GM's downsizing heralds start of electric car revolution

Here is how the global auto business is changing. Over 82 million passenger cars, including SUVs but excluding trucks, pickups and buses, will be sold around the world this year. China is the biggest market with sales of about 24.6 million cars projected for this year. The US is a distant second with 17 million, Western Europe 14.6 million and India 2.4 million. Global car sales are forecast to decline for the first time since 2009. This year, Americans will buy 200,000 fewer cars than they did in 2017, and the Chinese car market — the engine of growth — is screeching to a halt. Auto sales in China have dropped for five months since May and are likely to be down this year for the first time in over two decades. The only segment of the market that is growing is electric cars. That’s pure-battery electric cars, not hybrids such as the Toyota Prius. EV sales globally topped 1.3 million in the first nine months of the year with just over 50% of electric car sales being in China. A total of 1.9 million electric cars are likely to

Despite record-high GDP growth, unemployment at their lowest levels in 49 years and robust household balance sheets, Americans are falling out of love with cars. That is particularly true of the millennials. Americans are turning to Uber, Lyft, trains and buses. In cities, they are using bicycles, hence the recent boom in bike sharing.

Here is another thing you might not have heard about the world’s second-largest car market. Most Americans no longer drive sedans. In the driveway of suburban homes from California to Connecticut, you are more likely to find SUVs or pickups than subcompacts or sedans that you see in bumper- to-bumper traffic across Asia. Actually, Ford Motor, America’s No 2 automaker, no longer makes cars in its home country. It only makes SUVs, pickups and trucks. All Ford passenger cars sold in the US are made in Canada, Mexico or Asia.

Electric cars — the new growth driver

Electric cars were, until recently, dismissed as a niche market. Soon, they will be the main growth driver of global car manufacturing. Sam Korus, an analyst for ARK Invest in New York, believes that in the US, EVs should be able to compete with gas-powered cars at every price point by 2025. That will help fuel the global EV boom, with sales soaring more than 14-fold to 27 million, accounting for roughly a third of auto sales, by 2025.

Tesla is already by far the largest luxury carmaker in the US based on sales for the past 10 months. Indeed, its mass-market Model 3 is the second-bestselling passenger car in the US behind the Toyota Camry. Yet it is not just Tesla in the US and BYD Co in China that are powering the electric car revolution; almost every other carmaker is being forced to expedite its own switch to electric because of the success of the two companies.

Among mainstream carmakers, Germany’s Volkswagen, which was gutted by a diesel-engine emission scandal in 2015, has the most aggressive EV strategy as it tries to win back the trust of car owners. To avoid ever again becoming part of an emissions scandal, Volkswagen has audacious plans to produce 50 fully electric models by 2025. It has announced investments of up to US$40 billion ($55.1 billion) in electric car technology, including batteries, by 2022. The German auto giant expects to be selling two to three million electric cars a year within seven years, with EVs making up 20% to 25% of its total vehicle sales. That would make it the world’s second-biggest EV maker by capacity behind Tesla, which expects to increase its own capacity to over three million by 2025.

GM, whose EV plans have so far been anchored on the hybrid Chevy Volt and battery-powered Chevy Bolt, is now abandoning the Volt, in part because it believes the future is in building cheaper pure-electric and autonomous vehicles rather than in more expensive hybrids. It has unveiled plans to introduce 10 models by 2020 and 10 more by 2023. By 2025, its EV sales will account for nearly 10% of total shipments. Much to the chagrin of US President Donald Trump who denounced GM’s plant closures and layoffs, most of GM’s new electric car models will be made in China, where it has four joint-venture plants. Barra understands that to effectively compete with Tesla, GM needs to bring down the cost of battery cells to US$100 per kWh by 2021, from over US$200 now. Tesla has already cut its own cost of battery cells to under US$100 per kWh. It expects to drive this further down to under US$70 per kWh with innovation as well as economies of scale.

Japanese auto giant Toyota Motor has been among the most conservative in its strategy to switch to pure electric cars. Toyota, which was one of the pioneers of hybrids with its Prius model, is one of the few major automakers that seem committed to advancing their PHEV, or plug-in hybrid electric vehicle, strategy. It expects to announce 10 pure-battery electric and 10 plugin hybrid models by end-2020. Nearly 40% of its total vehicle shipments by 2030 are likely to be electric, including the hybrids.

