The challenges in the Electric Vehicle transformation | NTT DATA

Thu, 06 October 2022

The challenges in the Electric Vehicle transformation

The future of automotive is electric. The challenges for the transformation towards the Electric Vehicle

The Automotive sector is experiencing the greatest transformation in history due to the ACES trends (Autonomous, Connected, Electric and Share Mobility). Electric vehicles (EVs) are constituting an increase in their market share around the world, and as such, are increasingly important for business models of car manufacturers.

Consumer behavior is changing as more people accept alternative and sustainable modes of mobility.

The main reasons why consumers do not decide to buy an Electric Vehicle are price and insufficient charging infrastructure. From the point of view of price, governments are taking measures with a series of incentives for electric and sustainable mobility. Regarding the charging infrastructure, there are many challenges ahead and vary between countries.

Infrastructure of the charging stations network in Europe

As a report by the European Automobile Manufacturers Association of (ACEA) shows, it denounces the serious risk of developing the network of double-speed charging stations, since 70% of the total number of charging stations (225,000 at the end of 2020) are in only three countries – the Netherlands, France and Germany – which barely occupy 23% of the continent's surface. The other 30% of the charging stations are distributed in 77% of the region.

This is the case of Romania, which is six times larger than the Netherlands and has only 0.2% of chargers installed (493). On the other hand, Netherlands is the most developed in this field, with 66,665 charging points, 29.7% of the total for a minuscule 0.8% of the surface. In France there are 45,751 points, 20.4% of the total, and in Germany, 44,538 points, 19.9% of the total.

In addition, the gap between Germany, the third country (which accounts for 19.9% of all charging stations in the EU) and the fourth, Italy (5.8%), is already huge, and the proportion of chargers is falling rapidly. Spain, with 12.5% of the surface, only has 3 out of every 100 of the charging points in Europe.

The Spanish Dealers Association (Faconauto) and the Spanish Association of Automobile and Truck Manufacturers (ANFAC) within their study "Map of Deployment Of Public Access Recharging Points For Electrified Vehicles", estimate that to reach a park of three million cars required by 2030 the Integrated National Energy and Climate Plan, it is essential to have at least 340,000 public access charging points installed by 2030. Currently, Spain has 14,244 public access charging points.

The EV market situation in Spain

The EV market in Spain shows a positive evolution. Several factors that delay the desired deployment remain latent, such as the lack of a solid infrastructure as we have discussed above. EVs and PHEVs are growing in Spain despite the market crash due to Covid-19.

According to ANFAC data, in the nine months of 2022 the market has increased of 7.4%, but registrations of electrified vehicles (BEV and PHEV) in the month of September have a growth of 12.7%, reaching 8,020 units. In the case of the cumulated of the year, 59,820 have been registered, growing 26%. If we break them down into BEV and PHEV the data are as follows:

- BEV: Registrations increased by 21.1% in September, reaching 3,829 units in the month, representing 4.82% of the market share. If we look at the cumulated to September, the registrations of the BEV reach 25,105 units, 42.5% more than in the cumulated to September 2021. The share of the year is 3.55%.

- PHEV: registrations increased by 6% during the month of September, reaching 4,191 units. PHEVs accounted for 5.28% of the market share in September. In the cumulated of the year, it reaches 34,179 units registered, being 16.3% more than in the same period of the previous year. The share of the cumulated of the year is 4.91%.

This growth trend will continue during the rest of 2022 and in the preceding ones, also thanks to brands that are including more electrified models to their product portfolio and the recent announcement from Europe not to allow the sale of internal combustion vehicles from 2035.

Both incumbent brands and new electric vehicle brands are looking for a business model that is profitable and a sustainable competitive advantage over time. The profitability of electric vehicles remains a challenge. The acceleration of the change in the electric vehicle market and the increasing interest on the part of consumers in the purchase of these, presents a unique opportunity for OEMs to redefine their business models and raise the profitability, significantly, above the market average.

Many of the manufacturers are doing their best to boost electric vehicles to reduce their CO2 emissions and avoid significant penalties. Despite the strong momentum behind design and production, many automakers are still defining their path to achieving profitability for the electric vehicle business.

Currently, manufacturers are radically changing their powertrain systems, expanding their electric vehicle production capabilities to avoid the high penalties related to CO2 emissions. With this new approach, OEMs are now challenged to make the EV business profitable and sustainable, as well as dealing with low margins on electric vehicles right now: high costs and pressure on prices.

Manufacturers are facing increasing competition in the EV space. The barriers to entry are lower than in the case of vehicles with internal combustion engines, which allows new entrants, especially technology companies, to test new disruptive business models to enter the market.

Cost - Income Optimization for the EV sales

A strategy of cost savings and another of increasing revenue can be carried out to increase the profitability of the business model.

With regard to cost savings, the following measures can be carried out:

- Cost reduction in R&D (sharing costs with other manufacturers, outsourcing development to third parties and using virtual products to reduce research time

- Savings in materials (reduce requirements and components, optimize battery cost and direct supply of raw materials).

- Savings in manufacturing (optimize the design taking advantage of the lack of user experience and the low maturity of the product, reuse the production equipment of the previous models and increase outsourcing).

- Savings in marketing and distribution (focus on the consumer, not on the distributor by changing the sales model, resorting to direct sales, agency model and enhancing online sales).

With regard to the increase in income, the following actions can be carried out:

- Efficiency of the electric car (sharing electric vehicle platforms with another OEM and reducing un-demanded features such as top speed).

- Review the marketing approach (Full use of online sales, remote access to the vehicle for after-sales and maintenance, reduce versions and combinations.

- Monetize the life cycle (A subscription-based model can generate more sales, increase LTV, offer battery as a service, and optimize charging to use the car as an energy storage location).

Overall, the transformation that the sector is undergoing and the movement towards electric vehicles challenge many of the fundamentals of the industry that manufacturers have developed for a long time. Now is the time to lay the foundation for a profitable and successful electric vehicle business model in the future.

Those companies that can lead and manage a better transition and are willing to undertake strategic actions, will be able to outperform their competitors and excel in their respective segments. Electric vehicles not only have the potential to be profitable, but they are also an enabler for business models (backed by software) with value-added potential beyond what has normally been possible in the "classic" automotive industry.