With the correct trade-offs and targeted partnerships, conventional producers still have the opportunity to keep up in race towards electricity-based and automated vehicles. 

• Bain estimates that the electric transport market will begin quickly scaling at around 2024, intensifying original equipment producers race to keep up with their technologically progressive competition. 
• Simultaneously, the COVID-19 situation is damaging the financial padding of automobile producers and holds the threat of hindering progress in automated vehicles production – a market that is forecast to reach a critical point at around 2028. 
• Automobile manufacturers can capture opportunities and handle threats for the incoming AV and EV driven future by undertaking targeted investment trade-offs and initiating vital partnerships and collaborations. 

Tech organizations have cemented their spot in the driving lane of an electric, automated world – and original equipment manufacturers (OEMs) are scrambling to keep up the pace. Just look at one important indication: German regulatory authorities have permissioned Mobileye, Intel’s autonomous vehicle unit, permission to evaluate its self-driving cars on public roadways, in actual traffic. Mobileye is one of the pioneering nonconventional producers to get the green light for evaluation, providing the organization an opportunity to overtake conventional producers, regardless of their head start. 

As they scramble to keep up the pace with electronically based and cash-rich tech organizations, the COVID-19 situation also presents a threat in hindering progress for a few OEMs. Saving money and containing expenses are now pressing priorities, needing meticulous calibration of R&D and capex investments. Invariably, this consists of difficult choices. Daimler and BMW, for example, have retained their AV collaboration on hold owing to high expenditures. Simultaneously, Daimler has collaborated with Nvidia to produce a software-based vehicle framework for self-driving technology.  

Additionally, the automobile manufacturer lately made an announcement that its collaborating with Waymo to develop a L4 autonomous truck – meaning that it can self-drive with no human intervention under specific scenarios. Investment reductions with regards to in-house development for AV tech enables OEMs to move restricted resources to more timely avenues, like their call for electrification. 

BMW and Daimler are not isolated in their thought process, the international crisis situation could prove to be a stimulating factor for adopting electric vehicles (EVs). EU governance are leveraging economic stimulus to call for a more sustainable scenario after the pandemic has crossed the shores. Germany, France, and Italy are enhancing EV subsidies as an aspect of their planning for recovery. The Chinese State, which had prior intended to roll back EV subsidies by year end, has instead made the decision to provide some altered incentives until 2022, in the hope that it will ease automobile manufacturers concerns. Additionally, dominant ride-hailing businesses, like Uber and Lyft, have lately made the commitment to move on to 100% electric-based vehicle fleets by 2030.  

Decisions that automobile leadership units take in the upcoming months and years will be vital to deciding to their future level of competitiveness. And with various routes to opt from, no one organization can realistically win every battle by itself. However, there are a few practical measures that OEMs can instate to reposition themselves for the actuality of the pending AV and EV driven future. It begins with evaluating the avenues, deciding where to partake, and planning the correct investment trade-offs and collaborations to remain competitive in their space of choosing. 

The EV timeline 

It’s an uncommon executive or board that hasn’t faltered with regards to the proposition of new tech: Will it unanimously catch on? At what time will it scale and be profitable? 

Leadership units have marked the turning point with regards to EVs – the limit at which a niche sector starts to scale quickly till the point it saturates – what’s worth remembering is that the time to make investments is now. There’s no better time than now. Going by a Bain analysis – international EV adoption will quickly appreciate as prices reduce over the coming years, attaining a turning point in 2024. 

There are various critical aspects to consider here. One is the necessity for a more robust charge infrastructure. For German users, the days of stressing over trip planning based around the proximity of charge stations will soon become a thing of the past. Although, there are still obstacles to be surpassed with regards to daily charging conveniences, such as reduced accessibility in rural regions and a transparent, comprehensive payments framework. China has swiftly become a forerunner with regards to infrastructure, with >1.5 times stations in comparison to the Europe and USA. (Combined.) 

However, client reception will be the single most crucial determining factor. Over the previous few years, governmental incentivization have driven the appreciation in EV proliferation. In Norway, a Scandinavian nation known for its progressive outlook, where EV drivers have tax incentives, the capability to drive within bus lanes and being exempted from ferry charges, EV’s today contribute to nearly 50% of registered vehicles. 

USA car purchasers, who have tax breaks at the federal, and at times at the state and local level, enhanced the Tesla Model 3 into the top tiers of the table concerning top 10 best selling commuter cars in 2019. And a large majority of the globe is set for revolutionary change. To call it a paradigm shift would be an understatement. In a Bain survey of clients from the USA, China, and Germany, nearly ½ stated they are contemplating buying plug-in hybrid electric vehicles or battery-based EVs as their next car purchase. 

Even with that kind of potential, producers are aware that they are still selling at a loss. With a miniscule subset of consumers mainly buying BEVS through governmental subsidies, on average, OEMs are presently witnessing a 15% margin in the red, in contrast to the 5% margin of traditional powertrain vehicles. 

Nonetheless, they cannot afford to forsake participating, provided present governmental mandates. As of 2020, car producers who wish to take part in China’s market must earn credits equal to 12% of their yearly production – forcing their hand to satisfy the EV production quota or purchase credits from progressive industry leadership. In the State of California, the state legislature has just made an announcement, somewhat of a bold regulation – banning the sale and purchase of newly produced gas-powered cars by 2035 – that could spur more climate aware states to follow in their tracks. To keep up the pace with such rulings, OEMs plan expansion of their battery-based EV portfolios. Dominated by progressive and ambitious organizations like Volkswagen, producers intend to launch in excess of 100 new models by 2023. 

