For automakers small and enormous, outdated and new, transitioning to a largely electrical future has not been a simple endeavor. Or an affordable one.

With the established “legacy” automotive corporations, this has meant ramping up battery and software program operations—and studying to make EVs appropriately—whereas maintaining income up by promoting gas-powered automobiles. For the startups, it has meant scaling up manufacturing techniques for years, usually by promoting costlier EVs first, whereas making an attempt to outlive lengthy sufficient to even develop into worthwhile. 

So simply how a lot cash are automotive corporations shedding on EVs proper now? In response to one estimate from Boston Consulting Group, as a lot as $6,000 per EV offered round $50,000.

That knowledge involves us from BCG’s new examine, “Can OEMs Catch the Subsequent Wave of EV Adopters?” which we additionally lined right here. 

“We estimate that almost all [automakers] presently lose round $6,000 on every EV they successfully promote for $50,000, after accounting for buyer tax credit,” the examine mentioned. “We additionally estimate that [automakers] will solely be capable of shut half of this price hole by making the best expertise decisions; economies of scale as automakers ramp up manufacturing will assist, too, however they gained’t make up the distinction.”

I used to be struck by the specificity of that determine, so I reached out to Andrew Loh, Managing Director and Senior Associate at BCG and an creator of the examine, to study extra. 

Here is how they landed on that $6,000 quantity. 

“Take a $60,000 ICE car,” Loh mentioned. “An inexpensive degree of profitability that we have seen traditionally from ICE autos is about 10%,” he mentioned, stressing that car revenue margins exist over a broad vary however that quantity is mostly true of mass-market automakers with a robust presence within the U.S. 

“Creating the bridge from ICE to EV, it’s worthwhile to add the price of the battery, which is about $10,000,” Loh mentioned. “You add the e-powertrain and incremental electronics, which is about one other $5,000. After which it’s worthwhile to add the incremental funding and labor and overhead,” which tends to be increased as a result of few EV operations exist at scale proper now. 

Add about one other $1,500 per car for plant investments, engineering and different capital prices. Now subtract the ICE powertrain, which Loh mentioned is round $4,000 per car. “That is what will get you to minus 10% [profits], or minus $6,000, versus plus $6,000 profitability.”

In different phrases, it simply comes all the way down to excessive capital prices proper now within the early levels of EV growth, being constructed at operations that are not but totally at scale.

There are apparent exceptions to this, after all. Tesla has been solidly worthwhile for years, once more owing to its manufacturing scale; secure income had been common particularly as soon as it bought its Chinese language manufacturing facility rolling. China’s BYD can also be worthwhile from making EVs. And luxurious automakers within the U.S. are worthwhile with them too, as a result of they are often offered at a lot increased costs; BMW, Porsche and Audi are just some examples. 

Once more, the startups have this downside too, however another way. New operations like Lucid, Fisker and Rivian are believed to lose cash on every automotive till they will cross the so-called “Valley of Demise” and attain mainstream, quantity gross sales. 

So BCG’s $6,000 quantity is not a tough and quick rule for each model or worth level, however a common instance of what is at stake for automobiles offered for round $50,000—nonetheless near the typical new automotive worth in America. 

However Loh and the opposite examine authors observe that except automakers make a much bigger retreat from EVs, this can be a kind of non permanent scenario. New battery and carmaking vegetation are being constructed the entire time within the U.S. alone; new manufacturing methods and battery chemistries are being developed to lift vary whereas reducing prices; and practically each automaker is discovering methods to get into the cheaper $25,000 vary, whereas nonetheless being worthwhile with them.

He simply warned that the last word purpose of “worthwhile, at scale, EV manufacturing” could also be additional off than some consultants suppose. 

“Lots of people have centered in on the cautionary tone of the [report,] and we actually need to be balanced,” Loh mentioned. “We, as a agency, proceed to be optimistic about EVs over the long term. The phrase of warning was extra round, if you happen to count on [this new generation of EVs], to rapidly, reverse the fortunes, we’re unsure that is going to occur utterly.”

Contact the creator: patrick.george@insideevs.com