Electric Car Industry Growth

Alphabet's Waymo robotaxi
The rush to roll out electric cars may seem curious, given lagging demand and margins for traditional passenger cars in North America. Ford plans to abandon passenger cars here for the most part and instead focus on high-margin trucks and SUVs. Meanwhile, GM and Tesla are estimated to be losing thousands of dollars per unit on their electric cars. And Tesla Model 3 production is struggling to ramp up to targets.
But automotive industry forecasts point to electric vehicles taking a 40%-50% share of the global auto market by 2040, up from around 3% today. GM plans to sell 1 million electric vehicles a year by 2026, including electric trucks and SUVs. Tesla aims to build 1 million cars in 2020 (though its targets are notoriously optimistic). Volkswagen sees up to 3 million a year by 2025. Toyota eyes electric vehicles and hybrid sales of 5.5 million by 2030. Even truck king Ford (F) is investing $11 billion in electrification, with Chairman Bill Ford saying "We're all in now."
But the auto industry still has work to do to turn a profit from their electric cars.
Kelley Blue Book analyst Rebecca Lindland told IBD it's "very, very difficult to make a profit, but not impossible." She says Toyota reportedly needed more than 10 years to turn a profit on the hybrid Prius. GM will take at least that long for the plug-in hybrid Volt. She estimates the Bolt EV could turn profitable quicker because it borrowed technology and lessons from the Volt.
The auto industry is also looking afresh at the entire design and production process.
Redesigning vehicle architecture allows companies to imagine mechanically simpler, more efficient electric cars, RBC Capital Markets analyst Joseph Spak wrote in a May 11 note.
Ford, for example, expects its next EV lineup to slash footprint in the final assembly area in half. That should produce a 50% cut in capital costs and a 30% improvement in labor hours per unit.
GM will use its new EV platform across cars, crossovers, SUVs and self-driving vehicles, streamlining production costs.
A highly optimized EV platform also could eliminate unnecessary elements that carried over from traditional cars, Navigant's Abuelsamid said.
UBS estimates the Bolt's price tag could be $13,200 lower by 2025, with economies of scale a key driver of the reduction.
Scaling up will be pivotal to cutting battery costs, which is why Tesla is building its "gigafactory" to mass produce them.
RBC's Spak says global EV battery production capacity will surge to 346 gigawatt hours in 2025 from 143 GWh last year. Such growth will produce economies of scale that should allow manufacturers "to gain fixed-cost leverage and lower costs."
A major catalyst for mass production is coming from the global momentum against auto emissions. China, India, Norway, Britain and France plan to slowly phase out gas and diesel vehicles. (Sales of electric vehicles in China, the world's biggest auto market, are already on pace to hit 1 million this year.) California lawmakers have toyed with a similar mandate.
"Automakers are forced to reach to develop and offer EVs that are really expensive to make and that people don't really want to buy," said KBB's Lindland. "That's why we continue to see incentives on these."
A concurrent trend is improving the business case for electric cars: autonomous taxi service. GM calls robotaxis a multitrillion dollar market. Morgan Stanley sizes the personal transport market at $10 trillion, far bigger than the car market.
Electric vehicles are envisioned for these future fleets of shared autonomous cars as they would be easier and cheaper to maintain.
Waymo, owned by Alphabet (GOOGL), plans to launch a driverless taxi service in Arizona this year. It has tested in Texas, California, Michigan, Arizona, Washington and Georgia. GM plans a similar service next year, and tests in California and Michigan with plans for Manhattan next year.
GM's service may be why it has a bullish 2021 timeline of achieving EV profitability.
"As a pure consumer retail play, profitability is a stretch in that time frame, especially since they are on target to use up all federal tax credits by early 2019," Navigant's Abuelsamid said. "As a service play I think they can get more volume and revenue."
He added that several of GM's 20 forthcoming electric cars "will probably be focused on autonomous mobility applications where the potential for recurring revenue changes the business model and the way you calculate profitability."

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