Stringent legislative measures, such as banning, as we witnessed with the State of California could definitely play a part in EV-dominant roadways in the near future. However, as of now, in a majority of the globe, if EV adoption is to experience ongoing acceleration and OEMs are to rake in adequate profits, car purchasers will be wanting more than just mere tax incentives. For market expansion on the basis of client demand, purchasers will require to feel assured that purchasing an EV can cost a similar amount, if not lesser than, a gas-powered vehicle. This will be dependent on the cumulative cost of ownership. 

As an average, in the German compact car sector, the cumulative cost of ownership, the purchase price added to the operational costs of battery driven cars in equivalent to comparable to gas-powered vehicles. For various areas globally, the correct point in time will be dependent on the vehicular class, battery size, and petrol and electricity rates. It will also be contingent on the driver and how the car is leveraged. For a model calculating of a reduced-mileage user of a compact vehicle on German roads, internal combustion engine vehicles presently cost approximately 8% less. However, for frequent users, that is, ones who traverse more than 15,500 miles annually, BEVs have a forecasted 9% cost benefit, due to consumption savings. Considering latest commitments from UPS, Amazon, and FedEx in electrifying their delivery vehicles, commercial fleets are accomplishing TCO parity owing partially to their increased mileage. 

Reduced battery prices will help the cause. The purchase rates of compact category EVs is still considerably more than ICEVs – and the battery contributes to around 1/3rd of the production expenditure. But, Bain predicts battery pack prices will reduce from $124 pkwh to $100 pkwh by 4 years’ time. Technological advancements and optimization of production at scale will facilitate this evolution. 

Over the next half a decade, as TCO attains parity across vehicular segments and driving profiles in varied regions, client demand will increase. But as an average, OEM’s margins with regards to BEVs will stay insignificant until 4 years from now. In order for electric-based mobility to attain the aforementioned turning point, electric vehicles need to be less expensive to purchase than gas-based vehicles and diesel variants – with no governmental assistance. 

The dual forces of tech progression and new client demand will provide the final push. Beyond reducing battery prices, technological optimization and the advantages of scale will reduce costs for other BEV-particular parts. OEMs at the forefront can ultimately bring in high-volume automated production. Their production expenditure will also reduce, with reduced research and development expenditure required for the electric models that follow. 

The pioneers to accomplish the ultimate objective – an inexpensive, unsubsidized EV, will obtain a critical competitive edge. In time, EVs will put out similar, or even increased profits in comparison to ICEVs. In four years’ time, nearly 12% of all new vehicles purchased internationally will be completely electric-based. In 19 years from today, that percentage will be more than 50%. This fascinating possibility has driven the foundation of a bunch of start-ups, more emboldened by the achievements of Tesla, and successful producers are required to stake their claims. 

Identifying the correct track to autonomous vehicles 

For some producers, transitioning from gas-based to electric-based vehicles will pave way for another natural transition: automated vehicles. While the earlier assumption was that preliminary AVs would be gas hybrids, latest research by Carnegie Mellon University indicates that energy efficient software and aerodynamic hardware will pave the way for more eco-friendly autonomous cars. Work on these tech simultaneously could provide some EV forerunners a head start in the industry’s next hot battlefield, where Silicon Valley organizations are already making consistent progress. 

Autonomous vehicles are expected to witness increased proliferation by 2028, 7 years from now. During the next eight years that are to follow, two primary uses will crop up: automated highway driving for private vehicles, and robo-taxi fleets for city areas. Regulatory frameworks will have a considerable role to play in the timelines for both of these uses. It’s no shock that Alphabet’s Waymo determined to pilot and initiate its autonomous driving cab service in Arizona, which provided an AV-conducive regulatory setting. A majority of the USA, China, and Europe will need more legislative measures to increase commercial utilization. 

Additionally, clients need to feel secure. Clients are presently skeptical with regards to driving a completely automated vehicle in all scenarios and weather conditions, with no necessity for intervention. Their hesitance will only reduce when an increased number of individuals have the opportunity to evaluate the tech. 

While customers may think that getting to work or running chores in a completely automated car sounds more like something from a sci-fi novel than a potential for this decade, the tech is quickly evolving. Waymo has finished 13,219 miles on average in self-driving mode with no necessity for human intervention, the most of any producer, going by the California Department of Motor Vehicles. But there’s still a lot to do. Going by a research conducted by AllState, the average USA motors user is a part of one accident every decade, or each 140,000 miles. 

It’s also critical to identify that in Phoenix, Waymo has the advantage of a favorable environment that go beyond the regulatory scenario, year long dry climates, well demarcated lines on roadways and decreased population density. To experience expansion into critical markets, auto producers will be required to tackle adverse weather scenarios, nonstandard road infrastructure, and improve tech capacities to ensure security. For AD pilots to overtake the average human user, OEMs must additionally make investments in smart tech that facilitates improved decision making, detection and response to unpredictable 3rd party behaviors. 

Present frameworks display considerable progress in these spheres. But they haven’t reached every requirement for L3 automation. L3 vehicles can execute a majority of driving activities within limited scenarios, however, a human agent must be poised to take over control of the wheel when the vehicle instructs to do so. For instance, Tesla vehicles with complete self-driving capacity will automatically drive a vehicle towards highway points, however, active driver monitoring is needed at all times.