Korea’s Hyundai Motor and its 34%-owned associate Kia Motors already have EVs such as the Kia Soul and Hyundai Ioniq on the market. Hyundai recently also began selling its Kona EV. In its home market Korea, Hyundai is also selling the Nexo FCEV or fuel cell electric vehicle model, which as the name suggests, is not a conventional-battery electric car but a vehicle that runs on hydrogen fuel cell technology, one of the alternative technologies being used by some manufacturers to quickly close the gap with Tesla. The duo hope to have at least eight EV models by 2022 and expect 10% of their total car shipments to be EVs by 2025. Ford fired Mark Field as its CEO last year because the board felt the carmaker was way behind the curve when it came to EVs and driverless cars, and needed to catch up with rivals quickly. It has promised up to 15 EV models by 2025. But even that was considered too little too late. A few weeks ago, it began discussing a broad-ranging EV alliance with Volkswagen that would involve not only cars, but also SUVs and pickups. Details of the new alliance still have not been hammered out.

One pioneer of the EV race is now languishing in a Tokyo prison. Carlos Ghosn, the head of the Nissan-Renault-Mitsubishi alliance, was the first mainstream auto executive to articulate an EV strategy more than five years ago. Nissan Leaf, a pure electric car, has been on the road for over a year, and a key plank of Ghosn’s strategy was to merge the three carmakers and refocus the combined company on new technologies, particularly EVs. Ghosn had talked about 12 Nissan and Renault EV models over the next few years, with EVs making up 30% of total shipments by 2022. With him no longer in the picture, the alliance looks shaky. Can Nissan Motor make its own EVs with Renault? How much of a setback will Ghosn’s departure and potential breakup of the alliance be for Nissan’s electric dreams? “Nissan owns the majority of key technologies in areas such as EVs and autonomous driving itself, and has sufficient scale,” says Masataka Kunugimoto, an analyst for Nomura Securities in Tokyo. With or without Ghosn and Renault, Nissan will move forwards with electric and driverless cars, he adds.

Luxury market

Of the major luxury carmakers that have been working on EV models, UK-based Jaguar Land Rover (owned by India’s Tata Motors) was the first out of the gate with its all-electric Jaguar I-PACE vehicle with 90kWh battery that hit the showrooms in Europe in early November. Its SUV sibling Land Rover is likely to roll out its electric cars late next year. But just as Tesla CEO Elon Musk’s attempt to ramp up production of the Model 3 to 5,000 cars a week was gruelling, Jaguar has given itself a more realistic target of 20,000 cars over the next 12 months. (Tesla is now producing close to 5,500 Model 3s a week and is on target to produce 350,000 of the model next year, in addition to over 100,000 Model S and X.)

The next hotly anticipated luxury EV model is the Audi e-tron, which was unveiled in September but will not be commercially available for at least another year. BMW, or Bayerische Motoren Werke, which has its US$140,000 i8 EV on the road, will introduce a more competitive offering, the iX3, in 2020. In September, Daimler, the owner of Mercedes-Benz, announced it would introduce EQC, its own luxury EV next year. “Daimler just confirmed that Tesla has a multi-year lead over it,” says Pierre Ferragu, hardware analyst for New Street Research. Tesla has a much better battery, better charger and longer range, he says.

As the move to electric and autonomous cars gathers pace, expect more automakers to realign resources, close plants and lay off people. Carmakers have just too much capacity that needs to be taken out. Those that have been dragging their feet on the switch to electric will need to team up with those that already have a strategy in place. In Asia, the big shift will be at autopart makers, particularly in Thailand and China. A hundred and ten years ago, Henry Ford changed the car industry when he rolled out the Model T. Gasoline- based cars driven by humans have had a great run, but they have outlived their utility. The era of electric cars is now dawning.

Assif Shameen is a technology writer based in North America

This story appears in The Edge Singapore (Issue 859, week of Dec 3) which is on sale now. Subscribe here