Auto industry electric cars

Published on August 12th, 2017 | by Steve Hanley

Major Automotive Suppliers Pooh Pooh Electric Cars

August 12th, 2017 by  
 

We read it everywhere, from remarks by Elon Musk to predictions by industry observers — the tipping point between cars with gas tanks and those with batteries is already upon us, now that the Tesla Model 3 is here. From this point forward, electric cars will rapidly replace their gas guzzling siblings. Several nations such as India and Germany are talking about banning cars with internal combustion engines within 15 years.

electric cars

Suppliers Skeptical

“Bollocks,” say executives at several of the largest suppliers to the auto industry. “There’s a lot of buzz and a lot of talk about how the world’s going to change to electrified vehicles overnight, and I’m here to tell you it’s not going to happen overnight, and it’s not going to happen for decades,” David Dauch, CEO of American Axle & Manufacturing Holdings told those attending a conference sponsored by JPMorgan in New York last week. “I’m a strong believer in the internal combustion engine. I think it’s going to continue to be here for some time.”

Magna International sells more parts to North American auto makers than any other company. Its CEO, Don Walker, told the Management Briefing Seminars at the Center for Automotive Research in Traverse City, Michigan last week that he remains skeptical about how quickly the age of all electric cars will get here.

He says most auto executives agree with him but are reluctant to say so publicly. In his opinion, electric cars will account for no more than 6% of sales worldwide by 2025 — if that. “They know what’s going to happen, but they have to say what is going to be popular to be perceived as a progressive company,” Walker said.

Delphi Automotive is a major supplier of powertrains and electronic systems to the automotive industry. Its CEO, Kevin Clark, told those attending the JPMorgan conference that 95 percent of vehicles will still have combustion engines in 2025, and about 30 percent will have some form of gasoline-electric system. Just 5 percent will be purely electric, Clark projected.

BorgWarner, has invested nearly $1.3 billion to develop electric powertrains, but its CEO, James Verrier, forecasts that electrics will be only 3% of sales by 2023. In particular, he throws shade on Elon Musk’s recent prediction that half of all cars made in the US will be electric within 10 years.

“I would probably say that too if I ran an electric vehicle company,” he said in an interview Monday in New York. “We hold a view probably similar to Magna that there will be an evolution towards a range of electrification.”

Analysts Are Skeptical, Too

Such negative attitudes make sense to some financial analysts who cover the automotive industry. “Right now you have an industry that’s sort of stuck between the market and what they see from their clients,” said Matt Stover of the Susquehanna International Group in Boston. “They see Tesla with an enterprise value of $70 billion, and they see what their clients are awarding to them, and they say, ‘Wow, something doesn’t make sense here.’”

The parts makers have to walk a fine line. Consumers haven’t yet demonstrated a willingness to buy electric vehicles in droves, giving both carmakers and their suppliers reason to be conservative. At the same time, governments are beginning to demand cleaner cars to curb pollution in mega cities from Mumbai to Mexico City. And investors seem inclined to reward those trying to transform transportation, with all-electric Tesla surpassing the likes of Ford Motor Co. and General Motors Co. by market value this year. Tesla shares are up 67 percent this year.

“They have to defend their product mix, but they’re probably being more active than they try to come across as,” said Kent Lucas, head of business development at VectoIQ, which connects suppliers and startups in the automotive space.

 

Price is a big part of the picture. Battery electric SUVs in the U.S. won’t reach price parity with their gasoline powered cousins until 2026, according to Bloomberg New Energy Finance in its latest Long Term Electric Vehicle Outlook report. For small cars, price parity will take until 2027 — and longer still in Europe.

So, what will come in between traditional cars and electric cars? Plug-in hybrids — lots of them. Belittled by fans of electric cars, they will account for 20 percent of the market by 2023. More than anything else, they eliminate any concerns drivers may have about running out of battery power far from the nearest charger.  The real constraint on battery electric car acceptance may have more to do with that lack of charging infrastructure than it does price.

The Pace Of Change

The slow pace of change may be frustrating to some. As The Eagles once said in a song, “Things in this life change very slowly, if they ever change at all.” Until they do, that is.

Source: Bloomberg





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About the Author

I have been a car nut since the days when Rob Walker and Henry N. Manney, III graced the pages of Road & Track. Today, I use my trusty Miata for TSD rallies and occasional track days at Lime Rock and Watkins Glen. If it moves on wheels, I'm interested in it. Please follow me on Google + and Twitter.



  • Ed

    Until they do, indeed, Steve. Good summary of the classic responses of the various players when change is on the horizon. Of course, it is impossible to be precise in predicting the rate of change. The piston-to-jet change was relatively quick, based on end-customer preference, but it is a good reminder.

