Navigant Research Blog

Ford Decides to Stick with 100-Mile EVs – for Now

— April 29, 2016

EV RefuelingDuring the recent SAE 2016 World Congress in Detroit, there was much discussion among attendees and speakers about the future of electric vehicles (EVs). For the most part, there was agreement that a 200-mile nominal range on a charge will be the minimum needed to get mainstream customers to start accepting EVs as a viable transportation alternative. One notable exception to that opinion, at least publicly, came from Kevin Layden, Ford director of electrification engineering, who told Automotive News that a 100-mile range provided a better balance of weight and cost while meeting the needs of most drivers.

Not coincidentally, this fall, Ford is slated to release an upgraded version of its sole battery electric vehicle (BEV), the Focus Electric, with that same 100-mile range. There is little reason to doubt that Ford has no immediate plans to directly challenge the Chevrolet Bolt (which is set to launch at nearly the same time as the refreshed Focus) or the upcoming Tesla Model 3.

Late BEV Addition

The current Focus debuted in 2011 and the BEV variant was a late addition to program. In fact, it wasn’t even originally conceived by Ford. Engineers at supplier Magna International built a pair of prototypes in 2008 to demonstrate their EV engineering capabilities and Ford adopted the program late in the year as part of its recovery plan following the financial meltdown. The next-generation Focus was already well in development by that time, but Ford worked with Magna to adapt the electric drive system and battery packaging to the new model. The packaging results were less than optimal, with severely compromised cargo space compared to the competitors such as the Nissan LEAF or the later Volkswagen e-Golf.

While advances in battery technology in the years since have enabled Ford to boost the original 76-mile range to 100 miles, packing in twice as much capacity into this generation of the Focus would simply be impossible. Given that like other large automakers, Ford still needs to sell a certain number of plug-in vehicles (PEVs) every year in order to meet the California Zero Emission Vehicle (ZEV) mandates, and it’s no surprise that the priority right now is to sell the upgraded Focus Electric as is. Given the new competition from the Bolt, Ford will likely emphasize the starting price before incentives of $29,170 for the Focus, some $10,000 less than its original price in 2012.

More Models on the Way

While Ford marketing tries to sell the current-generation Focus Electric for the next 2 to 3 years, the product development team is no doubt working overtime to match or beat the benchmarks set by Chevrolet and Tesla for the next-generation model. In December 2015, Ford announced a $4.5 billion investment to launch 13 new electrified models by 2020 and the chances are excellent that at least one of those will be a 200-mile BEV that can sell for $30,000. The next-generation Focus platform is expected to debut in 2018 and Ford will likely have made allowances in the design to package larger batteries to meet the market demand for EV capability. During the 1Q 2016 financial results call on April 28, Ford CEO Mark Fields commented that the company wants to be in a leadership position on EVs, implying that Ford intends to build longer-range models in the coming years.

Navigant Research’s Electric Vehicle Market Forecast report projects global light duty BEV sales of almost 1.6 million in 2024, with nearly 462,000 in the United States. If manufacturers are to meet their individual sales targets under the California EV mandates, they will have to create products that are meet increasing customer expectations. With multiple manufacturers openly committing to affordable BEVs with 200 miles or more of range, only very inexpensive vehicles are likely to be deemed acceptable with less.


Toyota, Microsoft, and an Army of Software Bots to Deliver Contextual Driving

— April 15, 2016

Connected VehiclesA new Toyota subsidiary aims to provide drivers with autonomous contextual help via the assistance of software bot technology just announced by Microsoft. Skynet isn’t here just yet, but Toyota Connected Inc. represents just the beginning of where transportation is heading in the coming decades as we transition from personally owned vehicles to mobility as a service.

Bots, as they have become known in recent years, are basically just a relatively new type of app that usually runs on a server somewhere in the cloud. What makes bots special is their ability to tap into huge databases and take advantage of sophisticated machine learning to understand the meaning of a query. Those queries can come from either a human or another bot. One bot may collect information from any number of other bots, merging and presenting it to a human or vehicle interface at the edge of the cloud.

