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Electric vehicle success depends on alignment with U.S. consumer expectations

Electric Vehicle Charging
CC BY-ND 2.0
Electric Vehicle Charging

WGVU’s talks with Mike Wall, Executive Director of Automotive Analysis for S&P Global Mobility.

Mike Wall: The supply chain shortages, those production disruptions are largely in the review mirror. I mean, almost universally so, yeah, there'll be challenges that we just normally see in the course of business. It's now about selling vehicles. It's now about the state of the consumer and consumer demand, all in the context though of this electrification transition which is choppy. It's not a smooth transition, especially here in the U.S. And that's the other thing I was careful to, I don't want to throw the baby out with the bath water in this because it's important to note that in China, the transition is happening much quicker. 25% of that market last year was battery electric. In Europe, transition is not as quick as China but certainly quicker than the U.S. and the U.S. is not as far along in the process. So, it has different connotations depending on the region but certainly here in the U.S. in the broader North American market it's a different environment for battery electric. So, we've got suppliers in that room that are quoting on and trying to get new business on battery electric but realizing that those volumes are not coming as quickly. There are serious implications for them or considerations at least in their quoting process, but yet we are still selling vehicles. We're selling a lot of internal combustion and more hybrids. So those are important offsets as well.

Patrick Center: Drilling down on the EV sales and production. What is it about the American consumer? Why isn't this taking off compared to China or Europe?

Mike Wall: A great question. I think there's two critical factors. First is affordability. We have a lot of higher priced battery electric vehicles out there, not as many of the, call it lower cost, more affordable electric vehicles. And that's a distinction versus Europe and in China. Those more affordable vehicles are coming and they're slowly but surely hitting the market, but it has been a little slower than those other markets. And there's been, I think, a strategy by some automakers to kind of enter the market with the higher trim, higher price battery electric and I get why. It drives margin there's an import cost that go into these vehicle launches but it also has implications in terms of you know that selling process and driving volume the volume is not necessarily as readily there if you will. That's one side. So, your affordability and again we're working on that we're going to see more affordable vehicles hitting the market. The second is charging infrastructure. I can't emphasize that enough. We, I say we in the U.S., drive our vehicles differently than China and Europe in the sense of yes and we all hear the same stance you only drive your car 20 miles a day or 30 miles a day or what have you. And that certainly is valid, but we're also a more distributed I would say society in general in the sense of the classic “road trips” and you know more suburban and rural household creation and household locations versus more metropolitan areas that you might see in Europe, or you know even some of the considerations in China. So, those implications around charging infrastructure, not just domestic charging infrastructure, meaning in our own garages, that's a big factor too. But then also travel chargers or destination charging. Think of that as public charging. We've got a lot of work ahead of us and it's a bit of a chicken and egg. You need the charging stations to really support vehicle adoption, battery electric vehicle adoption, but you need battery electric vehicle adoption to support charging infrastructure and help pay for it. So, we're having to kind of grapple with both sides of that issue.

Patrick Center: So how do manufacturers navigate this? I'm looking at the Institute for Supply Management Research, its latest survey. So, this is dated March 8th, West Michigan current business trends. And there are these surveys of purchasing managers and there's one that's stuck out. It's a quote, it's anonymous. “EV sales are a concern. Volumes are not being achieved causing issues for us and our suppliers since a lot of investments have been made.”

Mike Wall: Yep.

Patrick Center: Where is the industry right now if there is capital investment and yet the sales aren't there, what is happening?

Mike Wall: Industry is in something of a pickle as it were. I mean, that's a perfect citation and a summation of kind of what suppliers and automakers are facing. Now, if you have a legacy automaker on the one hand, you've got an automaker that may be dancing in both spaces, both battery electric and internal combustion, and internal combustion is paying the bills, especially on the battery electric deployment and investment. Suppliers are kind of in that same conundrum. They’re wanting to get new business on those battery electric programs, but yet again, those volumes aren't necessarily hitting. So, they're offsetting some of that risk and some of that volatility by leaning on their internal combustion engine business. But it's a problem. It's a challenge because suppliers are having to make sure. And I talked about this extensively at the symposium, how you price out your products, your components, especially on those battery electric vehicles matters so critically, because if you're using two aggressive planning volumes, that’s going to be a problem. If you're thinking you're going to make it up on volume, that's going to be a problem because what we're seeing is, especially in the early days of launch, that's a challenge because those volumes aren't necessarily there. Now, if you flip over to the new EV startups, they're not immune to this. Now, Tesla's kind of an elephant in the room in its own right. They've kind of gone through a lot of those learning curves and pain points. But some of these other EV startups, they're in their own pickle, if you will, in the sense they don't have ICE (internal combustion engine) vehicles to lean on. So, they're working through venture capital or trying to go to market to be able to help fund all of this investment. And there's growing pains there too. There's challenges and in some cases, these automakers are new to producing vehicles. They're learning as they go. They're having challenges on the volume side as well. I use Rivian as a great example. They're a phenomenal company. They've got some fantastic product. But you know, again, these early days, they're transacting in a higher priced vehicle with the R1T and the R1S. And yet they've just unveiled their R2 and their R3 lineups. So more midsize crossovers and compact crossovers to really kind of come into the market and to be at a lower price point. So again, some of this is going to be bridging ourselves to get to that point to try to sell those vehicles of what you got and help fund the investment in that future model lineup. So, for suppliers, it's so critical to really have rational planning volumes to help underpin your cost assumptions, your billing materials and your plant floor execution to make sure you're still able to weather that volume storm.

