There may be deniers, but in general the automotive industry has signaled that the transition to electric vehicles is a foregone conclusion. For automakers and their suppliers, having a strategy to manage that shift is crucial.
PricewaterhouseCoopers and the Center for Automotive Research recently hosted a webinar, “How to Successfully Manage the Transition to Electrification.” Panelists were PwC principals Akshay Singh and Paul Carrannanto and PwC director Eric Shapiro. CAR’s director of technology Brett Smith moderated. Battery-electric vehicles represent only about 5% of total U.S. vehicle sales. Model availability has been a big hurdle to more widespread BEV adoption, says Singh.
Most available models have been in the luxury market, he says, so mass-market BEV adoption has been slow. That is set to change, however, as automakers plan to launch dozens of new electric models across all segments in the next few years. Longer term, that number will swell.
“The sheer amount of model launches over the next 10 years is staggering,” says Carrannanto (pictured, below left).
The speed of BEV adoption will vary based on region, however. California led the nation in BEV penetration at 16% in 2022, says Singh. That is due not only to its Zero Emission Vehicle regulations, but also to the high price of gasoline there.
Eleven other states have similar ZEV regulations in place, and the 12 ZEV states accounted for a combined 36% of all light-duty vehicle sales in 2022, says Singh.
Other states are four to five years behind California in terms of BEV penetration, based on PwC’s modeling, he says. Demand will soar when there is total cost-of-ownership (TCO) parity between ZEVs and internal-combustion-engine vehicles, says Singh.
Based on demand projections, PwC predicts 35% to 40% BEV penetration in the U.S. by 2030. “Then all bets are off,” he says. “We think the market will grow very quickly with TCO parity.”
Those projections depend in part on battery prices beginning to drop around 2024. Another limiting factor could be availability of charging infrastructure, which is “not growing as fast as we would like,” Singh says.
So, what are the strategic considerations for the players in this transition to electrification? For automakers, modular BEV architecture is crucial, says Carrannanto. One million units per platform has always been considered necessary to achieve economies of scale for an automotive platform. A modular toolkit allows multiple models to be based on one platform.
“The modular toolkit strategy is one of the keys to success,” says Carrannanto. “Getting it right is a whole different question. What is critical is (not only) the discipline around both how you define and manage the platform, but also how you evolve it to address new customer needs.”
Automakers also are investing in the battery-pack supply chain, including mining, refining and manufacturing, as well as diversifying the battery chemistries they use. Localizing supply chains is a trend for both automakers and suppliers, as well.
“A lot of the value added will be in critical components,” says Carrannanto.
Manufacturing flexibility will be extremely important for automakers and suppliers, says Singh, and there will be more losers than winners in the short term. It will be very important for suppliers to figure out which programs have the best chance of success, he says.
“Long term,” says Singh (pictured, below left), “it is very important for suppliers to look at manufacturing footprints and decide where to invest, especially for powertrain suppliers.”
They will need to determine their portfolio strategy and how to reduce risks in the switch from ICE powertrains to BEVs, he says.
BEV charging is another area where the public and private sectors need to consider strategy.
“The economics around EV infrastructure are even more challenging than the economics around EVs,” says Singh. “It will be very challenging for EV infrastructure suppliers to make money below 15% to 20% (market) penetration.”
Local governments will need to consider the impact BEV charging will have on the electrical grid. Smart charging – managing when the majority of charging takes place – will be crucial.
Managing the charging load will be complex for states like California, which aims by 2035 to get 90% of its electricity from renewable or zero-carbon emission sources. That implies a large solar component, says Singh.
The capacity question can likely be managed. “The bottleneck is more the distribution system than the generation capacity,” says PwC’s Shapiro.
The panelists differ on when the BEV inflection point – a possibly irreversible shift, if not a likely one – will arrive. Shapiro sees it at soon as 2025 or 2026, with model availability as the key.
Singh lists a variety of conditions: “EVs have to be affordable for the consumers, prices have to come down as subsidies go away, and there also has to be widespread availability of charging.”
For Carrannanto, the inflection point is not until 2030 or beyond. “It is not so much the vehicles,” he says. “The auto industry can figure that out. I am more concerned with the energy grid and infrastructure to drive ease of use.”
