With a market share of only about 1% of new vehicles sold, battery driven electric vehicles and plug-in hybrid vehicles (“xEVs”) stand, from a European market perspective, far below expectations. In Germany, the xEV share is 0.6%; corresponding to about 25,000 vehicles sold in 2016. Germany is below the EU average. It is clear that the purchase and tax subsidies from the German government have, so far, not had a significant impact: In the first 3 months, only 4,500 sales were realized. Despite the subdued market demand, the number of public charging stations for electric vehicles tripled between 2015 and 2016. Against this background, FEV Consulting conducted a market and cost study to answer the question of how electric vehicle costs will develop in the future under conditions of increased sales volumes, growing demand for raw materials, and developing production capacities. The main objective is to assess the extent to which xEV vehicles can be cost competitive with conventional vehicles and which powertrain type will dominate the market. Driven by “diesel gate”, statutory regulations, regulatory pressure and technological advances, alternative drives (or xEV vehicles) have developed into a key trend in the automotive sector. Many European OEMs are convinced that the tipping point for electric vehicles will soon be reached: OEMs and suppliers are currently investing heavily in the development of their EV fleet and EV component portfolios. Volkswagen just recently released the launch of its xEV platform (MEB) with a goal of achieving a 600 km electric driving range in its compact car concept, “ID.” Daimler showcased an electric SUV Coupé called “Generation EQ,” at the Paris Motor Show that is based on a dedicated EV architecture. Other manufacturers are planning similar concepts, including purely electric as well as hybrid, and fuel-cell electric vehicles with electric ranges exceeding 350 km. Aside from the regulatory and legislative motivation, the financial implications for OEMs over the next 10 years are still not clear. The question of whether xEVs will be able to attain a significant market share largely depends on future price competitiveness compared with their conventionally powered counterparts.
FEV’s study answers the following core questions:
With a market share of only about 1% of new vehicles sold, battery driven electric vehicles and plug-in hybrid vehicles (“xEVs”) stand, from a European market perspective, far below expectations. In Germany, the xEV share is 0.6%; corresponding to about 25,000 vehicles sold in 2016. Germany is below the EU average. It is clear that the purchase and tax subsidies from the German government have, so far, not had a significant impact: In the first 3 months, only 4,500 sales were realized. Despite the subdued market demand, the number of public charging stations for electric vehicles tripled between 2015 and 2016. Against this background, FEV Consulting conducted a market and cost study to answer the question of how electric vehicle costs will develop in the future under conditions of increased sales volumes, growing demand for raw materials, and developing production capacities. The main objective is to assess the extent to which xEV vehicles can be cost competitive with conventional vehicles and which powertrain type will dominate the market.
Driven by “diesel gate”, statutory regulations, regulatory pressure and technological advances, alternative drives (or xEV vehicles) have developed into a key trend in the automotive sector. Many European OEMs are convinced that the tipping point for electric vehicles will soon be reached: OEMs and suppliers are currently investing heavily in the development of their EV fleet and EV component portfolios. Volkswagen just recently released the launch of its xEV platform (MEB) with a goal of achieving a 600 km electric driving range in its compact car concept, “ID.” Daimler showcased an electric SUV Coupé called “Generation EQ,” at the Paris Motor Show that is based on a dedicated EV architecture. Other manufacturers are planning similar concepts, including purely electric as well as hybrid, and fuel-cell electric vehicles with electric ranges exceeding 350 km. Aside from the regulatory and legislative motivation, the financial implications for OEMs over the next 10 years are still not clear. The question of whether xEVs will be able to attain a significant market share largely depends on future price competitiveness compared with their conventionally powered counterparts.
Methodology and Assumptions
Several alternative powertrain vehicle concepts and a conventional compact vehicle were compared in a cost analysis study. The selected models included typical plug-in hybrids (PHEV), pure battery-electric vehicles (BEV) and fuel-cell electric vehicles (FCEV) in the compact car segment. In order to capture market and technology uncertainties, 3 scenarios were developed that reflect technology development costs and fluctuations in raw material prices. For all 3 scenarios, a set of boundary conditions were determined to allow a fair cost comparison between the different concepts.
