McKinsey & Company study reveals challenges within the EV segment
Electrification represents the biggest technological development in automotive power trains in decades, yet there is still significant uncertainty as to when actual, large-scale adoption of electric vehicles (EVs) will occur, reports McKinsey & Company. The company states there is currently a lack of the systematic, fact-based investigation of e-mobility-industry dynamics necessary to understand what is still holding back the mass-market adoption of EVs and what is required to finally get it off the ground.
“The Road Ahead for E-Mobility" study by McKinsey & Company reports that 51% of customers in Germany seriously considered an electric car when buying their latest car, but only 3% opted for such a vehicle in 2019. Additionally, 36% of these customers decided not to use the electric variant due to perceived uncertainty about the reliability and service life of the battery, as well as the lack of charging options. Twenty-seven percent cite the higher acquisition costs as the reason not to purchase an electric vehicle. The range (16%) and lack of model selection (8%) play a secondary role in the decision. As a plus, those interested in e-cars and actual buyers mention driving characteristics, such as acceleration, as the main added value. Incentives such as purchase bonuses, tax benefits, and free parking (25%), as well as lower total operating costs (22%), speak in favor of this group for electric cars. Environmental protection is only decisive for 15% surveyed. For the analysis, more than 12,000 consumers in Germany, Norway, China, and the U.S. were surveyed and test purchases were carried out in almost 60 car dealerships with eight brands in three countries.
Worldwide, market research shows EV sales approaching 2.3 million vehicles, with market penetration of 2.4% in 2019. The annual growth in market penetration from 2016-2019 was 41%. The largest and fastest-growing market for EVs is the Asia-Pacific region.
Spurring that growth is the fact that OEMs’ EV-model pipelines are fuller than ever before, with approximately 400 new battery-EV models expected to hit the market through 2025, reports the company. Consumers’ consideration of EVs has significantly increased over the past few years, as consumers recognize the numerous benefits of EVs. But significant EV-specific concerns persist—for example, concerns regarding batteries, charging, and driving range—and prevent a large-scale consumer pull for EVs. In fact, according to the company, consumer demand in the “last big unknown” within e-mobility industry dynamics.
"2020 could be the year of electromobility,” said Andreas Tschiesner, Head of McKinsey's European Automotive Consultancy and Co-Author of the study. "The charging infrastructure is being massively expanded, the battery and thus the vehicle prices are falling and the manufacturers are making a model offensive to comply with the strict CO2 requirements in the European Union."
“Almost all customers come to the dealerships with greater prior knowledge than three years ago,” said Tschiesner. “However, the car manufacturers must take the two biggest concerns of buyers—namely the quality of the batteries and the question of the charging options—seriously and clarify them even better on site.”
This is the “fear of range,” which keeps many interested parties from buying an electric car. However, only one percent of trips require a full battery charge since 88% of e-car owners commute less than 40 km (25 mi) to work each day. E-car prospects in the salesrooms would have to be addressed differently. On average, these buyers are five years younger than buyers of combustion vehicles, they tend to live in large cities, they have a 30% higher income, and are much more digital savvy. For example, 8% of them bought their car online, six times as many in the group of other car owners.
"For automakers and dealers, there are five key points in the sales process to improve the customer experience," explained Patrick Schaufuss, Associate Partner at McKinsey in Munich and Co-Author of the study.
- Digital offer: 54% of car buyers start their research online. Today, many car manufacturers focus on very sophisticated online configurators. "The configuration options for e-cars will be less—instead, the concerns of buyers regarding the battery and charging options should be addressed early in the buying process,” said Schaufuss.
- Customer experience in a car dealership. E-car enthusiasts appreciate a modern atmosphere that takes the technological pioneering claim of electric cars into account. In the dealership, it is crucial to have competent sales consultants who can really answer customer questions—and not be measured by the largest possible number of cars sold.
- Test drive. "The first test drive in an electric car is a real eye-opening experience for many first-time drivers," said Schaufuss. Primarily because of the driving experience, 91% of electric car buyers would choose such a vehicle again. Car manufacturers should therefore ensure that customers can not only experience e-mobility quickly and easily during a test drive, but also, for example, in carsharing or as a passenger in a taxi.
- Charging: In Norway and the U.S., the speed of charging is the biggest annoyance from the perspective of e-car owners, in Germany it’s the cost transparency. The availability of public charging stations is also seen as problematic in these three countries. "Car manufacturers have to work quickly with infrastructure providers and politicians to find solutions," said Schaufuss.
- Service and maintenance. Car manufacturers often advertise that they put the customer first, but 70% of car buyers disagree with this statement. In order to persuade drivers to switch to e-cars, manufacturers have to provide safety, for example, by guaranteeing battery durability and by transparently structuring the costs for service and maintenance.
Support for EV adoption
Even though consumers have their concerns, there are three key dimensions of the EV industry that are developing in ways that clearly support greater EV adoption: regulation and incentives, battery technology, and charging infrastructure.
Governments worldwide are imposing increasingly stricter CO2 regulations. In the EU, for example, a new set of fleet-wide CO2 targets will be phased in starting in 2020. OEMs need to fully comply with an industry-wide emission target for CO2 of 95 g per km (57 mi per gal) by 2021 to avert significant financial penalties. These mandates are putting additional pressure on OEMs to push EVs into the market. On the consumer side, governments are incentivizing EV adoption. The German federal government, for example, has recently announced its plan to increase its EV purchase price subsidy for BEVs from EUR 4000 in 2019 to EUR 6000, starting in 2020 and in effect until 2025.
Non-monetary incentives include an increasing number of cities planning to partially exempt EVs from their congestion reduction policies (i.e., restrictions on vehicles entering the city center). In China alone, on top of the current Tier-1 cities, 10 to 20 additional cities are expected to be under a congestion reduction plan by 2025. Similarly, an increasing number of U.S. federal states (twelve states) have joined California’s zero-emission vehicles (ZEV) program, which requires OEMs to sell a steadily increasing share of EVs to be allowed to continue to sell ICE vehicles.
Several developments in technology are making EVs easier to own. First, decreasing battery prices and large shifts in the power train supply chain are enabling a further reduction in the EV vehicle price. Specifically, EVs in the A and B segment in Europe already have a lower total cost of ownership (TCO) over three years than ICE vehicles. Second, falling battery prices make BEVs the least expensive power train option in terms of TCO in certain segments and markets today.
Infrastructure rollout is accelerating as several players have started establishing dense charging networks across regions. In Europe, five large OEMs are building a fast-charger network of 400 stations by 2020 under a collaboration called Ionity. In the U.S., one OEM is investing $2 billion over a 10-year period ending in 2027 in both fast-charging stations along high-traffic corridors in 39 U.S. federal states and in public chargers in 17 metropolitan areas. In China, the State Grid Corporation is building 120,000 public charging stations by 2020 and is currently accelerating plans in central and eastern China.
It is still largely unclear how many consumers will actually switch to EVs. Government, technology, and infrastructure developments are clearly conducive to EV proliferation, but consumer concerns about EVs seem to be a sticking point when it comes to large-scale adoption.
For more information, visit www.mckinsey.de/uber-uns.