Tesla has been on a hot streak. Reacting to the company’s latest earnings, CEO Elon Musk said, “We’ve seen a real shift in customer perception of electric vehicles, and our demand is the best we’ve ever seen.” But with this acceptance of EVs comes increased competition. Almost every major automaker has announced its entry into the electric vehicle market.
To understand the elements at play in the electric vehicle (EV) race, GLG’s Manager of Client Solutions for Southeast Asia, Yi Shun Tey, spoke with Jeff Yanssens, president at JAY Engineering and former Vehicle Chief Engineer of Electrified Vehicles at General Motors; Dr. Arnold Lamm, founder of consultancy e-Technologies and former Senior Manager of fuel cell and battery technologies, eDrive Systems at Daimler; and Dr. Claudiu Bucur, Founder and CEO of lithium-ion batteries company Piersica and former Chief Engineer of solid electrolyte lithium-ion batteries at Svolt Energy. Below are a few select excerpts from our broader discussion.
Lamm: An article published in Germany’s Focus found that the ID.3 from Volkswagen (VW) fully competes with Tesla’s technology. The ID.3 has the highest energy density in this class size and the highest efficiency, and the scalability of this technology to other platforms is high. Nevertheless, there are points where Tesla is ahead: increasing development speed and boosting software competence. The competition in the EV mass market will increase. This will lead to lower market shares for Tesla, especially in Europe.
Bucur: Tesla revolutionized this field. Historically, GM tried to introduce the EV1, and Toyota successfully commercialized hybrid vehicles. In 2009, Telsa introduced fully electric vehicles before everyone else. Since then, the company has been in the lead. At that time, cells were not optimized for EVs. The cells were from laptops, and the focus since has been on the optimization and development of the pack. That is where Tesla has been leading.
The future belongs to the cell. The cells are improving, becoming safer, and having increased energy density. In the beginning, the pack was king, but now it’s becoming weaker. In the future, the cells themselves will be structural and solid. Unfortunately, Tesla is not currently the leader at cell chemistry. It will be interesting to see how Tesla remains at the top.
Yanssens: Claudiu brings up some very good points. Tesla’s first-to-market status gave it a competitive advantage. But no matter how hard you try, the second time you do something you’re always better at it, the third time is even better, and so on. As Tesla brought out each new model, it was an evolutionary progression of the one before it. The disadvantage that Tesla has is it’s the only one in the market, so all the big OEMs can afford to buy cars, tear them down, and learn from them. They don’t have to spend all the R&D money that Tesla did.
The other advantage for global OEMs is their ability to scale and reduce structural costs. That’s the main reason VW, GM, and Daimler went to modular strategies in their battery packs versus Tesla’s approach of one giant battery pack. That scalability will help OEMs be more flexible and come out with models quicker than potentially what Tesla will be able to do. OEMs also have strong relationships in China. Amortizing their R&D costs over two continents will be helpful. There’s also parts sharing that can happen between Asia, North America, and Europe for VW. Those are some of the advantages of traditional OEMs, but Tesla’s first-to-market advantage can’t be understated.
Yi Shun Tey: Legacy auto OEM software is known for millions of lines, wires, and complexity. Meanwhile, new entrants appear to design better software. Will legacy auto OEMs have the capability to face this challenge? How far behind Tesla are they on this aspect?
Lamm: That’s a very good point. In Germany, there’s a big problem to get the right people to do this job compared with Tesla. VW and Mercedes are starting their own internal software platforms — they are two to three years behind Tesla regarding software competence.
Yanssens: This is where complexity hurts. Software engineers at VW, GM, and Daimler must design compatible software that needs to work with more than 20 different models and five different architectures because they all share common modules to reap the benefits of volume and structural cost to save money. That kills companies on the software side. Having a one-model strategy starting out like Tesla did, and not having 20 chief engineers saying they don’t like the way the software performs, is a big advantage.
If we had a common operating platform, or three, we could reduce the total cost of the vehicle by almost $500 just through the reduction of R&D budgets for software. Most people don’t totally comprehend this. There are hundreds of electric modules in a vehicle. All those modules must talk to each other or to a central computer. When they do that, they’re working on an operating system that the manufacturers have developed internally, so everybody has their own. Every time a supplier wants to provide a module, they must rewrite their code for every manufacturer because it must operate in a consistent manner with that vehicle operating system. If it were like the phone industry where basically there are only two operating systems, they wouldn’t have to develop 20 different module software packages.
Bucur: Software is an excellent value for the luxury and mid segments for the current buyers of Tesla cars. It will be challenging moving forward to the large markets where people do not understand the technology, and it will be difficult to work with how advanced the car is. The general driver has a hard time dealing with software-complex vehicles. That’s something to keep in mind.
Yi Shun Tey: On the consumer versus commercial vehicle market, how does technology work out for the different traditional OEMs?
Yanssens: GM announced that it won’t produce any more internal combustion engine vehicles in the car and SUV range by 2030. That’s probably why GM introduced its first electric truck as a Hummer, because it could rely on that brand’s cachet to command a more than $100,000 price tag. When you double the size of the battery to support a pickup truck payload, it’s $20,000 for the battery at current prices. They’re no longer looking at entry-level models as the ones to do EVs because the contribution margin just isn’t there to support the cost of the electronics and the battery. Everyone’s moving into the high-end electric vehicles. If they sell one, they’ll make money. They won’t make as much as if they sold the same vehicle as an ICE, but at least they’ll be making money on it.
From a commercial side, what I find interesting is the advancement of autonomous vehicles, and the ability for delivery service companies to reduce their total cost of ownership by having AVs. We’ll see a rapid rollout of lead/follow-type applications for AV. Potentially what you’ll see here in the next three to five years is fleets of trucks running down the highway, where there’s only one driver in the front. Almost every delivery service in the world now has an alliance with an AV company. GM started its own freight drop company. Arrival has an alliance with UPS and DHL in Europe. There are different opportunities out there from an electric truck standpoint. Most of the companies are jumping into the electric market for the obvious benefits of being ready for the AV side when it hits. It’s just a matter for the final 3% to 5% of the development to get there.