We read it everywhere, from remarks by Elon Musk to predictions by industry observers — the tipping point between cars with gas tanks and those with batteries is already upon us, now that the Tesla Model 3 is here. From this point forward, electric cars will rapidly replace their gas guzzling siblings. Several nations such as India and Germany are talking about banning cars with internal combustion engines within 15 years.
“Bollocks,” say executives at several of the largest suppliers to the auto industry. “There’s a lot of buzz and a lot of talk about how the world’s going to change to electrified vehicles overnight, and I’m here to tell you it’s not going to happen overnight, and it’s not going to happen for decades,” David Dauch, CEO of American Axle & Manufacturing Holdings told those attending a conference sponsored by JPMorgan in New York last week. “I’m a strong believer in the internal combustion engine. I think it’s going to continue to be here for some time.”
Magna International sells more parts to North American auto makers than any other company. Its CEO, Don Walker, told the Management Briefing Seminars at the Center for Automotive Research in Traverse City, Michigan last week that he remains skeptical about how quickly the age of all electric cars will get here.
He says most auto executives agree with him but are reluctant to say so publicly. In his opinion, electric cars will account for no more than 6% of sales worldwide by 2025 — if that. “They know what’s going to happen, but they have to say what is going to be popular to be perceived as a progressive company,” Walker said.
Delphi Automotive is a major supplier of powertrains and electronic systems to the automotive industry. Its CEO, Kevin Clark, told those attending the JPMorgan conference that 95 percent of vehicles will still have combustion engines in 2025, and about 30 percent will have some form of gasoline-electric system. Just 5 percent will be purely electric, Clark projected.
BorgWarner, has invested nearly $1.3 billion to develop electric powertrains, but its CEO, James Verrier, forecasts that electrics will be only 3% of sales by 2023. In particular, he throws shade on Elon Musk’s recent prediction that half of all cars made in the US will be electric within 10 years.
“I would probably say that too if I ran an electric vehicle company,” he said in an interview Monday in New York. “We hold a view probably similar to Magna that there will be an evolution towards a range of electrification.”
Analysts Are Skeptical, Too
Such negative attitudes make sense to some financial analysts who cover the automotive industry. “Right now you have an industry that’s sort of stuck between the market and what they see from their clients,” said Matt Stover of the Susquehanna International Group in Boston. “They see Tesla with an enterprise value of $70 billion, and they see what their clients are awarding to them, and they say, ‘Wow, something doesn’t make sense here.’”
The parts makers have to walk a fine line. Consumers haven’t yet demonstrated a willingness to buy electric vehicles in droves, giving both carmakers and their suppliers reason to be conservative. At the same time, governments are beginning to demand cleaner cars to curb pollution in mega cities from Mumbai to Mexico City. And investors seem inclined to reward those trying to transform transportation, with all-electric Tesla surpassing the likes of Ford Motor Co. and General Motors Co. by market value this year. Tesla shares are up 67 percent this year.
“They have to defend their product mix, but they’re probably being more active than they try to come across as,” said Kent Lucas, head of business development at VectoIQ, which connects suppliers and startups in the automotive space.
Price is a big part of the picture. Battery electric SUVs in the U.S. won’t reach price parity with their gasoline powered cousins until 2026, according to Bloomberg New Energy Finance in its latest Long Term Electric Vehicle Outlook report. For small cars, price parity will take until 2027 — and longer still in Europe.
So, what will come in between traditional cars and electric cars? Plug-in hybrids — lots of them. Belittled by fans of electric cars, they will account for 20 percent of the market by 2023. More than anything else, they eliminate any concerns drivers may have about running out of battery power far from the nearest charger. The real constraint on battery electric car acceptance may have more to do with that lack of charging infrastructure than it does price.
The Pace Of Change
The slow pace of change may be frustrating to some. As The Eagles once said in a song, “Things in this life change very slowly, if they ever change at all.” Until they do, that is.