The ongoing discussions about profit margins on the “first” [mass scale] generation of EVs from the Big Three supposedly being razor thin or even leading to loses has left me wondering if anyone be it the US DOT or a NGO has attempted to estimate how much the total cost for retooling the US automotive industry towards BEVs might look like in the end.
Obviously, I understand a lot of factors -from funding streams at every level of government, to international relations, to even just timing- can play an immense role in the calculation of such an estimate but I’m curious if there’s even a ballpark estimate. Have any analysts attempted to come up with with a “realistic” estimate of, say, when GM will have fully absorbed the setup cost for Ultium and vehicle unit cost will just be determined by the opex overhead of a given production line rather than having to also account for the upfront capex of the whole platform and production chain buildup?
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The question is more about volume than about time, IMHO. What I mean is. . . Bringing any new automotive platform to production, electric or otherwise, costs several billion dollars. Then you need to sell about 50,000 units per year of that platform. So how long will it take to ramp up to that level of production-and-sales?
This is where GM (and several other companies) are having it rough. With Tesla already holding a big chunk of the EV market, and the remaining portion sliced really thinly between different car makers and multiple models and platforms, it’s proving hard for any new automotive platform to reach the scale where it becomes economically viable.
And when I hear about car makers delaying their plans, I have to just shake my head. That means extending their pain.
I don’t have an easy answer for them, though. They can either tough it out for even longer while the electric car market grows, or else they can make a Tesla-like leap of faith: Throw intense effort into designing an amazing vehicle, set up the production lines to produce it on massive scale, and trust that the masses of people will be eager to buy your amazing vehicle. And then die by the sword if you got the product wrong, Edsel style. But I don’t see GM or most other “legacy” auto makers attempting that. It’s too far outside the modern auto industry corporate culture (to include officers, board and shareholders too).
Some random searching…
https://www.reuters.com/business/autos-transportation/retooling-auto-plants-evs-will-cost-billions-biden-wants-help-2021-11-17/
GM said (2021) it can save up to $15 billion by 2030, and even more after that, by re-purposing its factories and retraining its current workforce, rather than follow rivals such as Tesla Inc (TSLA.O) and build new factories in Southern and Western states.Build Back Better would also allocate $3.5 billion for converting U.S. factories for production of electrified or fuel cell vehicles, and revive incentives that could generate $3.7 billion for automotive communities by 2031.
Auto manufacturers could also benefit from $3 billion allocated to a Department of Energy Advanced Technology Vehicles Manufacturing Loan Program.
https://www.cnbc.com/2022/02/02/general-motors-key-takeaways-from-gms-q4-results-and-2022-guidance.html
Barra, among other things, announced GM is pulling ahead “significant investment” from the second half of the decade into a $35 billion investment plan in electric and autonomous vehicles by 2025. (Or 2035 depending on which article)She said the company is targeting to sell 400,000 EVs in North American through 2023.
https://news.gm.com/newsroom.detail.html/Pages/news/us/en/2021/jun/0616-gm.html
General Motors Co. (NYSE: GM) announced today it will increase its EV and AV investments from 2020 through 2025 to $35 billion, representing a 75 percent increase from its initial commitment announced prior to the pandemic.GM is targeting annual global EV sales of more than 1 million by 2025
https://investor.gm.com/news-releases/news-release-details/gm-delivers-year-firsts
General Motors Co. (NYSE: GM) and its dealers delivered 2.2 million vehicles in the U.S. in 2022https://www.theverge.com/2022/11/17/23464509/general-motors-ev-profit-1-million-annual-2025
But by 2025, the cash burning will officially cease, as the company projects its EV program will be “solidly profitable” by then.https://www.washingtonpost.com/us-policy/2022/09/12/auto-industry-electric-car-ev-revolution/
General Motors this year pledged to spend $7 billion — its largest investment ever — on four Michigan manufacturing sites for battery cells and electric vehicles. It’s also making big investments in EV and battery factories in Ohio, Tennessee, Canada and Mexico.https://www.cnet.com/roadshow/news/tesla-reports-record-revenue-for-2022-with-1-31-million-evs-sold/
This brings Tesla’s total deliveries in 2022 to 1.31 million cars, which is a record high for the brand and 40% growth year-over-year, but also just short of its own goal of 1.4 million deliveries.Investors weren’t super happy with the price cuts, but Elon Musk posited that more affordable Teslas is a good thing.
