Electric vehicles (EVs) are widely considered the future of the car industry. Major car companies are adding new and increasingly glamorous EV designs to their list of new models. Despite a price premium on new EVs, their share of new car sales continue to increase, albeit from a low base.
EVs global share of new car sales exceeded 3 per cent in 2020, increasing while conventional car sales shrank in a COVID-constrained world. They’re new tech, clean and green with the power to out perform combustion engine rivals, if you are willing to pay for the privilege.
The futuristic design of EVs suggests car manufacturers are hoping to re-engage a generation that has increasingly seen conventional cars as a dull, generic necessity, a cost-centre they would would rather borrow than own.
In the post-war 20th century cars became a status symbol, a moving piece of art. The car industry was more diversified, market leaders competing with a long tail of smaller car manufacturers whose sometimes odd designs added a sense of uniqueness and boutique styling to car ownership. Think Lancia, Saab or Jaguar. Since the 1980s the car industry has gone through sustained consolidation, improving production efficiency as more models were derived from the same chassis and design, but reducing some of the “Top Gear” pleasure of car ownership at the same time.
The homogeneity of 21st century cars has coincided with the rise of car and ride share services like GoGet and Uber, and younger consumers dispensing with the expense of buying and running a car, preferring to distill personal mobility into a simple cost for movement equation. Access over ownership.
Car makers have learnt the “Prius Effect” lesson from a decade ago, when the distinctively styled hybrid massively outsold its plainer Honda rival (which basically looked like a Civic with a badge). Consumers were drawn to the look of the car epitomising the technology contained within. They wanted to wear the brand, not just drive it.
The new range of electric utilities (pick up trucks) lining up in the US reflect this trend: from the oddly triangular Tesla Cybertruck to the futuristic Ford F-150, a massive Hummer soft top, the space-age design of the Rivian R1T and the simply giant Bollinger B2. The one thing that is consistent about all of these designs is that none of them look remotely “normal”.
If car companies have any chance of reversing the slide into car anonymity and pure functionality, then EVs appear to be their best bet. But there’s a catch. Even with volumes topping 2 million vehicles a year, car companies aren’t making any money out of making and selling EVs.
McKinsey’s estimate that it costs around US$12,000 more to make an EV than its comparable internal combustion engine competitor (ICE). Most car companies are losing money selling EVs. They are making EVs to comply with government regulations on selling a certain percentage of zero emissions cars by 2025. If they can’t make the cars, they have to buy the credits from someone else.
As it turns out, selling regulatory credits is the only reason Tesla turned its first profit last year. Even at the premium prices it charges the iconic car brand is losing money from actual sales. The question for investors is whether Tesla and other EV manufacturers manage to get down the production cost curve before the government credits run out.
Hyundai has been pioneering lower cost EVs, but is now wrestling with a global recall of all its expensive but less expensive Ioniq and Kona EVs because of fire risk from the batteries. Its a multi-million dollar setback for the company but not life-threatening to EVs. Consumers are aware of battery-fire risk already. But it is a reminder of the risks of pushing new technologies hard to reduce cost.
The EV sector is probably too big to fail. It may not be helped by its own popularity: many consumers are adopting a wait and see attitude to new car purchases, holding on to older cars as they wait for new EVs to come down in price. This is slowing new car sales overall, and making life even harder for car companies trying to re-invent themselves and stay viable at the same time.
Iconic UK design company Dyson tried to use its innovative approach to design to carve a niche in this exciting new market. It failed. Its plan to build a seven seat SUV with nearly a 1000km range was disbanded last year, crippled by the high costs of EV technology.
That doesn’t mean others can’t succeed, but perhaps the seemingly certain pathway to an electric car future isn’t as certain as some might have us believe.