    What may be different in automobiles is legislation: federal, state and local legislators are emboldened by the proof that electric vehicles can meet consumer needs while helping clean the atmosphere. 10 years ago, only California had supportive legislation. Now the entire planet sees a path forward. Legislation will follow.

    https://uploads.disquscdn.com/images/298d2dc4c10f8ee3c09c664b8eeebdd862050a494e8e2924ebe6031c223dbd6a.png

  • M98987

    Magna is Ford’s supplier.
    Take it with a grain of salt.
    Or, you can see that Ford will do nothing except process it’s eventual bankruptcy.
    Because, once the battery point drops to give EV’s an economic advantage, aside from performance, there will be a huge tipping point Ford will not climb out of.

  • M98987

    Yes, cities with their High Concentrations of Auto/Truck pollution won’t stand for a rollback of regulations, just to fatten the profits of the auto industry.

  • Epicurus

    “For small cars, price parity will take until 2027 — and longer still in Europe.”

    Someone who follows battery prices and production closely predicted 2020 in a post some time ago on CT. 2027 is a huge disappointment.

    “Plug-in hybrids . . . will account for 20 percent of the market by 2023.”

    Plug-in hybrids can make a huge dent in air pollution, emissions, and demand for oil, especially if they have at least 25 miles of all electric range.

    The demand for plug-ins would probably increase dramatically if the traditional auto manufacturers would advertise them properly–or at all. This is a major problem.

    • Wallace

      At some point batteries become cheap enough that hybrids, plug-in hybrids and ICEVs can’t compete with EVs. It will simply be cheaper to manufacture an EV than anything with an internal combustion engine in it. Then one has to include the cost of operation which is already much lower for EVs (and PHEVs that never use their engines).

      Here’s a graph of where McKinsey and Company thinks hybrids, PHEVs, and ICEVs fall out of contention as battery pack costs drop.

      https://uploads.disquscdn.com/images/93974432bb40e74e03fbe5c3f80d5a4c11609651517adaa1c56a7dbb8f5c013d.png

      The red line is where Tesla’s battery pack price was over a year ago. With the Gigafactory running full speed there should be another price drop.

      Apparently the only thing keeping EV prices high enough to leave hybrids and PHEVs in the game is low volume manufacturing. R&D and administrative overhead is having to be spread over too few units. As production volumes rise (Tesla is getting ready to go 5x) manufacturing costs should drop and buyers will be looking at the opportunity to pay less for a car that costs less to operate.

      The only reason why EVs should be a small portion of the market in 2025 would be because of limited supply. If traditional manufacturers don’t make enough EVs to meet demand look for Tesla to keep expanding and China to start shipping to the West.

      • Epicurus

        The battery pack price of $100/kWh was cited as the magic number IIRC.

        The way the traditional auto companies are dragging their feet on both production and advertising, it looks like a “yuge” opening for China for whatever demand Tesla can’t meet. Sad.

  • Jonny_K

    Oil prices won’t go up. That is the conclusion of the Sierra Club and others. Fracking is the reason. There are a plethora of shuttered fracking sites in US, closed when the price of crude dropped. But they will be openedif the price goes back up. That will bring the price back down. They call it the “fracklog”. It acts as a cap on the price of oil. So cheap gas will remain a disincentive to going electric.

    • Wallace

      US fracked oil is almost certainly fixes the ceiling price for oil.

      Low cost gas won’t help the sales of EVs like another round of $5/gallon gas would, but once EVs cost less to purchase (within five years, possibly less) the market will switch. Oil can’t get cheap enough to make it less expensive to fill your tanks than to charge batteries.

      Add in EVs giving you a smoother, quieter ride. No need to visit gas stations and get oil changes. Great acceleration. EVs will be “the new must-have tech”.

      • Jonny_K

        And, of course, economics aren’t the only reason people buy cars. Tesla made electric cars cool or rather S3XY and that might be the most important factor of all.

      • ilikecheesedoyoulikecheese

        Off-peak electricity is available for 5 cents per kwh in many places. That’s less than 2 cents per mile to drive an EV. No gas-powered vehicle can compete with operating costs like that. Once the initial price of EVs come down (due to the price of batteries going down), it will be game over for ICE vehicles. That tipping point should happen in less than 5 years.

  • Epicurus

    Battery Prices Expected To Be Under $100 Per kWh By 2020, Less Than $80 Per kWh Shortly After

    insideevs DOT com/battery-prices-expected-to-be-under-100-per-kwh-by-2020-less-than-80-per-kwh-shortly-after/

    If this is correct, cost parity with ICEVs should happen a lot sooner than 2027, shouldn’t it?

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