Selected boundary conditions for the 2016 cost baseline:
- Vehicle segment: Compact car
- Baseline vehicle for cost comparison is a conventional ICE with start-stop and 12V
- Low production volume for Fuel Cell Vehicles
- Battery specifications based on current market concepts
Selected boundary conditions for the 2025 cost forecast:
- Vehicle segment: Compact car
- Conventional baseline vehicle is MHEV (48V) with an additional 12 kW of electric power
- Production volume for FCEV has been increased to 50 thousand units
- Higher specific energy [Wh/kg]
Selected Study Results
In 2016, the manufacturing costs of plug-in hybrids and battery electric vehicles (PHEVs & BEVs) were about one-third higher than a conventional ICE-powered vehicle with a Start/Stop automatic transmission. Fuel cell electric vehicles (VCEV) manufacturing costs are nearly 5 times as high as those for a conventional vehicle. The reasons for this are lower sales volumes and high development cost in 2016.
By 2025, it is expected that the electric range of xEV vehicles will nearly double, with marginal cost savings of approximately 5% (Allrounder EV). Compared to mild hybrid comparison vehicles with 48V technology, the costs are about 20% higher. The cost of fuel cell electric vehicles, with an electrical range of approximately 800 km, is expected to fall to one-fifth of today’s price, leaving a remaining cost gap of 60% compared to the 2025 baseline vehicle (48V mild hybrid). Battery costs are expected to decrease by 50% for traditional OEMs due to economies of scale associated with increased production volumes and improvements in cell technologies. The electric capacity of a typical BEV is expected see a significant increase from 36 to 70 kWh (500-600 km).
In addition to the comparison of the total cost and the delta analysis of the selected xEV vehicle configurations, detailed powertrain cost splits are provided in the study for key components like the electric motor, controller, battery, transmission, etc. Each key component has been further broken down into the main cost drivers, including material costs as well as overhead costs which were determined using the FEV “should cost” methodology. Uncertainties in future production volumes are considered in the “conservative,” “most likely” and “progressive” scenarios.
Impact on the Automotive Industry
Fully electric drivetrains are far less complex than their conventional counterparts with internal combustion engines, since many components of a conventional drivetrain are no longer necessary. The sales potential of injectors, fuel pumps, filter systems and turbochargers is adversely affected by increasing EV sales. Conversely, the strategic importance of new components, such as the electric motor, battery and power electronics increases. For the future, manufacturers need to decide what share of the added value they want to provide from within (vs outsourcing). This decision is strongly influenced by endogenous factors such as cost competitiveness, exogenous factors such as raw material prices, vehicle range and future development of charging infrastructures.
Suppliers – especially those with a product portfolio focusing on conventional powertrains – will have to undergo a fundamental transformation over the next 15 years, which can be subdivided into 3 steps:
>> BY 2025 BEVS WITH A 300 KM RANGE (NEDC) CAN BE REALIZED AT THE SAME COST LEVEL AS THEIR MILD HYBRIDIZED COUNTERPARTS
1 Today: Strategic Analysis and Preparation of Realignment
Although the industry is in a state of upheaval, there is still partial restraint. On the one hand, the change to the development of alternative propulsion systems is already visible in the organizations of major manufacturers and large or specialized suppliers. On the other hand, traditional suppliers that are active in the internal combustion engine market are still in the preparatory phase.
2 2020: Implementation of the Realignment and Transition
As soon as market shares of xEVs have increased, product and service portfolios must be realigned and value chains have to be reorganized. The orchestration of an orderly ramp-down of the traditional business requires a solid strategic plan and dedicated implementation. It is very likely that the early inefficient suppliers will fall victim to the industry transition and exit the market. As a further consequence, the future R&D focus of the OEM’s will shift even more clearly toward electrification and other value-added product offerings, such as automation and (digital) mobility services.
