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Will Electrified Vehicles Ever Be Profitable?

Will Electrified Vehicles Ever Be Profitable?

I recently spoke at the Automotive World Automotive Megatrends conference in Dearborn, Michigan. There, I stood in front of some 200 people, most with their stakes dug deeply in the electrified vehicle industry, many with questions and apprehensions about its long-term profitability. I was there to address those questions.

The electrified vehicle industry has seen tremendous attention over the last few years, and the great expectations continue. In the next five years, various automakers will produce and release approximately 29 different models of new electrified vehicles. As many as 1.6 million of these vehicles could be on their way to dealers. Looking at 2011, though, those expectations fell short when Chevy and Nissan sold 15,000 fewer Volts and Leafs than expected.

The problem is that electrified vehicle technology is fairly new, requiring a great deal of engineering effort that comes at a high cost. That effort also requires different talent, which the new industry lacks. Again, since the industry is newer, there are unanswered usability and infrastructure questions from consumers, and the traditional working models for suppliers and carmakers are not sufficient anymore. And, the public wants these high-cost, hard-to-achieve vehicles at a low price.

Four-Step Solution

How do suppliers, consumers, and other industry stakeholders deal with this unprofitable situation? Here are four core steps for a solution: find the right product portfolio; create intelligent sourcing solutions that are developed around internal know-how versus external development; create partnerships and consolidate to keep costs low; and secure the right talent pool to develop electrified products.

The high variety of electric vehicle powertrain architectures drives product diversity in product portfolios. It also raises costs. Automakers and suppliers need to find platform approaches and commonality approaches between architectures to drive down costs. Intelligent commonality solutions focus on a layered approach.

Let’s take an electric-motor (e-motor) design for an example. The commonality would come from an identical core design resulting in a constant cross section for the rotor and stator, and the power variations would come from the varying length of the e-motor. There may be slight differences in packaging and mounting, but overall, the core is always the same, driving down costs.

Next, the current players in the electrified vehicle industry need to develop strategic sourcing solutions to prepare for a sustainable future. Over the mid-term to long-term horizon, several trends are important to understand. First, you can only outsource development successfully if you completely understand what you want. Equally important is the capability to validate that you received what you specified.

Since the technology around electrification is so new, many players on the OEM side are heavily relying on suppliers to help them understand their technology solutions. This trend will change soon to more and more electrified-vehicle component development work and manufacturing work being pulled in house. This way, OEMs can come to understand the entire system. This is already happening with several components like e-motors.

In the long term, this trend will change again and OEMs will turn to suppliers to take over electrified vehicle component development, now with the existing knowledge of how to develop and integrate these components. Ideally, OEMs should keep technology differentiators, such as system integration, controls software, and the operating strategy of their electrified propulsion offering in house. These things set them apart from other automakers. They can then outsource just commodities, which the customer doesn’t perceive during the normal use of the vehicle.

Why partner? Partnerships optimize product portfolios and allow OEMs to build up knowledge and share resources and other efficiencies. Who you should partner with is similar to choosing a mate for marriage—it’s best if you choose correctly the first time. Many suppliers offer what OEMs need, but that doesn’t mean they’re all a right fit for the job. The partnership structure is also imperative—will the partnership be long lasting, short-term, or a potential merge? Partnerships that are formed with all of this in mind work well for everyone.

Last but not least, the backbone of any company is talent. The talent pool for electrified vehicles is small, and more electrical engineers and software/control engineers are needed. Partnerships are initially necessary because this talent will be hard to come by. Over time, recruiting is needed to allow your workforce to grow organically.

The right portfolio, sourcing solutions, partnerships, and talent pool can be the answer to many of the challenges the electric vehicle industry is facing. These solutions were my answers to those 200 people’s questions and possibly some of yours. They do not provide every solution needed to be a profitable electric vehicle automaker, but most automakers will want to have electrified vehicles in their portfolio to be profitable. Although this is a challenge, it is not insurmountable, and I’m confident that together we can bring electrified vehicles to a parking lot near you.
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