Blog: EVs in China - emerging as 'luxury goods'?
Dave Leggett | 14 December 2011
We all know that EVs come with pricing issues due to the high costs of battery technology, especially to start with. The great hope throughout the industry is that supply and demand will conspire to bring prices down in the long-run. Battery technology gets steadily better (eg range for a given battery mass goes up) and cheaper, prices drift down, demand goes up and unit prices fall still further as scale economies continue to grow.
How quickly this all happens can be impacted by other variables - what happens to the price of oil, developments in ICE/hybrids technology and the position of government subsidies and other incentives to encourage take-up in the early days.
China is seen as a vast automotive market that could be potentially pivotal to the sector. The thinking also is that the Chinese government actively wants China to get a lead in EV tech in order to promote China's international industrial competitiveness and reduce oil imports. And there are some potentially huge scale economies, plus China has large densely populated urban areas (good critical mass for charging infrastructure/vehicle networking).
Just how quickly are we moving in the direction of the EV finding a mass-market niche? As the article at the below link points out with respect to China, there's a danger that initially very high vehicle purchase prices establish EVs as, by default almost, luxury goods. If that's actually an intentional marketing strategy to begin with from some OEMs, it's one to think about because high prices can only hold back the sector's move to much larger industry volumes and lower unit prices - which ought to benefit all participants, OEMs and suppliers, eventually.
Chicken and egg perhaps. Sell cars at a loss? That is inevitably the case at this stage in the cycle, but how big a loss and for how long before we see 'market traction', the possibility of profits? You can well imagine that people at Renault-Nissan will want a return on all that EV investment on a reasonable timescale. But what is that timescale? And who can blame GM for wanting Volt/Ampera to do a bit of a halo thing after all that money has been invested?
Toyota sunk an awful lot of money in developing gasoline-electric hybrid technology. You can be looking at decade long timescales to amortise these kinds of huge investments in R&D and NPD. That's fine if you believe it is helping your brand, that it is actually unavoidable if you want to be standing in ten years' time, that there are spin-off benefits that can be exploited more quickly, that you make money in other areas so that annual profit/loss isn't blown totally off course...
Or as an OEM, you can opt to stay out of the fray, avoid that large R&D spend, watch others make costly mistakes, try to jump in when the industry has passed critical mass and costs have become much lower, key technology leaders and tech suppliers identified (don't be surprised though if the guys who did the heavy lifting in the early days are defensive/protective). You can decide to buy-in and pay the royalties. Or you can collaborate with others to share technology development costs, which we are also seeing more of. What strategy minimises risk, maximises potential return?
But how quickly the industry and market moves will largely determine which strategies prove best. The stakes are high for some and the struggle to make money in EVs could be a long one, perhaps longer than some people have bargained for.
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