying an experience. Make the buyers feel a bit more satisfied when they hit the bed at night that they had their bit to the environment. Make them feel they have also bought real green bragging rights along with the product.
A counter-intuitive way to sell a costlier product would be to make it less costly. Now, is this possible? In the case of electric vehicles, it is possible if we really look at what we mean by cost or price. The price we all understand is the upfront price we pay for a product. But economists tend calculate the real price differently – they calculate it over the lifetime of the product and call it the cost of ownership.
For electric vehicles, the cost of ownership over lifetime is actually lower than that for conventional vehicles because of their significantly lower running costs compared to those that use costly petrol or diesel.
If the total lifetime costs are lower, what if marketers do away with the high upfront cost into a monthly, recurring expense? What if they offer leasing or renting models – for the whole vehicle, or for just the batteries? What if they offer subscription models?
Converting a capital cost into a recurring expense is better aligned to the total cost of ownership concept – and this has the potential to build significant momentum for EV sales.
(S: It makes a lot of sense to give the prospects the option of using the vehicle for a week at no price, or at a very low cost. Give the example of the German firm which gave it for a year)
Questions to ask:
- How is the EV as a service model performing in my country?
- Should I invest in my own exclusive sales network (like Tesla, but very expensive) or should I use my current dealer network but with some investment in training for marketing EVs?
- How best can I leverage online marketing and sales for selling EVs?
19. Electronics firms
Even before electric vehicles arrived on a the scene with a bang around 2015 (OK, it was only a thud in 2015), electronics was all over the car.
With the whole powertrain becoming electric, with the fuel becoming electrons, and with the availability of large capacity batteries to power a range of electronics, the use of electronics for EV operations will be significantly higher.
With the parallel growth in connected vehicles, and with all OEMs looking at value added solutions in the form of analytics and entertainment, the extent of consumer electronics in an EV will be much higher too.
What could these mean for electronics firm? A lot more business of course.
But how best should electronic companies make their moves? Should they just stick to their knitting (say, IoT solutions) and customize these for EVs? Should they try building new solutions? Should they get far more ambitious and see how they can extend their offerings to provide more comprehensive or turnkey solutions – something that a few large electronic firms are attempting?
(The extent of differentiation electronics firms should attempt for the EV sector will depend on the types of products they are offering. Power electronics firms could have significant value additions through advanced technologies such as GaN in the place of SiC in their semiconductors etc., but many consumer electronics firms may not be able to provide perceived value addition through differentiation)
Questions to ask:
- What are the best ways to quickly convince my market and customers about the performance of my company’s electronics solutions – Pilots? Detailed test reports?
- In the initial stages, which end of the OEM, battery or EV charging market – premium or economy – should I focus on for my electronics or power electronics solutions?
20. Solar power firms
Electric vehicles, if powered by conventional fossil generated power, cannot be truly considered low carbon. For this to happen, they also need to be powered by low carbon power.
Enter solar power.
Having consulted extensively for the solar power sector, I have sees the keenness in their top management to have a big play in EVs. They know that EVs have to go solar sooner rather than later to lay claim to being a sustainable mode of transport.
We already have solar panels popping up on charging stations. Companies working in the intersection of solar and storage are already working furiously on emerging concepts such as vehicle to grid. And some imaginative solar panel makers are even trying out cool ideas by putting custom-made, flexible solar panels right on top of cars.
All the above can still provide only a portion of electrons required by electric vehicles. Electric vehicles will need to start using solar power in larger scales, produced by utility-scale solar power plants. This is not really difficult, with many industries already doing this as part of their aim to 100% renewable.
Though use of solar power in EVs are in the initial stages, it obviously has excellent growth potential. But the growth or size are not the only things that will be on the minds of solar companies’ CEOs. They would be wondering if in use of solar in EVs could in some way make a value-added product out of a commodity – which is what solar power has become within a short span of less than ten years.
(S: The reality is, unless CEOs are able to package solar into a product that is more than just power, their offering will be driven down to being a commodity, just as it was in the power sector. Thankfully, the CEOs can stand on the shoulders of the winners in the solar power sector and build value additions for EVs with these learnings.)
Questions to ask:
- Where within the e-mobility value chain do my company’s solar solutions offer exceptional value? Today? And in the next five years?
- What else if I offer – along with my solar power solutions – will the value of offering become really powerful?
21. Other prospective suppliers
CEOs of companies from other industries are also keenly watching EVs – industries that are not currently providing components or sub-components to the conventional automotive sector, but have the potential to supply for the electric vehicles sector. Example of such companies could be electric motor makers, power electronics makers, or software companies.
Many of these companies have had low or no business potential from the conventional auto sector so far. But EVs present dramatically higher business opportunities, especially as they are arriving on the scene at the same as the other big trends such as connected, shared and autonomous are.
While their products may have potential for EVs, there’s a large gap between having the potential and being able to exploit it. For one, their products might need tweaking before they can be used by electric vehicles. More important, as auto industry has never been their customer, penetrating that market could be quite difficult, and usually is a long drawn process. As many industry veterans know, building a market is many times far more difficult than building a product!
For the CEOs of these companies, the question is: Should I start focussing on the EV sector? If yes, should I start focussing on it now?
(S: When they should start working on this depends on the type of product they currently offer and the investment needed to make a start for the EV sector. So, we have four combinations – Highly related product – Low investments, Highly related products – High investments, Somewhat related products – low investments, Somewhat related products – high investments. The decision is easy for the first (start now) and the last (wait). The two combinations in the middle have to make a decision based on further studies of the market potential and/or the investment needed)
Questions to ask:
- How – and how soon – can I get having serious discussions with some OEMs or relevant EV component makers?
- What are my competitors doing? What are similar companies in other countries doing?
- What is the extent of tweaking my company may have to make to our core product or solution in order to supply for the EV sector?
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ZEV India Partnership – Driving Truck Electrification through Collaboration
