OEMs must invest in EV R&D on the road to 2040

03 August 2017 Consultancy.uk

Original Equipment Manufacturers will need to invest heavily in their infrastructure to benefit from the shift to electric vehicles, as more countries seek to end petrol and diesel transport by 2040. With the UK becoming the latest locale to commit to the target, a study into the industry has highlighted R&D as a key to survival for industry incumbents.

Electrification has been deemed one of the four global mega-trends set to transform the automotive industry over the coming three decades. The technology has increasingly proven it has the potential to change the industry, reducing various negative externalities, including pollution and energy efficiency.

With new innovations resurrecting interest in a mode of transport that was once thought to be dead, and renewed growth within the market as a result, there are now numerous plans in place across the EU, including in France and the Netherlands, to outlaw the sale of new petrol and diesel vehicles over the following decades. Member states finally feel able to invest in the technology, having seen it can help sustain growth in the automotive market. With the UK government becoming the latest country to announce such plans, pledging to end the use of petrol cars and vans by 2040, experts at AlixPartners have used the consulting firm’s Global Automotive Outlook 2017 to consider what the future of British roads may look like.

The study, based on expert interviews and financial analysis of more than 300 global suppliers and automakers, shows the worldwide Automotive sector is forecast to grow to 114 million vehicles by 2024. While the US is expected to continue to decline in the short term, Brazil and Russia are showing signs of recovery, while growth has continued in China, as America’s automotive rivals make the most of their current weakness in the market. Although slightly below GDP expectations, this overall growth is on the back of another year of healthy volumes of 92 million vehicles during 2016 – however, with the majority of these being petrol or diesel vehicles, the impact of electrification will start to bite over the coming years, and Original Equipment Manufacturers (OEMs) will need to act quickly to ensure they are best positioned to be beneficiaries, rather than victims, of the industry disruption to follow.

OEMs must invest in EV R&D on the road to 2040

As the transition toward electrification occurs, manufacturers will have to consider a litany of issues to avoid being left behind in the market. To this end, OEMs last year funded over €180 billion in Capex and R&D last year alone, equating to €2,000 - €2,500 per volume vehicle and €4,500 to €5,000 per premium vehicle, with a large portion of this being spent on ‘CASE’ (Connectivity, Autonomous, Shared and Electrification) investments. Whilst battery electrification requires the least amount of manufacturing labour, hybrids on average require around 9 human-hours per vehicle to assemble the powertrain, 50% more than traditional engines. 

The Electrification agenda is forecast to continue to drive disruption as traditional powertrains lose share – while by 2030 the steady progression of hybrid and battery powered electric vehicles will represent more than 65% of all new vehicles sold, presenting clearer short term opportunities and challenges for the industry. The sale of electric vehicles is finally picking up – Q4 2016 saw 252,000 EV and PHEVs sold globally, an increase of 168% from Q1 2015, while overall, EV and PHEV sales have risen by 0.6% to 1% of the total number of vehicles sold. The EV market has seen a 7% increase in the average range driving under pure electric power from 169km to 181km over the same period, with China in particular is leading the way, with the Asian superpower’s manufacturers keen to benefit from the expected EV boom as more states join the effort to outlaw petrol and diesel vehicles. More than 50% of globally electric kilometres are now related to the Chinese market, due to high number of electric vehicles offered by local OEMs.

Andrew Bergbaum, Managing Director for Automotive at AlixPartners said, “The end of the internal combustion engine is now a reality, with Volvo’s announcement that all new models would be electric or hybrid within two years and the French government’s decision to ban ICEs from 2040. Both these developments come on the back of a very strong year for OEMs. However, whilst a number have been able to make considerable efficiency savings which have helped fund short-term Capex and R&D, this is not a sustainable position over the longer-term without fundamental changes to production and the amount of investment required is going to continue to increase. Efficiency savings are only putting off the inevitable consolidation that will need to happen.”

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