Quicker than expected, auto industry revs up for an electric-car future

Some experts project electric vehicles could make up more than half of car sales by 2040, projections that GM, Ford, Volkswagen, Chinese automakers, and others are taking seriously all of a sudden.

When General Motors pledged on Oct. 2 to launch at least 20 new electric vehicles in the next six years, it was more than the usual new-product announcement. It was a sign of how the global auto industry is being pushed toward a vision of rapid and radical change.

It came, after all, just about three weeks after news that China, the world’s largest car market, is "formulating a timetable to stop production and sales of traditional energy vehicles," according to one ministry official, as quoted by the Associated Press.

That’s a prospect global carmakers can’t afford to ignore. Yet even as China’s rising influence is inescapable, that nation’s move is rooted in something more fundamental. Technology is fast resetting the outlook for what cars can do, how consumers use them, and how much an electric vehicle (EV) will cost. The stock price of Tesla, rivaling GM’s and Ford’s market value for its perceived EV leadership, is another straw in the wind.

The realm of personalized transit is on track to be massively reshaped, and possibly at a much quicker pace than industry leaders from Detroit to Tokyo could have imagined just a few years ago.

“It is revolutionary. It is a huge, fundamental change,” says Brett Smith, a technology expert at the Center for Automotive Research in Ann Arbor, Mich. “There's a much greater understating that things are happening fast.”

GM’s announcement followed a spate of other EV commitments in recent months including by Volkswagen and Volvo, which is owned by China-based Geely. And this week other carmakers have chimed in.

Ford, often seen as a laggard in the EV push, announced a big cost-cutting effort on Oct. 3, partly with the aim of ramping up battery and hybrid gas/electric vehicles. And Honda, in similar vein, announced factory overhauls, citing an industry that “is undergoing an unprecedented and significant turning point in its history.”

It’s notable that the mood of an unstoppable transformation is building among corporations that, while all about transportation, aren’t traditionally known for agility and speed. “It's an evolutionary industry,” Mr. Smith says, “not necessarily one that does revolution well.”

At the moment, EVs account for barely 1 percent of US or global sales, and even Tesla has been struggling to ramp up assembly to meet promised deliveries for its newly launched Model 3 – aiming at a mass market with base prices around $35,000. That’s proof, if nothing else, that making cars isn’t easy.

Judging on that basis, the vaunted EV revolution is little more than a sketchpad dream. This is a challenging and cost-intensive business. Aspirations like those of Britain and France to end sales of gas-powered cars by 2040 could easily be foiled, even if manufacturers try to deliver.

But here’s what’s changed.

“Technology is getting cheaper,” says Genevieve Cullen of the Electric Drive Transportation Association in Washington, a group promoting electric, hybrid, and fuel-cell vehicles.

In particular, the falling cost of lithium-ion batteries brings a tipping point into view. By 2025 or even sooner, it’s possible that electric drivetrains will have no cost disadvantage compared with internal combustion engines, according to analysis by Bloomberg New Energy Finance, an energy research group.

That’s vital, because even with consumers who are interested and governments promoting a switch over, affordability matters a lot. Auto customers, from families to businesses with fleets, need transportation that doesn’t break the bank.

When that tipping point is reached, the EV share of overall car sales could quickly skyrocket.

What makes things even wilder, for consumers and carmakers alike, is that the trend toward electric drivetrains will be coinciding with other tech-related changes. The rise of ride-sharing services like Uber and Lyft, as an alternative or supplement to personal ownership, won’t go away. Nor will the trend toward cars with growing ability to drive themselves.

Internationally, the push to dampen climate change by limiting auto and other carbon-based emissions is also demonstrating staying power.

These trends present vast opportunities. GM chief executive officer Mary Barra is eyeing a goal of “zero crashes, zero emissions, and zero congestion.”

But it also comes with risks and uncertainties.

“Nothing is inevitable in the near term,” Ms. Cullen says.

The safe thing for the auto giants is not to be caught flat-footed if and when the crossover happens. But that kind of “safe” carries lots of risk. The speed will depend on everything from pricing and consumer tastes to likely glitches as automakers face both fierce competition – including from new entrants – and the need for billion-dollar factory investments.

“Are there enough batteries?” asked Michael Liebreich, head of Bloomberg New Energy Finance, at a presentation in September. Despite abounding doubts today, he said “the answer is, there will be. There will be a huge investment in the supply chain. There's no natural limitation of availability of those elements.”

He projected that EVs will reach 54 percent of new-car sales by 2040, and soar still higher after that. Some other forecasters offer a similar outlook.

Already it’s clear that partnerships will be a path toward sharing the risks and costs. China may become not just a locus of EV demand but of production for export. But the transformation won’t necessarily be smooth or profitable, or its pace easily predictable.

“There's some balance between what consumers will accept and what regulators will require,” says Mr. Smith in Ann Arbor. If the two aren’t well enough aligned, “there can be some spectacular wipeouts here.”

Yet a shift has happened deep in the bowels of companies like GM, he says. Engineers who a few years ago didn’t see EVs as cost-competitive now seem open. “More and more people are saying it might happen.”