The tipping point for electrified vehicles is in sight, and a combination of hybrid and fully electric powertrains is expected to cut the global market share of pure internal combustion engines (ICEs) by about 50% by 2030.
ICEs will continue to play a major but changing role in the industry, as most electrified vehicles over time will be hybrids, according to new research by The Boston Consulting Group (BCG).
Three factors—technology, regulatory mandates, and consumer cost of ownership—will shape the changeover, which BCG expects to play out over three phases and about a dozen years. ICEs will continue to be the dominant powertrain for the next several years, at least through 2020, as the prices of electrified vehicles will remain high, even with incentives, and the payback period based on total cost of ownership (TCO) for consumers will be too long to be attractive. In addition, manufacturers will readily meet current emissions regulations with advances in ICE technology.
Three types of technological advances will shape the powertrain future. Through 2020, technological improvements in ICEs should be sufficient to enable the industry to meet regulatory emissions requirements in major markets. The biggest change will be in Europe where diesel engines, which held 48% of the market in 2016, will begin a relatively rapid decline in share toward 36% in 2020, owing to the rising costs of meeting nitrous oxide and nitrous dioxide emissions standards and to “clean” consumer trends that will encourage buyers to explore less expensive forms of electrified vehicles.
At the same time, battery costs, which are the single largest driver of TCO for BEVs and PHEVs, are declining further and faster than projected just a few years ago. BCG estimates, confirmed by several sources, have batteries’ per-kilowatt-hour cost falling to between $80 and $105 by 2025 and to between $70 and $90 by 2030.
Regional Market Variations
The adoption curve for electrified vehicles varies to some extent by market, depending on TCO, which reflects such factors as the price of the vehicle, the number of miles driven, and gas and electricity costs. In China, for example, the leading market for electrified vehicles so far, high mileage, low electricity costs, and high gas prices combine to give these vehicles a favorable TCO relative to ICE-powered cars and trucks. Government incentives for BEVs have reduced the consumer’s TCO to the point where BEVs actually reached a five-year payback, compared with the TCO for ICEs, in 2015.
“OEMs and their suppliers should keep their eye on two broad trajectories,” Mosquet said, “the rise in market share of electrified vehicles from about 3% today to 50% around 2030, and the increase in share for battery-powered vehicles from almost nothing to about 14% of the global market in 2030. There will be variations in the pace of change, depending on regulatory actions, consumer adoption of autonomous vehicles and car sharing, and the economics of different fuel sources. Companies will need to develop a suite of strategic and product options to manage a transition that is both inevitable in its destination and uncertain as to its route.”