Staying in the Driver's Seat: Traditional Automakers Shift to Electric and Autonomous Vehicles, New Insights from Bain & Company

With the right trade-offs and strategic partnerships, traditional automakers still have a chance to keep up in the race for electric and autonomous mobility.
Electric (EV) and autonomous vehicles (AV) are poised to become increasingly mainstream, posing a clear challenge to the industry’s established players.
Carmakers can seize opportunities and manage threats for the impending EV- and AV-driven future by making strategic investment trade-offs and forging critical partnerships.

The automotive world is speeding ahead: electric (EV) and autonomous vehicles (AV) are poised to become increasingly mainstream, posing a clear challenge to the industry’s established players. At the same time, the pandemic is chipping away at automakers’ financial cushion, making the choices of where to invest and scale up all the more difficult.

Bain & Company expects the electric vehicle market to start rapidly scaling around 2024, with the market for autonomous vehicles reaching a turning point soon after by 2028. Carmakers can seize opportunities and manage threats for the impending EV- and AV-driven future by making strategic investment trade-offs and forging critical partnerships.

“The automotive world is speeding ahead, especially when it comes to the innovation and the technology behind electric and autonomous vehicles,” said Klaus Stricker, co-head of Bain & Company’s global automotive practice and lead author of the report. “Decisions that leadership teams make in the coming months will be critical to determining their future competitiveness.”

The shifting economics of electric vehicles

The economics of electric car manufacturing are still tricky: Consumers are increasingly likely to purchase them, but producers still lose money selling them. In a Bain & Company survey of consumers from the US, Germany and China, almost 50 percent said they are considering purchasing plug-in hybrid electric vehicles (PHEVs) or battery electric vehicles (BEVs) as their next car. But it will still take several years until carmakers can on average achieve margins with battery electric vehicles comparable to the 5 percent margin of conventional powertrain vehicles.

Still, the global push towards electric vehicles, helped by government incentives and policies persists. By 2025, about 12 percent of all new cars sold worldwide will be fully electric. By 2040, that figure will be more than 50 percent. The first firms to achieve the ultimate goal—an affordable, unsubsidized electric vehicle—will gain a valuable competitive advantage.

One key component from a cost perspective is the battery, which accounts for 30 percent of the manufacturing costs. However, Bain & Company forecasts battery pack costs will drop from $124 per kilowatt-hour to $100 per kilowatt-hour by 2025. Technology improvements and optimized production at scale will enable this step change.

Finding the right track to autonomous vehicles

Over the next eight years, two major uses will emerge for self-driving cars: autonomous highway driving for private vehicles, and robo-taxi fleets for urban areas. Bain & Company anticipates autonomous vehicles will start to gain momentum by 2028 as legislation adapts and consumers are able to try out these new technologies and gauge their safety.

According to the firm’s research, AV ride-hailing services could be a profitable solution for urban mobility by 2030. Innovative cities will use robo-taxi fleets to complement their existing public transportation systems, utilizing AVs to cover less frequented routes, helping to relieve traffic in congested areas.

For the market to reach its turning point, vehicles will need to exhibit Level 4 automation, or self-driving without any human interaction under certain conditions. Several traditional manufacturers are expanding their advanced driver assistance systems and planning to launch Level 4 features by 2025.

AVs will eventually reach the market as private vehicles, in the luxury and premium segment. Offering a hands-free commute or trip, with the invaluable prospect of more time spent working or sleeping, these vehicles could make a high price worthwhile for many consumers. By 2030, in some regions, Bain & Company expects 4 percent to 9 percent of new cars sold will be equipped with Level 4 automation—the majority of which will be private vehicles offering highway assistance

High-level autonomous driving kits currently cost more than $70,000. But over time, standardization, simplification and mass production will significantly reduce the costs. The cost of an autonomous system could fall by more than 85 percent, to around $10,000, by 2030.

An action plan for automakers

Car manufacturers are at a critical juncture, heightened by the pandemic. Many leadership teams recognize they have little or no financial cushion, and the decisions they make in the months ahead will likely determine the future of the business. They also know that few if any companies currently have the resources to invest in the wealth of opportunities created by the advancement of both EVs and AVs, requiring tough choices.

To keep up with the pace of the market and avoid regulatory penalties, automakers can take a few immediate actions for electric vehicle investments.

Reduce complexity and costs to manage higher costs of EVs. Leading automakers will reduce their product lineup and shift investments to capabilities that differentiate the brand in consumers’ eyes.
Win new customer segments. Automakers can make direct connections with consumers through innovative new business models, such as subscription services. They can use other programs, like flexible leasing, to compensate for higher EV prices and reach new audiences.
Forge partnerships. Strong partnerships can help manufacturers plan for next-gen batteries, and secure expertise in cell technology and manufacturing. Leading OEMs can simultaneously prepare to seize opportunities and manage threats in an autonomous future.
Define a position in the new mobility value chain. Leading automakers will evaluate current capabilities and determine where they can create real value—whether private highway vehicles or urban ride-hailing services .
Establish points of contact to the end user. With tech firms already dominating mobility services, top manufacturers will land partnerships to gain access, shape the customer experience and reach users.
Secure access to Level 4 AV technology. Depending on their uses, OEMs will engage in partnerships early to shape the technology and minimize costs.

“The shift to electric and autonomous vehicles is gaining momentum by the day,” said Mark Gottfredson a partner at Bain & Company and a co-author of the report. “As the turning points approach, automakers must make bold decisions if they want to be able to compete with tech players and stay relevant with consumers.”

For more information, please visit www.Bain&Company.com.