By just the middle of this decade, automakers like General Motors, Ford, Volkswagen and Nissan expect to invest over $100 billion to electrify their vehicle lines. Considering these generated barely 5% of the global market in 2019 – and little more than 1% if you focus on all-electric models – Xavier Mosquet would have called that a risky bet not that many years ago.
The managing director of the Boston Consulting Group and a lead in in its well-respected automotive team, Mosquest was, like many, a skeptic. He questioned both the capabilities of electric vehicles and their potential market appeal. But his doubts are melting away, the latest in a series of BCG EV studies reveals. One key finding shows battery prices plunging faster than expected, meaning pure battery-electric vehicles could reach a “tipping point,” achieving parity with gas-powered vehicles by as early as 2023. That’s one reason he forecasts all forms of EVs will hold 51% of the U.S. market by decade’s end. Mosquet sat down with Ride to discuss why he is quickly becoming a convert to electrification.
Xavier Mosquet is BCG’s automotive lead. He also served as an advisor to the Obama Administration during the Chrysler bankruptcy. (Photo: Boston Consulting Group.)
Q: The first time I saw one of your EV studies you – and BCG – were extremely skeptical about the technology. How and why has that changed?
A: Our earlier work around electrification, between 2009 and 2011, the cost of EVs was so high we didn’t know how they could gain traction in the marketplace. And, for quite a while, we’ve been right about that. Then, in 2018, we came back and said the price of batteries has been falling faster than we expected, though that was still not enough for consumers. Now, (BCG’s latest study forecasts), around 2025, we’ll be at a stage where there will be a real, sustainable market.
Q: There are plenty of challenges ahead for EVs, but battery prices remain among the most critical, don’t they? Where are they heading?
A: At the pack level, they’re now around $190 per kilowatt hour. (Ed: equal to around $19,000 for a long-range Tesla Model S with 100 kWh of lithium-ion batteries.) By 2030, we expect that will be $126, with an aggressive case of $95. And we think that our forecasts could come even earlier. In term of battery cells, rather than packs, divide that by 1.4.
Q: Okay, so we could see battery pack price drop by more than half. What does that mean for the consumer?
A: We thought we would reach a point where owning a battery car was a good economic payback for customers around 2025. But the decline has been much more aggressive than we thought and today, we think the tipping point is somewhere between 2022 and 2023. In industry terms, that is like tomorrow morning.
Mosquet has been an EV skeptic but has become much more upbeat about their prospects lately. (Photo: Boston Consulting Group)
Li-ion for now
Q: Your forecasts are based on the industry sticking with the lithium-ion technology currently used for most electrified vehicles, from hybrids to BEVs. Toyota, for one, appears to be counting on a major breakthrough, solid-state batteries. Are most automakers rushing too fast?
A: We really spend a lot of time with battery manufacturers and, frankly, we don’t see solid state introduced until 2025 and then in smaller and simpler applications…
Q: Like cellphones and consumer appliances?
A: The automobile is not a place where you want to experiment, you know, with new technology. These new battery technologies may start to have an impact in 2030, but not before that.
Q: Isn’t one reason for slow BEV adoption the fact that there really haven’t been many options available, certainly not in the form of long-range models?
A: It’s not clear the consumer can find the sort of vehicle that they want. (But) I would also say that if you look at the supply of battery electric vehicles. I mean, most OEMs will have a real supply in 2021.
Falling battery prices will help BEVs reach a “tipping point” as early as 2023, Mosquet said. (Photo: Volvo)
Bigger may not be better
Q: And as we look to mid-decade and beyond?
A: That really seem to be getting into the range of 150, and really more like 200 (different models)
Q: Another critical challenge is driving up BEV range. Most new models seem to be targeting 250 and even 300 miles, and Cadillac’s president recently suggested luxury brands will be targeting 400. How does that compare with BCG’s research?
A: I think there will be segmentation, and luxury brands will probably want to offer more range than others. But adding more range isn’t always a good thing. It can cost you $10,000 more for range you won’t really use. And there’s the question of the CO2 produced making that (larger) battery pack. Beyond a certain point, a big battery becomes a detriment from an environmental perspective.
Buy the end of the decade, expect more than half of all vehicles on the road to be electrified, including hybrids and plug-ins like this Range Rover. (Photo: Land Rover)
The customers are coming
Q: You’ve increased the forecast for how many battery-based vehicles will be on the road by 2030 and now expect the majority, 51% will be anything from mild-hybrids to BEVs.
A: In our previous forecast it was 48%. But the number of plug-in vehicles has gone from 14% to 24%. What is significant is we have increased the number of (all)-electric vehicles. And more of them will be sold to retail customers because we have received (the forecast) for shared vehicles. Some of the ambitious forecasts for shared cars are based on the idea we would one shed car ownership. We don’t see that happening, now that we have more data on the shelf. Someday, it could become cheaper than owning a car (but, right now), owning a car is cheaper except in a few places like Manhattan.
Q: So, on the whole, what will drive us to the point where people really do want to own a BEV?
A: I think the main driver will be cost of ownership, knowing within three or four years you can pay back the extra costs of the car by just what you save on fuel.
The second driver is that people who own BEVs are extremely satisfied, especially as range is improving. And people who own EVs like their smoothness and their acceleration. It’s a good experience. The other thing is that the infrastructure for recharging is quickly developing.
By 2023, we think the market will be more customer driven than regulatory driven. The U.S. will be slower than China and Europe, but not that far behind.
(Note: this Q&A has been condensed and edited for clarity.)