3 2025+: Completion of Transition Phase
Depending on the respective scenario, market shares for conventional powertrains (ICE-only) will shrink significantly. In one radical scenario, ICE vehicle sales are likely to drop to 75% of the 2016 level. On one hand, as a result of shrinking market volumes, further (and even stronger) consolidation of the remaining suppliers in the field of conventional powertrains is expected. On the other hand, market participants will be well-positioned with an early strategic focus on the realignment and transition toward the new boundary conditions for the future xEV market and technology competition.
Professor Stefan Pischinger, chairman of the board and managing partner of FEV Group Holding, sat down with us for an interview to explain why FEV Consulting was founded, what distinguishes it and where he sees it in five years.
Prof. Stefan Pischinger, we would like to start by congratulating you on the fifth anniversary of FEV Consulting GmbH and thanking for agree to do this interview with us. What were the key reasons for founding FEV Consulting in 2011?
Prof. Pischinger: As a matter of fact, since its foundation in 1978, FEV has received regular requests for consulting services with regard to powertrain topics, especially in combustion engines, from clients in the automotive and engine industry. There were many successful projects here as well. However, the focus of FEV service provision was naturally on the applied research and engineering area, even in the early days; over the years, it has achieved considerable depth and breadth in this subject area, along with high market penetration. In doing so, market and strategy topics slipped into the background, which obviously doesn‘t mean that they are any less important to our clients. For many client requests, it even reaches the point where the combination of different services, meaning market assessments, strategy development, and engineering, makes the desired comprehensive statements possible and enables guiding decisions.
Were there other reasons?
Prof. Pischinger: Yes, of course. The aforementioned combination of classic consulting services and in-depth engineering know-how enables us to offer our clients both comprehensive and customized solutions. Furthermore, consulting services enable us to reach a considerably larger client base to which we can make our experience and expertise available; this often happens with our existing clients, as well as outside of the automotive and motor industries. Additionally, an agile, well-connected group of consultants with its own complementary service topics makes a positive contribution to padding the broad engineering portfolio of the FEV Group, enables access to other relevant contact persons at our client‘s offices, and perfectly rounds out the service portfolio. I would also like to take this opportunity to point out that, thanks to its independence and excellence, FEV Consulting is regularly in a position to also have a refreshingly positive and decisive impact within the FEV Group with our fresh impulses and innovative solutions.
Do you use FEV Consulting a lot within the Group?
Prof. Pischinger: On the contrary. FEV Consulting generates 95% of its turnover from external clients and, after five years, has its own large industrial client base. Of course, and this is absolutely intended, there are many client projects in which FEV Consulting and the engineering companies work shoulder-to-shoulder for our clients. I consider this economic independence combined with the extensive professional topical diversity to be very important, since it significantly contributes to the acceptance of FEV Consulting within the Group and makes it an attractive partner for strategy topics within the FEV Group.
Where should FEV Consulting be in another five years?
Prof. Pischinger: FEV Consulting has already achieved so much in its short life – it has been continuously growing since its foundation, discovering new subject areas for FEV, winning new clients, and economically successful. I would like to see FEV Consulting continue to firmly follow this path with the same enthusiasm, thus making an important contribution to the global growth of the FEV Group. In this context, I can easily imagine FEV Consulting increasing its worldwide presence through additional locations and strengthening its positive momentum.
Prof. Pischinger, thank you for this interview.
Our combination of expertise in the field of management consulting and engineering enables FEV Consulting to offer a broad range of services. The projects we work on cover a variety of industries, from pre-development to after-sales and from general project management to detailed subprojects.