Cascade of Queries

A contemporary example might be a driver telling their car that they are hungry. This could trigger a cascade of queries that take your current location, stored data about your favorite kinds of food, finds a restaurant with an available table at a time based on how long it will take to arrive there, and returns a response of “Would you like a reservation at restaurant X at 6:45 p.m.?” All of this could stem automatically from that one original question with no further input from the driver.

Now imagine extending this concept 20 years into the future when we will have fleets of on-demand autonomous vehicles moving around cities, as projected in Navigant Research’s Transportation Outlook: 2025-2050 white paper. Today, if you are leaving one appointment and heading to another, you pull out a phone, open the Uber or Lyft app, and request a ride.

In 2035, the mobile communicator that has replaced your phone reads your calendar, sees you have an appointment 20 minutes away, knows your current meeting will end in 5 minutes, and automatically summons a vehicle to your location so that it pulls up as you step out onto the sidewalk with no intervention. Several bots have contributed to this function, including one that provides weather data, another with real-time and historical traffic information, one to monitor your calendar, and another to handle billing for the mobility service of your choice, all without any direct input from the rider.

Bot Creation

At its Build 2016 developer conference on March 30, Microsoft announced the release of bot software development framework to simplify the task of creating bots. Toyota Connected plans to utilize the Microsoft Azure cloud platform to provide services to its customers utilizing data from telematics and vehicle-to-external (V2X) communications systems. These communications pathways can provide drivers with real-time alerts about slippery roads when a vehicle ahead triggers an automated braking system or stability control, and can also enable automatic re-routing to avoid congestion or reduce energy consumption.

Navigant Research’s Connected Vehicles report projects that more than 80 million vehicles will be sold with V2X capability in 2025. Contextual data moving through the air between bots in vehicles and in the cloud is expected to reduce energy use, improve road safety, and generally make life more convenient for everyone.


Tesla Model 3 Delivery Priority: It’s All About the Cash

— April 7, 2016

male hand using navigation system on car dashboardIn April 1964, the Ford Motor Company stunned the auto industry by selling 22,000 Mustangs over the first weekend of sales. That figure now seems inconsequential compared to the nearly 300,000 people that have put down $1,000 for a car they won’t be able to get for at least 2 to 3 years. The world seems desperate to secure a place in line for the Tesla Model 3.

However, first come won’t necessarily be first served. According to Tesla, “In order to be as fair as possible, there will be a different queue for each region. And as a thank you to our current owners, existing customers will get priority in each region.”

From Tesla’s perspective, there’s actually a very solid business rationale for getting current customers to buy again before expanding the electric vehicle (EV) audience. While CEO Elon Musk and his team have built the Tesla brand into a technology fashion statement that is arguably second only to Apple, they still have a big problem. While Apple is the most profitable company in history, in its 13-year lifespan, Tesla’s single profitable quarter came from sales of zero-emissions vehicle credits.

Chasing Profitability

It’s expected that a company that makes real physical goods will lose money in the early years of existence as it invests in product development and the infrastructure to build and distribute those goods. However, at some point, revenue needs to exceed spending in order to keep the lights on over the long haul. Tesla is the first successful American automotive startup since Chrysler in 1925, but it’s still unprofitable.

Currently, the cheapest Tesla you can buy is the Model S 70, which starts at $70,000. Tesla doesn’t discuss its product mix or average transaction prices, but it’s probably in the neighborhood of $100,000 or more. Those who have already purchased a Roadster, Model S, or Model X are, to put it bluntly, affluent.

The Model 3 will start at $35,000, and Tesla has given few details about what you get for that price beyond a 215-mile range and supercharging capability. We do know that all-wheel-drive, Autopilot mode, bigger batteries, and more performance will all be available—but pricey—options. A loaded Model S P90D nearly doubles the $70,000 base price.

Affluent customers that purchased a $100,000+ Model S or X and want to get a Model 3 for their spouse or child will probably want it nicely equipped with extra traction, a premium sound system, and so on. The odds are good that most existing Tesla customers will be paying closer to $50,000 than $35,000. Tesla intenders that can’t afford one of the current products might not have the wherewithal to option a Model 3 to that degree.