“It’s always been our goal to make cars affordable to as many people as possible so I’m glad that we’re able to do so.” - Elon
The automaker reports that the average sale price of a Tesla has halved between 2017 and 2022 and will likely continue to fall. That’s partially due to price drops, but mostly thanks to the less expensive Models 3 and Y now making up the lion’s share of Tesla’s production and deliveries. In 2018, they accounted for just over half of Tesla’s 254,530 sales; today they’re around 95% of the 1.31 million Tesla cars sold in 2022.
https://www.washingtonpost.com/us-policy/2022/09/12/auto-industry-electric-car-ev-revolution/
When Rivian bought the plant, it took the unusual step of polishing the concrete floors throughout the 3 million-square-foot building, which Steve Evans, a construction coordinator who began working there as a welder for Mitsubishi, initially thought was nuts.“I thought, why are we polishing the concrete?” he said. Later, he realized that the step “creates an environment that’s inviting. And people want to come here.”
in China, they don’t have battery supply problems.
they don’t need US batteries for the highest incentive.
when GM will have fully absorbed the setup cost for Ultium and vehicle unit cost will just be determined by the opex overhead of a given production line rather than having to also account for the upfront capex
what have they built in China?
the problem is not “big auto”
SAIC-GM-Wuling’s EV Sales in China Exceed 1 Million Units
https://news.gm.com.cn/en/home/newsroom.detail.html/Pages/news/cn/en/2022/Aug/0809-wuling.html
looks like an Equinox.
Charging into the Future: Electra E5, Buick’s First Ultium-Powered EV, Launched in China
https://media.buick.com/media/cn/en/buick/news.detail.html/content/Pages/news/cn/en/2023/Apr/0413-buick.html…where is US mining and US battery manufacturing
the cars are not the problem.
Right. Sorry I should have clarified I was also including battery manufacturing set up cost in the platform buildup/start up cost. Even assuming China-US relations weren’t what they currently are I would assume a significant amount of battery manufacturing capacity would need to be built Stateside just to support the volume of vehicles being produced and reduce the logistical headache of shipping cells and packs across the sea.
Remember when tesla ‘was losing money on every car they sold’? They weren’t. They were amortizing the r&d/tooling costs over 3-5 years.
This is the cost of rebooting to build EV’s. You absorb the cost of the factory and designing a new type of car for half a decade. Anyone saying this also needs to be learning from the historical business cycle.
Retooling always occurs. On an ongoing basis. Constantly.
Tooling wears out. The reinvestment in new tooling is assumed, always. Ford isn’t still making Model Ts because they once invested in tooling for them. In fact, they invested in aluminum bodies on the F-series line when the previous F series sold just fine.
The big three are used to massive capex. This is nothing new. The expense to pivot to EV isn’t dissuading them.
Actually they never stopped making Model T’s. They continue to make them for quasi-internal use at the Henry Ford Museum & Greenfield Village as taxicabs within the complex, they’ll give you a ride in a real Model T for a few bucks.
There is a whole ecosystem of external suppliers for their legacy cars that will likely have to go through a transition.
I imagine many will just close down as the risk of pivoting to another product in such an uncertain market would be too much if they don’t have significant cash reserves.
They do that anyway, so no difference.
Already, auto plants get minor retoolings every model year during the summer shutdown (that being a tradition that went back to when it was too expensive to air condition a factory and too damn hot to work in the summer). And then every 4-12 years they do a total retooling from scratch, when they go to the next generation of car. E.g. going from the 5th generation Camaro to the 6th generation Camaro is not really a different exercise than going to an e-Camaro.
And that’s about how things are going, they are changing gas models to electric at about the interval they would be doing generation changes anyway.
Auto buyers already pay for the cost of these retoolings, and will continue to do so.
Forget retooling costs, the big 3 are paying billions a year in CAFE fines for not meeting fuel economy regulations set by the federal govt. Ford is “only” at 1 Billion why chrysler is at 3 bil and GM is estimated over 5 bil. Thats each year! Ford CEO has outright stated he would rather spend on infrastructure to build and sell EVs than to keep paying Billion dollar fines (that go in the pocket of tesla and rivian as subsidies). So really what they spend on “retooling” they save in fines. I dont know if chrysler and GM have made formal statements about CAFE fines and EV plans but there is give and take to help automakers transition and Im certain GMs $5 billion dollar fine for a year would cover a lot if not all the retooling costs.
I don’t think you can, at least not in the fashion that you’re hoping for. There are a few reasons for this, but for instance, consider that tooling and engineering efforts towards EVs are synergistic with advances in core compute and line automation. Tooling efforts being rolled out for EVs are rolled back into ICE, and vice versa. There’s no clear hard line between an EV expense and a non-EV expense. Meanwhile, R&D costs are never fully ‘absorbed’ — they just keep pushing forward to new innovations and improvements.