Patrick Center: The U.S. auto consumer also has its expectations. It demands quality. And when we talk about EVs, the question is always about the battery range. So those two components in this conversation, how are we stacking up?

Mike Wall: Yeah, it's top of mind for any, what we would consider kind of quote unquote mainstream consumer. You know, you've got a lot of those early adopters and those kind of tech savvy folks that have, I think crossed a lot of those chasms of concerns around batteries, battery durability, longevity, range anxiety. So, we've come a long way with some of those early adopters, with many of those early adopters, but it's that mainstream part of the market that's going to drive your volume. And they haven't crossed that, they haven't fully crossed those concerns off their list yet. And that's where the education process comes into play. Obviously, we've got long warranties on these batteries, rightfully so. Again, that charging infrastructure has to come into the equation as well. But also, the range of these vehicles and the battery range has come up rather markedly over the years. And the automakers have been, I think, doing a good job at sort of offering a broad slate of sort of battery ranges in many cases that to the point where I do think the battery range that's being offered is probably in a pretty good sweet spot. I think with the expectations of the consumer, we still have to overcome some of those other concerns. Again, battery durability, longevity, all of that in the context of charging infrastructure. But automakers have come, I think, a pretty long way in terms of range. It's just kind of, again, continuing to navigate and educate on the consumer front. And that’s where, none of this happens overnight. That's the biggest challenge is especially when you're changing the propulsion system these vehicles and the consumers mind has been for decades, generations, I go to the gas station to fill my car takes me five minutes or less, and I'm on my way. Here, it's changing the mind of the consumer to realize and recognize that I've got a charging station in my garage. I've got a gas station effectively in my garage. That takes care of a multitude of use cases for me on a regular basis. And then when I do want to venture farther afield, I know where I need to go to get a, hopefully what would become a quick charge and it's not as disruptive. Again, those are still hurdles we have to cross and it's all part of that education process.

Patrick Center: These hurdles that we're talking about, the headwinds, do you see traction? Are the manufacturers at this point committed and this is happening?

Mike Wall: They…yes. So, in terms of this broader investment in battery electric, I don't see that changing. We've got billions of dollars in play, literally billions. So, in that sense, the broader mega trend is going to be towards electrification. Now the big asterisk on that is again trajectory and you know how fast? What will that transition look like? The reality is over these next few years, it's going to be a lot lumpier than if you're thinking about a normal slope line, this increase in adoption and that sort of thing. It's not going to be quite that smooth if you will. And that's where automakers I think they're faced with, boy, we know we're on this path and we're continuing to invest down that, but we need to have strategies that evolve and are flexible in the near to intermediate term. And those strategies, what we’re seeing is hybrids are starting to come back into the lexicon a lot more. Now they didn't leave the lexicon for like a Toyota as an example, but we're seeing other automakers really starting to invest in and investigate hybrids a lot more as sort of a bridge, if you will. A bridge technology. Doesn't mean it's the sole solution, it's not the only solution, but it's one of those tools in the toolbox to maybe help shepherd the consumer through this transition. There's some hedging, if you will, in the sense of we've got a variety of gates, if you will, of compliance where we need to hit certain fuel efficiency requirements. And it's going to be important to be able to have some solutions out there that consumers are going to want. The other thing I'll point out too, and I didn't really allude to this well, the other reason why we do think that battery electric is still that intermediate to longer term solution is what we see going on with California and those California Air Resources Board states that piggyback on to the California mandates, they're not going away and they're still in the mix. And that is a sizable chunk of U.S. light vehicle sales. So as those states push further and further into a zero-emission vehicle environment, there is going to be demand for battery electric. And that amounts to roughly a third of U.S. light vehicle sales, if not more. So, there will be demand for that. Again, we just don't see necessarily that wholesale shift. That's going to be a little further down the line.

Patrick Center: Mike Wall, automotive analyst with S&P Global. Thank you so much.

Mike Wall: All right, thanks so much.

Patrick joined WGVU Public Media in December, 2008 after eight years of investigative reporting at Grand Rapids' WOOD-TV8 and three years at WYTV News Channel 33 in Youngstown, Ohio. As News and Public Affairs Director, Patrick manages our daily radio news operation and public interest television programming. An award-winning reporter, Patrick has won multiple Michigan Associated Press Best Reporter/Anchor awards and is a three-time Academy of Television Arts & Sciences EMMY Award winner with 14 nominations.