In order to approach an innovation process within a company in a structured manner from the start, FEV Technology Roadmapping creates a roadmap that answers three important questions: what are the market and technology drivers? What are the technological solutions? When do they reach critical market penetration? This approach enables us to avoid the „fuzzy front-end“ – meaning those often difficult-to-define initial phases with which every innovation process starts. The roadmapping process can be flexibly adjusted to meet the client‘s requirements. However, it still includes the central aspects, from trend and driver analysis to sensible technology scenarios for future motors, transmissions, and powertrains for all transport-relevant applications. FEV Consulting shows the client which product and corporate strategies are relevant for it and helps to implement them.
Powertrain Concept Studies
The powertrain and its conceptual layout remain the central lever in achieving future CO2 and exhaust emission goals. FEV Consulting examines various possible solution concepts and supports its clients with decisive concept proposals and CO2/costs trade-off analyses. In the process, FEV Consulting not only takes into account how to optimize traditional combustion engines, it also looks at the use of hybrid solutions.
Supply Chain High Performance Management
FEV Consulting helps companies to perfectly manage their own value creation chain with a multi-step process. In doing so, it assists clients in analyzing the background situation, identifying realistic target figures, and implementing an overall strategy. FEV works together with its clients to establish how to ideally balance cost-effectiveness and flexibility and identifies the levers with which to adjust these factors.
The success or failure of technological innovations largely depends on the development processes behind them and how they are organizationally integrated and implemented. This is where the work of FEV Consulting begins; the consultants support their clients with experience gathered internally in the area of product development and on the basis of their direct and unique access to the capacities of the FEV Group. In so doing, they take into account specific client requirements as well as the three core elements of successful product development: quality, cost, and time.
Intelligent Transportation & Connected Vehicles
FEV Consulting helps OEMs, suppliers, digital companies, energy suppliers, and insurance to develop innovative business models and new technologies. This process enables them to adequately meet their needs for intelligent, efficient, and multimodal mobility chains. These are becoming more and more important in an increasingly urbanized, connected, and environmentally conscious world in which the „sharing economy“ is booming. Together with its clients, FEV Consulting develops successful growth strategies in new and existing markets.
Passenger vehicle manufacturers in particular are attempting to master increasingly complex powertrains by introducing modular product toolkits. Thanks to its comprehensive industry know-how, FEV Consulting is able to explain current modularization trends and the approaches of global OEMs in individual studies and then explain the advantages and challenges. The consultants identify client-specific framework conditions, as well as complexity drivers and requirements, in order to be able to establish a customized modularization strategy on the basis of cross-industry best practices.
Smart Cost Reduction
In order to significantly save costs on technical products, FEV experts from different areas proceed in an interdisciplinary manner. They make detailed analyses of existing cost drivers, benchmark products from competitors, and generate a calculation of target costs from the bottom up. In addition, they generate innovative solutions for cost reduction through Value Engineering and implement them by way of international sourcing — or commercially, through supplier management — at the required quality level. FEV extensively trains client employees and installs proven methods and tools. This ensures the achieved savings in the long term.
In order to be able to survive in global competition, companies must develop structures and processes that are both lean and flexible enough to work in a cost-effective manner. Furthermore, companies increasingly operate within digital systems, the requirements of which regarding interfaces and data have a significant impact on business and production processes. Together with its clients, FEV Consulting establishes strategic and tactical levers to meet the individual challenges faced by internationally active companies in production, logistics, and procurement.
Mergers & Acquisitions
For clients that are planning corporate mergers or acquisitions, FEV Consulting offers a unique combination of business administration and technical expertise. FEV Consulting helps its clients to identify potential target companies, the acquisition of which serves a specific corporate or investment strategy. As part of the due diligence phase, the consultants analyze the business model in detail, as well as business administration performance and the viability of the organization. Finally, FEV Consulting assists in integrating the organization.
In order to increase performance and/or reduce CO2 emissions, FEV Consulting analyzes as part of vehicle projects individual technologies and technology strategies, especially electrification strategies, driver assistance systems, and vehicle measures. For targeted light construction, FEV Consulting provides support with the Smart Weight Reduction Process. Additionally, support is provided for clients in the development of an overall vehicle strategy through the planning and definition of product characteristics by FEV Consulting.