As you suggest, even something like financing terms and changing sales environments can drastically change how quickly these capital expenditures are paid off. If Ford has to drop prices on the Lightning to make it sell, they’re going to take a lot longer to make money.
What we do know is that most OEMs are targeting around 2026 for ‘breakeven’, meaning net and rolling profitability. We also know that not long after that, most OEMs are expecting BEVs to reach cost parity. After that… well, everyone’s pay-down and investment scheme will be different.
Thank you so much for the detailed answer! Guess I should have figured capex would be hard to delineate as being purely BEV or ICE related if nothing else just on the basis of how many components vendors are trying to share across their platforms.
I was not aware of the 2026 industry estimate, do they have a range of different dates assuming better or worse market conditions and government support levels?
Guess I should have figured capex would be hard to delineate as being purely BEV or ICE related if nothing else just on the basis of how many components vendors are trying to share across their platforms.
Sure, and don’t forget, there are other non-powertrain developments happening orthogonally. For instance, if Hyundai expands into PBVs (including AVs) and those PBVs are EVs, how do we categorize that spend? Is that EV tooling or something else? It gets confusing quickly.
I was not aware of the 2026 industry estimate, do they have a range of different dates assuming better or worse market conditions and government support levels?
I haven’t really seen any date ranges, but I assume the rolling-profitability break-even point in particular is actually pretty clear for most OEMs. We’re seeing a convergence point of a few key regulatory inflection points and critical technologies at that time:
- Production of LFP packs ramp up in the west at that time. Just off the top of my head, Ford, LG, and Volkswagen all have LFP targeted for 2026.
- We should see dry electrodes become market-ready at that time. Same deal, should happen right around 2026, likely along with the LFP spike. This will bring cell cost down significantly.
- In Europe, Euro 7 kicks in putting significant pressure on OEMs to reduce their fleet emissions. Expect pure-ICEV to basically disappear from Europe entirely by 2025. In the USA, the CARB ACC2 regulations kick in, mandating ZEV minimums for cars sold in most of the coastal states.
- All of this means it’s suddenly worth it for OEMs to dedicate entire lines to BEVs, rather than just portions of lines or platform-flexible lines.
- On top of this, right around 2025 is when we see core compute become a mature, commoditized phenomenon, and when OEMs start having single, integrated software and compute hardware packages. You’ll sometimes hear this referred to as the “software-defined vehicle” paradigm, or “multi-domain compute”.
The end-sum result of all these individual elements coalescing is that most of the major OEMs have their next-gen platforms coming online right around that 2025-2026 timeline. For instance, Hyundai will target their new IMA-based eM and eS platforms for that time period.
So the question for me isn’t whether BEVs become net-profitable in 2026, but rather how net-profitable they become, and then as you suggest, roughly how well OEMs are able to recoup their investments.
Thank you so much for this phenomenal breakdown! I knew LFP production was set to continue to ramp up but I didn’t realize dry electrode tech was already projected to reach production so soon.
On top of this, right around 2025 is when we see core compute become a mature, commoditized phenomenon, and when OEMs start having single, integrated software and compute hardware packages. You’ll sometimes hear this referred to as the “software-defined vehicle” paradigm, or “multi-domain compute”.
This has been a long time coming and it’s nice to see vendors converge on using a single modular firmware solution across their range instead of having every design team cobble some bespoke headunit interface. Given the recent hiccups with OEM led software development like at CARIAD or Volvo just outright contracting out portions of firmware development to Google (I’m not entirely clear if Android Automotive actually assumes control of the drivetrain or is effectively just a frontend for whatever firmware Volvo has running on their motor and battery control units) do you think we’ll see the industry end up shifting to an industry wide base OS as a way to pool resources or do OEMs seem set on sticking to their in-house software stacks?
I’m not entirely clear if Android Automotive actually assumes control of the drivetrain or is effectively just a frontend for whatever firmware Volvo has running on their motor and battery control units
More of the latter. This is the multi-domain part of multi-domain computing: The cars run multiple operating systems simultaneously, and the multiple operating systems talk to each other.
Right now that happens over separate boards and separate chips, but in the future, it’ll all just happen on one physical chip with multiple cores, with all of the different bits and pieces essentially running on their own VMs.
do you think we’ll see the industry end up shifting to an industry wide base OS as a way to pool resources or OEMs seem set on sticking to their in-house software stacks?
I’d say we’re converging on a set of common standards, like everyone seems to just be using Android for IVI, but it doesn’t matter what the base layer is underneath Android — just that it talks with the same APIs.