McKinsey: What a teardown of the latest electric vehicles reveals about the future of mass-market EVs

Will 2017 be remembered as the year when electric vehicles (EVs) made the move to become mass producible? A thought-provoking question for the industry, and reason for McKinsey, in partnership with A2Mac1, a provider of automotive benchmarking services, to deepen our work in the field. Last year, roughly 1.3 million EVs were sold globally. While this makes up only about 1 percent of total passenger-vehicle sales, it is a 57 percent increase over 2016 sales, and there is little reason to believe this trend will slow down. Established OEMs have announced launches of more than 100 new battery electric vehicle (BEV) models by 2024, further accelerating automotive and mobility trends, potentially growing EVs’ share of total passenger-vehicle sales to 30 to 35 percent in major markets like China, Europe, and the U.S. (20 to 25 percent globally)by 2030. Moving away from previous “niche roles” such as high-performance sports or midrange city cars, there will also be a sizable share of midsize and volume-segment vehicles among the many new BEV models. A prominent, recently launched example is Tesla’s new Model 3, with more than 450,000 preorders.

What will help EVs gain market share is that OEMs have reached ranges with their EVs that allow them to focus on reducing price points, for example, by increasing design efficiency or reducing manufacturing cost in order to become affordable to more customer segments. As shown in Exhibit 1, we find that once the average range of our set of benchmarked EVs has surpassed 300 kilometers (or 185 miles), OEMs seem to be able to concentrate on entering lower-price segments while keeping range up. This indicates that the long-awaited EV volume segment—“midsize EVs for the masses”—may be on the verge of becoming reality.

The definition of “good” range varies across the globe, depending on geography and city archetype. But average battery range seems to have exceeded the expectations of the largest customer segments. This, combined with a decrease in prices for electric vehicles, means the market for EVs may be close to a commercial tipping point.

Whether an EV volume segment is (or will be) profitable for OEMs remains a burning question for many in the industry. We estimate that many EV models in their base version, and potentially even including options, still may have low contribution margins, especially compared with current internal-combustion-engine (ICE) levels.

With profitability in mind, and given the fast pace of technological advancements and new design trends in EVs, McKinsey and A2Mac1 undertook a second benchmarking analysis on trends in electric-vehicle design (see sidebar, “McKinsey and A2Mac1 on trends in electric-vehicle design”). . . .

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