Automotive industry: More profit through rapid transformation to electromobility
Increased pace of market and company conversion to electromobility is good for carmakers' business / Sticking with the combustion engine entails high financial risk / Study by Agora Verkehrswende and BCG
Berlin, 29 November 2022. A rapid ramp-up of electromobility is an important key to protecting the climate and is also beneficial for the business development of car manufacturers. If the market share of electric vehicles grows faster than previously planned, by 2040 European premium manufacturers can increase their cumulative profit by up to 30 percent and European volume manufacturers by up to 10 percent, says a study presented jointly by the think tank Agora Verkehrswende and the strategy consultancy Boston Consulting Group (BCG). The main beneficiaries will be the pioneers in the competition, because they invest a lot in the development of electric vehicles at an early stage. Sticking to the combustion engine would lead to profit losses.
"The analysis shows that the best way for German car manufacturers - from Audi, BMW and Mercedes-Benz to VW - to achieve a top position in global competition is to quickly secure their market share with electric vehicles," Christian Hochfeld, director of Agora Verkehrswende, says. "The German government's goal of making the country the lead market for electric mobility is therefore a prerequisite for the future economic success of the industry. At the federal level, the government must significantly step up its game in the climate protection programme for 2022 in order to put the targeted 15 million electric vehicles on the road by 2030. What is needed, for example, is a vehicle and company car tax that is consistently geared to CO2 emissions as a replacement for the purchase subsidies, whose future is uncertain. Equally indispensable are a good charging infrastructure and favourable conditions for battery manufacturers to locate their plants. In international cooperation and multilateral initiatives, the German government should support other countries more strongly in electromobility."
Laggards risk profit losses of up to 25 percent
Investments in the further development of combustion engines do not pay off even if there are delays in the ramp-up of electromobility, for example due to bottlenecks in the supply chains or in the development of charging infrastructure. Only volume manufacturers from Europe and the USA would then be able to maintain their profits. Laggards in the electrification competition - whether from Europe, the USA or Asia, whether in the premium or volume segment - risk profit losses of up to 25 percent by 2040 if the development of electromobility accelerates.
"The attractiveness of the combustion engine for manufacturers will decrease significantly in the next few years," says Kristian Kuhlmann, managing director and partner at BCG. "From around 2030 onwards, manufacturers will be able to make more profit with electric vehicles than with comparable petrol and diesel cars. The future profitability of manufacturers depends heavily on their share of electric vehicle sales and on the strategy they pursue. European premium and volume manufacturers are at an advantage with their current e-share of 8 to 9 percent. US and Asian volume manufacturers have lower e-shares and have not yet been clearly oriented towards electrification. If they want to keep up with the world market, they will have to catch up and invest significantly. Once they achieve that, they could increase their profits by up to 25 percent by 2040 as the market accelerates."
Study:The combustion engine business model in the age of electromobility
For the study, a comprehensive market model was used to examine the global market shares and profits manufacturers could secure with different electrification strategies. The study analysed three scenarios for the ramp-up of electromobility: a basic scenario according to the manufacturers' forecasts and one scenario each for a slower and an accelerated development. Six different types of manufacturers served as case studies: European premium manufacturers, volume manufacturers from Europe, the USA and Asia (with or without a focus on electromobility) and traditional Chinese manufacturers. In the study, data on profit increases and losses refer to the discounted cumulative profit until 2040, compared to a scenario in which the ramp-up of electromobility develops as currently forecast and the manufacturer is neither a pioneer nor a laggard in electromobility.
From a climate protection perspective, however, even the scenario with accelerated electrification would not be sufficient, Christian Hochfeld emphasises. In order to comply with the requirements of the Paris Climate Agreement according to the criteria of the International Energy Agency, politicians and manufacturers would have to switch to electromobility even faster. "The Paris climate targets make it all the more clear how important it is now for politicians to create planning and investment security for the rapid development of electromobility. The longer car manufacturers wait out of uncertainty about the political course and delay strategic decisions on their electrification, the more risks they take. That would be bad for the climate and for the economy."
The English version of the study (The combustion engine business model in times the age of electromobility) is available for free download at https://www.agora-verkehrswende.de/en/publications/the-combustion-engine-business-model-in-the-age-of-electromobility/ and at www.bcg.de. BCG worked on the study on behalf of Agora Verkehrswende.
About Agora Verkehrswende
Agora Verkehrswende is a joint initiative of the Mercator Foundation and the European Climate Foundation. The aim of the think tank is to develop evidence-based and politically viable strategies for the full decarbonisation of the transport sector.
More information: www.agora-verkehrswende.de/en
About BCG
Boston Consulting Group (BCG) delivers solutions through leading-edge management consulting along with technology and design, digital and analytics, corporate and digital ventures and business purpose. BCG works in a uniquely collaborative model across the firm and throughout all levels of the client organisation, generating results that allow its clients to thrive. The company has offices in more than 90 cities in over 50 countries and generated revenue of $8.6 billion in 2020 with its 22,000 employees worldwide.
More information: www.bcg.com