Higher Margins

Given Tesla’s need to be profitable sooner rather than later, it makes perfect sense to maximize revenue early by taking care of customers that have shown a willingness to buy higher-margin products. Automakers do this every day by stocking dealers with a higher proportion of premium trim levels in the early months after a new model debuts. Early adopters want the best stuff, and Tesla knows this.

Navigant Research’s Electric Vehicle Market Forecasts report projects global battery EV sales of almost 1.6 million in 2024, and the Tesla Model 3 will likely represent a significant portion of those vehicles. Unfortunately, in order for Tesla to remain a viable business, expanding sales volume will have to come before expanding the population of EV drivers.


Tesla’s Affordable EV Finally Sees the Light of Day

— April 1, 2016

EV RefuelingWho would have thought that a small, roofless, two-seat, self-propelled machine could inspire a revolution in the way humans move about? Strangely enough, it has happened twice now, first in 1886 when Karl Benz drove his Patent-Motorwagen for the first time, and again at the dawn of the 21st century when AC Propulsion founder Tom Gage built the tzero. In each case, the revolution wasn’t instant. It took 22 years before Henry Ford’s Model T moved the car from wealthy early adopters to the masses—the electric vehicle (EV) will need a similar timeframe to make a real dent in the marketplace. Tesla Motors hopes its freshly revealed Model 3 will be the Model T for a new century, but will it succeed?

Founded in 2003 after Martin Eberhard and Elon Musk drove the tzero but failed to convince Gage to put it in production, Tesla had a plan to change the world with electrons. The Tesla Roadster used a Lotus chassis as the starting point for an electric sports car inspired by the tzero. Tesla steadily increased its volume and revenue to fund subsequent more practical and affordable models. Despite failing to meet its self-imposed deadlines, the company has largely stuck to the plan, going from Roadster to Model S to Model X.

Increasing Production

Having successfully increased production by more than an order of magnitude from the Roadster to the Model S, Tesla now hopes to repeat that trend with the Model 3. To that end, the new model is priced starting at just $35,000 before tax incentives, which brings the brand into an entirely different marketplace. Where the Model S and X take on high-end models from Audi, BMW, and Mercedes-Benz, the Model 3 is priced almost directly opposite the Chevrolet Bolt, a 200-mile EV to be priced at about $37,000 when it goes on sale in late 2016.

Tesla Model 3

Tesla Model 3 Unveil

(Source: Tesla Motors)

Unfortunately, while Tesla was the first to market with battery EVs that could easily exceed 200 miles on a charge, this time around, Chevrolet has a head start of at least a year. When I first interviewed Martin Eberhard in 2007, the goal was to have an affordable mass-market EV in the 2012-13 timeframe. As Tesla now knows, building cars is a lot harder than building software, and the Model 3 is scheduled for a late 2017 launch. A base Model 3 may cost as little as $25,000 after federal and state tax credits. However, at its current sales pace, any further delay means that Tesla is likely to hit 200,000 total sales by mid-2018, triggering a phaseout of the federal incentives and raising the net price.

A Tougher Marketplace

In addition to the challenge presented by the Bolt, with gas prices under $2 per gallon, the Model 3 also faces a much tougher marketplace for fuel-efficient cars. New EVs must attract customers on their own performance, design, and reliability merits. Tesla has proven it can compete on the first two, but reliability remains an open question, especially as production volumes climb. Finally, there is the question of profitability, something Tesla has failed to achieve to this point. Without highly profitable gas-fueled trucks and SUVs, Tesla is at a disadvantage.

As we approach the 20-year mark from the birth of the tzero, Navigant Research’s Electric Vehicles Market Forecasts report projects sales of nearly 2.9 million plug-in vehicles globally by 2024. The zero emissions revolution is almost upon us—Tesla has certainly worked hard to bring the transformation to the world, but whether the timing works in favor of the Model 3 or the Bolt to be the new Model T remains to be seen.


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