McKinsey: How should electric vehicles be designed?

Regulatory pressure on internal combustion engines, combined with technological upgrades in electric systems and batteries, has driven demand for pure electric vehicles. Most automakers are launching new electric models, and new manufacturers without a history of internal combustion engines are also joining the ranks. In 2016, global sales of pure electric vehicles (excluding hybrids) grew by nearly 45%.

As pure electric vehicles begin to become best-sellers, it is time to understand the technology development trends in depth. We worked with automotive benchmarking company A2Mac1 to conduct a large-scale benchmark model analysis, including first-generation and second-generation electric vehicles. At the same time, we physically disassembled ten models, namely 2011 Nissan LEAF, 2013 Volkswagen e-up!, 2013 Tesla Model S 60, 2014 Chevrolet Spark, 2014 BMW i3, 2015 Volkswagen e-Golf, 2015 BYD e6, 2017 Nissan LEAF, 2017 Chevrolet Bolt and 2017 Opel Ampera-e.

Among the pure electric vehicles that have been mass-produced, these ten models account for about 40% of sales. In addition to these ten disassembled vehicles, we also analyzed the public information of other vehicles and consulted independent experts in related fields. The results show that the successful mass production of pure electric vehicles requires a completely different thinking logic.

Here are five key insights we distilled.

1. Want a high-performance electric car? You must build a native platform.

The analysis of benchmark models shows that there is a clear gap between electric vehicles based on native platforms and those based on internal combustion engine platforms in terms of range and interior space. The former can optimize the battery module design, while the latter requires the battery to fit into the awkward space on the internal combustion engine platform, thus limiting the improvement of battery energy density.

According to EPA data, native battery packs can use a simple rectangular shape to double the range of electric vehicles, with each charge capable of traveling more than 300 kilometers and close to 400 kilometers in optimal conditions, without increasing prices. In addition, in the same market segment, electric vehicles developed on native platforms can obtain more interior space, up to 10%, compared to electric vehicles and fuel vehicles developed on internal combustion engine platforms with the same wheelbase.

2. There is no technological convergence in the design of electric vehicle power systems.

During the analysis of the benchmark model, we also disassembled the battery, battery cell and thermal management system. We found three different battery cell designs with different geometries (cylindrical, square shell and soft pack), showing various chemical reactions.

Because each cell design has clear advantages and disadvantages, there is no clear winner in the performance of best-selling electric vehicles. Our analysis found that the energy density of these cell designs increased by more than 30% in the seven years from 2011 to 2018.

We also found that there are huge differences in the design methods of thermal management. For example, there are four different solutions for battery cooling systems: passive (natural air cooling), active combined with the power system, active independent for the battery, and active combined with air conditioning circuit.

We also identified three prototypes for battery heating, the first of which had none at all, the second used waste heat from the motor, electronics, or air conditioning system, and the third integrated a dedicated RTD heater into the battery pack. Some of the dedicated RTD heater units used energy from the battery and only operated when the vehicle was charging; others were based on a combined liquid cooling/heating cycle and used a different heat source, such as a RTD heater outside the battery pack.

Currently, cylindrical cells perform best on the market, with the highest energy density at nearly 245 Wh/kg. Next is the soft-pack battery, with an energy density of nearly 195 Wh/kg, a shocking gap of nearly 25%. Finally, there are square-shell batteries, with an energy density of nearly 160 Wh/kg. However, if you look at the net energy density of the battery pack, the battery housing and thermal management system help to even out the scores: cylindrical batteries 132 Wh/kg, soft-pack batteries 138 Wh/kg, and square-shell batteries 104 Wh/kg.

At present, there is no single technological trend, and OEMs still need to invest in these areas at the same time to achieve an ideal deal in terms of cost-effectiveness of battery and thermal management design.

3. The Design to Cost (DTC) approach has been implemented on electric vehicles.

Analysis of benchmark models shows that OEMs that have won the battle for performance and range have begun to adhere to the design-to-cost (DTC) approach, especially in the design of the powertrain and body-in-white of electric vehicles. This trend is particularly evident in the second-generation electric vehicles. Design-to-cost focuses on the integration of powertrain components and the intelligent application of lightweight materials in structural parts.

When it comes to vehicle weight, we analyzed the main structural parts of ten models to estimate their use ratio of aluminum and composite materials. Among these structural parts, some second-generation best-selling electric vehicles use only 5% to 10% of aluminum by weight, which is close to the average level of internal combustion engines (about 5%). In luxury electric vehicles, aluminum accounts for about 40% of the vehicle weight, mainly used to improve acceleration and power performance.

The market share of best-selling electric vehicles in the lightweight field will continue to trend towards internal combustion engines, mainly due to the following three reasons:

Generational breakthroughs in power technology require significant vehicle weight reduction, which can be directly invested in lower-cost structural parts.

• In today's manufacturing costs, batteries are the key issue for long battery life, not lightweight materials;

• Electric vehicles lack external incentives for (expensive) weight reduction measures, unlike internal combustion engines, which have carbon emission targets and corresponding penalties.

Based on the vehicles currently coming to market, the design-to-cost trend will continue.

4. Electric vehicles are completely different vehicles and require completely different supply logic.

Auto OEMs need to review their business models to create new revenue and profit opportunities for electric vehicles. Today, they are highly dependent on consumers’ demand for upgraded models, such as adding engines, transmissions, comfort and safety features, and using aftermarket parts and services to increase profitability (and meet their capital costs).

The maintenance costs of electric vehicles are greatly reduced and more restricted by optional parts, due to the following two reasons:

• Performance differences are minimal. Existing electric vehicles are already capable of delivering the acceleration performance of high-end internal combustion engines in the same market segments. However, compared to the 10 to 20 internal combustion engine powertrains of the past, electric vehicles now offer no more than four engine and transmission combinations.

• The basic electric vehicle configuration already includes many optional parts. Due to the high cost of batteries, the basic price of electric vehicles is very high, which makes the OEM put more optional parts in the basic configuration of an electric vehicle than a fuel vehicle, thus losing high-profit revenue.

5. The internal strategies of core suppliers of electric vehicles and OEMs are in serious competition.

• Electric powertrains are significantly different from internal combustion engines in terms of required capabilities, added value, and component complexity. The growth in sales of electric vehicles threatens the competitive position and market share of OEMs and internal combustion engine suppliers.

• Based on the supplier logos printed on the disassembled parts and the publicly available information, we have obtained an outside-in view of the electric vehicle powertrain supply chain. OEMs have adopted different strategies in outsourcing powertrains, ranging from vertically integrated production to full outsourcing of parts. When parts are fully outsourced, the degree of design ownership also changes.

Under the premise that most electric power system components have lower complexity, lower development potential, and are difficult to differentiate, once the design shows a trend of complete commercialization, we expect that OEMs will outsource most of the power systems in the future.

At the same time, we can see significant risks for established OEMs and Tier 1 suppliers. Some Tier 1 suppliers have already gained significant share outside their original core areas. Since electric vehicles are less complex than internal combustion engine power systems, the higher risk faced by OEMs is how to differentiate in driving performance.

It is worth noting that two of the top five electric vehicle manufacturers are new members, one is Tesla and the other is BYD.

As demand grows, electric vehicles will continue to innovate in technology and design, and strategic challenges will follow. Incumbent OEMs and traditional suppliers need to rethink how to protect their original profits.