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French Firm Forecasts EVs to Make Up 40% of Cars in Cities by 2040

It’s the young people of today who can picture the future of the auto industry as Oliver Wyman sees it: A world of city dwellers connected by wireless technology to their homes, infrastructure and EVs.

PARIS – Looking 30 years into the future is not too difficult: Those who are 20 now and in college will be 50 then and probably have their own children in college.

It’s the young people of today who can picture the future of the auto industry in 2040 as consultancy-firm Oliver Wyman sees it: A world of city dwellers connected by wireless technology to their homes, infrastructure and the electric vehicles they rent or lease.

The consultants in October presented their industry vision for 2025, in which EVs would take 6.6% of the global market. Looking further ahead in their latest study, “The E-Mobility Space for 2040,” they now predict 30% of the global vehicle market and 40% of the cars in cities will be electric.

And perhaps more significantly, there will be a considerable change in who buys EVs and what companies will be making the profits.

“The areas of profitability in the future will be especially in leasing, financing and mobility services,” the consultants say. “Possession…is becoming less important than use of the products.”

In addition, ambitious and powerful companies with expertise in communication and information – think Facebook, Google and 4G wireless networks – will begin taking larger shares of the general mobility budget.

The study says demand for mobility will grow because it’s an essential element of economic growth, but it suggests car-sharing programs, such as Autolib in Paris, that use EVs will expand in the decades to come.

“Even if consumers in the emerging markets continue to manifest a strong desire to acquire goods and equipment, and in spite of the decades during which developed countries gave the priority to possession, a tendency to purchase mobility based on use is seen more and more, especially in the big urban centers and among the young,” the report says.

Auto makers will have to join in on the new concepts of urban mobility and “become in the long term suppliers of service linked to mobility,” says Remi Cornubert, the partner in charge of the consultancy firm’s automotive sector in Paris and co-author of the study.

“In consequence, (auto makers) have to rethink their internal organization in order to be ready in time.”

The trend toward urban living is becoming ever more pronounced, with 60% of the global population projected to live in cities in 2040, with 25% in the biggest cities, the study finds. But while rural residents are expected to continue to buy and use private cars, city dwellers will turn to car-sharing programs and public transportation.

Global auto makers now focus on emerging markets because that’s where they find growing numbers of traditional customers who want to own a car.

The study predicts people in the mature markets of Europe and North America will continue to spend about the same percentage of their household income on mobility – 14% in Europe, 7% in the U.S. – even if what they spend is changing as time goes by.

People in China will continue to buy cars, increasing the percentage the average household spends on mobility from 10% now to 14%. In India, it will rise from 9% to 12%.

Vehicle Sales by Technology and Region in 2025
(in millions of units)
Technology Asia Europe NAFTA Rest of World
EV 2.0 0.7 0.4 ~0.1
PHEV 0.8 1.3 1.0 ~0.1
Full Hybrid 3.1 0.5 2.1 ~0.1
Mild Hybrid 0.9 1.3 0.3 ~0.1
Internal Combustion 32.7 22.4 13.8 7.8
Total 39.5 26.2 17.6 8.1
Source: Oliver Wyman

Frost & Sullivan, another consultancy cited in the Oliver Wyman study, estimates the use of private vehicles for transportation in developing countries will drop from 41% of trips in 2009 to 29% in 2025. At the same time, the use of private vehicles will grow from 22% of trips in emerging countries to 28%.

The trend away from private cars in cities is being pushed by public opinion, government regulation favoring sustainable development and congestion problems.

“Almost all young people in Europe say cars are not needed in cities with good public transportation,” the consultants say.

“We’re going to see use of public transportation in developed countries grow from 50% to 60%, while it will be stable in the emerging markets. The number of cars per 1,000 (people) has already started to fall in the large western cities.”

Increased mobility is happening in parallel with a change in technology away from fossil fuels and toward the use of electricity to power cars. The shift will be slow but inevitable, the consultants say, as petroleum reserves diminish and costs rise.

From 2035, EVs, including plug-in hybrids and those with range extenders, will prevail. Plug-ins have a better cost-performance ratio than full hybrids, according to the study, and second-generation EVs from 2020 will be much improved.

Nearer term, a variety of technologies will dominate in different car segments by 2025. EVs will find their best market in small cars with 2.1 million units and another 1 million in the C/D segment, the study predicts.

Mild hybrids will see their best market in the C/D segment, with 2.2 million vehicles, and full hybrids will be concentrated in multipurpose vehicles, with 2.9 million units.

EV technology already has launched a number of new car companies, such as Think, Fisker, Venturi and Tesla, and more will emerge.

Oliver Wyman believes a few of the EV startups will survive as companies or brands and some Asian OEMs with a large domestic base will become global EV players. Success factors for EVs in 2040 will be brand and design, cost leadership through mass customization and customer access and loyalty.

The consultants believe in the connected future for 2040, in which cars, homes and infrastructure communicate with one another and with people. New players will arrive, positioned as integrators, with significant added value services linked to mobility beyond the vehicle, itself.

Among the new business models Oliver Wyman sees developing:

  • Auto makers forming partnerships with service providers (Renault and Better Place in Israel).
  • Public transportation companies investing in car-sharing ideas. (The French SNCF railroads and partners will offer car-sharing in Narbonne, Montpellier and Nimes.)
  • Suppliers of energy management finding opportunity in both cars and homes.
  • Energy suppliers investing in recharging infrastructure and the smart-grid.

“Emerging centers of value creation will erode traditional profit centers,” the study says. “The new business models will be based on having few employees and will concentrate on services as far upstream as possible to capture consumers and exploit their understanding of the customers.”

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