Disruptive EVs pose threat to traditional combustion engines as costs fall

05 December 2017 Consultancy.uk

A global shift to more sustainable energy and transportation has seen increased focus on the development of electric vehicles, with renewable energy as a key fuel source. A new report highlights that pure-designed electronic vehicles (EVs) tend to outperform transformed internal combustion engine (ICE) vehicles, something which may have a major impact on automotive markets in coming years.

EV technology is rapidly developing, with manufacturers facing increasingly stringent emission rules, wider cultural change, and city and regional policy initiatives. These include bans on ICE vehicles in major cities, while a number of countries including France and the UK plan to outlaw the sale of diesel and petrol vehicles by 2040. Barriers remain for the production of EVs, however, as the technology is still in development, while consumers remain reluctant to make the shift – with negative perceptions around performance and price continuing to hold sway.

In a new report from McKinsey & Company the international strategy consulting firm explores the current state of technology trends in the EV space, as well as how OEMs, facing the prospect of an internal combustion engine (ICE) free future, may need to change strategies.

Native vs. non-native vehicle performance

The consulting firm players collaborated with A2Mac1, a provider of automotive benchmarking services, to conduct a large-scale benchmark of first- and second-generation electric vehicles, to ascertain best-practice in the design of EVs – which may require radically different thinking to the mere rebuilding of current ICE vehicles. The research involved the breakdown of 10 different EVs on the market (representing around 40% of pure electric vehicle types available), as well as information on further models.

Native versus non-native design

The research found a clear benchmark gap between native and non-native EV designs, with vehicles designed specifically as EVs found to have (significant) more range in performance, as well as internal space. A specifically designed battery in a native EV vehicle can offer a range of around double that of the EV converted from ICE, totalling 300 km on average, and 400 km for the best performers per charge, at the same price, while adding an additional 10% of space on the same wheel base.

Native vs. non-native vehicle performance

In terms of battery pack design, various possible models are currently in development. The most energy dense types include cylindrical cells at 245 watt-hours per kilogram (Wh/kg), followed by pouch cells with 195 Wh/kg, although, the weight of heat management modules brings the two battery types closer in terms of net energy density of the battery pack: 132 Wh/ kg for cylindrical versus 138 Wh/kg for pouch and 104 Wh/kg for prismatic. The firm notes that, as it stands, there is no convergence towards one type of battery, or thermal energy solution, with the paper noting, “Original equipment manufacturers (OEMs) will still need to invest in these areas to make optimal trade-offs on cost and performance in battery and thermal management design.”

Cost effectiveness

The research found that, as it stands, the vehicle designers are leveraging improvements in wider vehicle material cost reductions, such as the net power train weight reductions from the first-generation Nissan LEAF resulting in a shift from aluminium to steal in the body design. This delivered a considerable environmental benefit and cost saving, while range has increased significantly between the vehicles.

Design-to-cost efforts

The study further found that batteries, not weight reduction, are key to range increases, prompting OEMs to focus on more cost-effective materials for vehicle bodies. As it stands, given the positive environmental impact of EV in general, there is less focus on expensive body-weight reductions, unlike in the ICE space, where weight reductions are used as a means to increase fuel efficiency.

Simplicity

The consultancy firm notes that electric vehicles are ‘radically different vehicles’ and therefore need considerably different cost/design logic. OEMs will, according to the firm, need to create new business models, with EVs being far more constrained on options for sale related upgrades/upselling compared to ICE technology, largely the result of their inherently strong performance, thereby offering fewer transmission to engine type options. EVs already have a large number of secondary options as part of the standard vehicle, largely as a result of selling at their already high cost, creating fewer options for differentiation/upselling.

Overhaul of offering logic

As it stands, OEMs face considerable risks from a shift to EVs over ICE, as the authors of the report contend, “EV powertrains [the main components which generate power in a vehicle] are markedly different from their ICE equivalents in necessary competencies, value add, and component complexity.”

The number of components in EVs are lower than in ICE powertrains, meaning that suppliers of ICE component parts face considerable risk from consolidated suppliers of far fewer, and less sophisticated/niche/patented key EV components, when design winners for the powertrain arise. Finally, the relative simplicity of EVs could put highly differentiated ICE OEMs and tier-1 suppliers at risk from new competition, such as Tesla as well as other market entrants.

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