Vehicle Electrification and the Aftermarket Impact
Monday, May 17, 2021
By Brian Daugherty, chief technology officer, Motor & Equipment Manufacturers Association (MEMA)
We are all aware of the media hype surrounding the future of electrified vehicle sales and that over $300B is being invested globally by vehicle OEMs on battery electric technology and vehicle launches over the next several years. However, last year only 2.5% of new vehicles registered in the U.S. were gasoline/electric hybrids and only 1.8% were full battery electric vehicles (BEVs). There were 252,548 BEVs registered in the U.S. in 2020 – up from 227,161 in 2019 – and Tesla models accounted for almost 80% of them. This is a slight, but still somewhat surprising and impressive increase in Tesla’s U.S. BEV market dominance from 2019 since it is hard to maintain an 80% market share selling anything for very long.
In the U.S., we expect to see over 125 BEV models on the market within the next several years. Consumers will soon have many purchase options – everything from full size trucks and large SUVs to compact cars. As the competition heats up, the BEV market will continue to grow, and Tesla’s share of the market will naturally decrease.
I still expect the BEV market to grow much more slowly than many in the media predict for a wide range of reasons including cost, consumer acceptance, lack of OEM battery capacity, cost, the pains of charging and range anxiety. Did I mention cost? Many of the new U.S. BEVs are targeting the $50K and up market, but it is very unclear how large that market can be. And it will be very interesting to see how many $100K+ BEVs will be sold, but I am betting on not that many. The availability of lower priced BEVs will continue to increase as more mass-market vehicles are available, but whether OEMs can make any money is still a big question.
Like any vehicle segment, we will see winners and losers among the 125 models available. However, the losers may really lose a lot. When you take 125 models and subtract the estimated Tesla sales, you end up with an estimated average of 4,000 to 7,000 units per year for the others. After you also subtract out the non-Tesla models with sales over 40,000 units, you have some exceptionally low annual sales numbers for the remaining models. I have made a lot of assumptions and estimates to generate these numbers, but I believe that they are realistic.
One potentially fascinating aspect of this may be big discounts for consumers on these models to increase sales. Since the OEMs are counting on BEV sales to improve their U.S. fleet fuel economy averages, they need to sell them. And if they have already spent half a billion dollars or more developing a new BEV, what difference does it make to lose a bit more money with some inexpensive leases or deep discounts – especially if you are only selling 5,000 of them – so that you can at least book the fleet fuel economy benefits and remain an active player in the BEV market.
Everyone is playing to win, but the opposite is more likely for most BEV models.
One of the other narratives in the media is that BEV sales are growing slowly due to lack of available highway DC fast charging capacity. So, if we just build more DC fast chargers, everyone will buy BEVs. In most areas of the country, charging stations are rarely full – except during holiday travel – so where are the constraints? Also, well over 80% of vehicle charging occurs at home and most of the remainder occurs at or near work. It also costs up to three or four times more for a vehicle to charge at a DC fast charger, which is the reason BEV owners charge at home. Even with the higher charging prices, it is hard to pay back the capital cost of the DC charging station unless it is used constantly.
I think the main reason for slow sales growth is that a BEV still costs a consumer an additional $15K or more than an equivalent internal combustion engine (ICE) vehicle and it requires a change in “vehicle lifestyle.” Given these two factors, U.S. consumers may remain reluctant to make the switch. No matter what happens, we will see a dramatic increase in U.S. stop-start and hybrid vehicles sales as OEMs work to meet increasing fuel economy standards.
A Slow Transition
What does this mean for the aftermarket? Well, for starters, the electrification transition is going to take a long time. The U.S. has over 260 million – and some estimates are as high as 290 million – vehicles in operation. The average age of a vehicle on our roads is approaching 12 years, which means that most vehicles will be on the road for 25 years or more. As an aside, many articles confuse average vehicle age with vehicle lifespan, and they are obviously very different, but this leads some pundits to predict a faster transition. Given this longevity – which continues to gradually increase as vehicles are better designed and manufactured – we will have internal combustion engine powered vehicles in the car parc for a very long time. Pick your own number, but even if BEVs account for 10% or more of the overall vehicles sold in the U.S. within a decade, the transition in the car parc will be very gradual given that there are so many ICE vehicles already in operation.
For aftermarket parts, many opportunities will remain for BEVs. Obviously, the internal combustion engine and ICE transmission-specific parts are eliminated including fuel and exhaust system components. While it may be initially difficult to provide aftermarket parts for complex, custom electric powertrains, I am sure that some companies will succeed. The trick will be in picking vehicles where the investment makes sense. In addition, many BEV parts are the same or similar to existing ICE vehicle parts. BEVs still require windows and brakes (although they will get less wear due to regenerative braking), but also HVAC systems, electric pumps, fans and most other interior and exterior components.
Remanufacturing opportunities abound for high value BEV parts such as batteries, electric drive systems and power electronics. For example, a vehicle battery pack that costs $20K that can be rebuilt for several thousand dollars is a top candidate for repair or remanufacturing. This will be even more critical later in a vehicle’s life when a new replacement battery pack costs more than the vehicle is worth.
Hybrid powertrains have more parts overall than a base ICE vehicle, but typically have less cylinders leading to lower numbers of the ICE-specific replacement parts. However, given their more expensive drivetrains, hybrid-specific parts will be a good business too.
As I mentioned last year in my blog, one factor to keep in mind is that the constant upgrading of powertrain technology will result in many more replacement parts to design, develop and keep in inventory. In addition, most parts on ICE, hybrid, and battery electric vehicles will be designed to be as lightweight as possible requiring the aftermarket to follow suit given the resulting space constraints. These technologies will require highly skilled, engineering intensive workforces to develop and the upgrade pace will be constant. Aftermarket part manufacturers and service shops that plan well and successfully adapt to this wave of new technology will lead the industry.
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