I gave a dinner speech some months back where in front of me was sitting the former Chairman of one of Europe’s leading automobile manufacturers. My talk was on the future of energy and one of the points I was making was that the electrification of automobiles would happen faster than what most people thought. I also gave the opinion that I feared for the future of the European automobile industry as they lacked the necessary knowhow and technology (particularly on the battery side) needed for the electrification of the automobile. His reaction was to say “we had heard all this ten years ago and still the total share of electro mobility on our streets is still almost zero“. My reply was simple: a decade ago a lithium-ion battery cost $5,000 a kWh meaning that a standard 30kWh motor for a small car like a BMW i3 would have costed $150,000. Today that same battery is costing $6,000 and with further cost reductions coming cost parity with the internal combustion engine (ICE) is in sight. Add to that, the fact that we are now seeing attractive electric vehicles come on the roads like the Opel Ampera (or Bolt as it is known in the US) not to mention the fun factor of driving an electric car with massive torque and thus breathtaking acceleration. This begs the question why traditional automobile manufacturers and their leaders have been so resistant to the electric vehicle noting that until recently, most electric cars were not only poor cars but also ugly cars? This changed with the Tesla S but it does beg the question why the traditional manufacturers have blocked electric cars?
Part of it comes down to mentality and culture. Senior executives in automobile companies tend to be male mechanical engineers who are also used, in their spare time, to tinkering around with old cars and tractors. It’s what they do; it’s what they love and their careers have been about perfecting the highly complex internal combustion engine. And now you are telling them to get rid of that engine and replace it with a simple electric drive and a battery to power it. Now wonder they are resistant! VW is a good example. It’s headquarters is in Wolfburg, the Wolf’s Fortress, and what is a fortress designed to do, to keep people and differing ideas out! Changing such a culture is very difficult. It requires real leadership and change management skills.
We are seeing glimpses of this leadership at BMW, Daimler and Renault but let’s be clear their move away from internal combustion engine is not easy, and in particular the move away from diesel is difficult. The VW “dieselgate” scandal has put diesel emissions not just on the front page of every newspaper but is also forcing governments, regulators and local authorities to act against diesel. One of the impacts will be that automobile manufacturers will be subject to “real world” emission testing which in turn is increasing the risks that automobile manufactures miss their 2020 European CO2 targets of 95g/km and leaves them open to billions of euro of fines.
To make matters worse the success of Tesla S, which is now the best-selling luxury car in the US, means that the competitive positionings of Audi, BMW and Mercedes in this market are now under threat. Then you have the increasing competition from Chinese automobile manufacturers such as BYD and BAID who are pushing electrical cars not only in their domestic market but increasingly abroad. It should thus not be a surprise to see Daimler’s recently announcing that they were bringing forward their EV rollout by two years. They have no choice.
In fact, a look at the top selling EVs in the world tells an interesting story. The best-selling car last year was the Tesla S followed by the Nissan Leaf. But the biggest manufacturer in the world was the Chinese manufacturer BYD and in fact the Chinese manufacturers had four cars in the top ten. European manufactures had only two in the form of BMW i3 and the Renault Zoe. And there were no cars from Fiat, Ford, Toyota, Peugeot or VW in the top 10.
Now of course you could argue that it will be easy for the incumbent manufacturers to catch up but I am not sure. The core technology of the electric vehicle is the power source, the battery, and the IP, scale and knowhow rests in South Korea and Japan in the hands of Panasonic, AESC, Samsung and LG Chem and increasingly in China with BYD, ATL and CATL.
Thankfully, we will have autonomous cars in the future so if I fall asleep at the wheel I will make it safely home. But the problem for many of the incumbent automobiles is that they have been asleep at the wheel for too long without the ability to drive autonomously!