Industry Today: The World of Manufacturing

Login/
Site Registration
Printer Friendly Page
 Date:6/22/2010

 

Dollars & Sense
Gaining Traction
How do electric vehicles figure into the future U.S. market? The public clamors for energy efficient vehicles, and automotive manufactures appear willing to embrace a new business opportunity. So why aren’t we all driving around in hybrid vehicles? Deloitte’s Craig Giffi provides his insightful observations.

Is the time ripe for an electric car? If so, at least two critical questions need answers: Who is likely to buy these vehicles? How can OEMs make these vehicles mass-market acceptable?

Automakers must carefully consider these questions (and the answers), as converging factors make the electric vehicle (EV) ever more attractive: Government tax credits, emission regulations, fuel economy standards, and unstable oil prices – these factors contribute to shifts in focus and attitude among automotive industry leaders toward electric-powered vehicles.

Many major global OEMs have already announced plans for development of vehicles powered by an electric motor (and backed up by an on-board battery pack). Also, several startups have stated intentions to infiltrate the automotive marketplace with “pure” electric vehicles.

Obviously, OEMs seeking new business opportunities perceive a viable market just waiting to be tapped, and consumers that suffer $3 and $4 dollar price-per-gallon costs find hope in these announcements.

Wither Electric Vehicles
An industry once firmly established but now struggling would do well to consider the potential EV business opportunity. But the automotive sector—a demonstrably neophobic industry that can’t unwrap its mind around fossil fuels—is only moving after prodded by consumer interests, inventive enterprises and governmental engagement. Indeed, only four major drivers may help steer EVs into the mainstream market:

  • Government incentives and policies – These include clean subsidies and loan guarantees, consumer tax credits, CAFÉ standards and the taming of CO2 emissions

  • Technology Advancements – Manufacturers responding to a perceived need are developing smart grids, lighter body composites and advanced battery technology

  • Industry investments – These include automotive technology and battery provider research and development, as well as new vehicles (e.g., Leaf, Volt)

  • Organic industry variables (exogenous) such as energy prices, global recession (and its inevitable automotive industry restructuring), and environmental concerns.


The confluence of these drivers creates market conditions conducive the EV emergence: OEMs could respond to the public clamor for energy independence, security and reliability, as the grid is powered by multiple sources including coal, natural gas, nuclear power and renewable resources. Further, EV development introduces innovative body materials and styling, as electric motors simultaneously deliver high performance and torque over a wide RPM range, which makes driving new EVs a satisfying experience, even when compared to traditional internal combustion engine vehicles.

However, EVs pose a threat to OEMs, as they could lead to reconfigured value chains and massive industry restructuring. This complicated threat is compounded by factors that, ironically, resound with EV advantages: government policy and incentives, technology advancements in componentry (e.g., batteries) and market forces that drive the cost of energy (e.g., the price of gasoline).

Market Potential
Still, as OEMS face significant and complex challenges in bringing EVs to the market, a sizeable U.S. consumer demographic segment would seriously consider purchasing an EV.

But just how big is the demand? And who are the most likely EV purchasers? Seeking answers, Deloitte recently completed a survey that involved nearly 1,700 vehicle owners. Deloitte also conducted interviews with major automotive OEM executives, as well as with startups, dealers and energy companies. What we found was enlightening. For one thing, our research identified six potential barriers to mass adoption of electric vehicles:

  • Familiarity with technology – consumers are largely unfamiliar with alternative fuel technologies.

  • Brand identity – Consumers are more likely to buy an EV from a brand they trust.

  • Vehicle range – Technically, a 50-100 mile electric range would meet the daily driving requirements of most customers; however, our research indicates that consumers aren’t comfortable with this range and most expect a minimum range of 300 miles before they would consider an EV.

  • Charging time – Our survey indicates that consumers want to be able to charge at home and have the convenience of rapid charging stations.

  • Infrastructure (electric grid and charging stations) – Our research indicates that consumers are anxious about the availability and convenience of infrastructure to support EVs.

  • Ownership economics – The greatest factor that will drive and/or prevent adoption is price, as 69 percent of consumers surveyed considered price the most important purchase factor (most expected to pay less than $30,000).


From these interviews we noticed an interesting trend: Currently, leaders of traditional automotive OEMs seem to have a clearer and closer understanding of customer concerns than do executives from clean-tech start-ups. For example, clean-tech executives think that quality and charging convenience are less important than performance and styling to consumers. In fact, these factors don’t concern current potential buyers (rather, their concerns are far more basic).

Also, auto executives realize something clean-tech executives do not: U.S. consumers are accustomed to a certain type of automotive experience. For EVs to become popular, they must mimic the experience and performance that drivers have become accustomed.

Long Road Ahead
Despite potential barriers, it appears that EVs are attractive to U.S. customers and the domestic auto industry and the country. Approximately 1.3 million American consumers fit the demographic and psychographic profiles of potential EV customers. EVs bring performance and styling improvement opportunities for automakers. However, range anxieties present a significant barrier to adoption, at least until technology addresses this issue.

The two keys to mass adoption, we believe, are:

  • Reduction in price

  • A driving experience that matches an internal combustion engine vehicle.


Looking ahead, we expect that mass adoption will be gradual (roughly 3 percent by 2020) and that complementary technologies will continue to gain.


Craig Giffi of Deloitte LLP is a vice chairman and the leader for the U.S. Consumer & Industrial Products Industry practice and the Automotive Industry practice. He is also the chairman of the Global Manufacturing Industry practice of Deloitte Touche Tohmatsu.

As used in this document, “Deloitte” means Deloitte Consulting LLP, a subsidiary of Deloitte LLP. Visit www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries.