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Who’s going to pay for the future of mobility?

by Craig Giffi, Dr. Thomas Schiller, Ryan Robinson
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    8 minute read 03 January 2020

    Who’s going to pay for the future of mobility? Insights from Deloitte’s 2020 Global Automotive Consumer Study

    8 minute read 03 January 2020
    • Craig Giffi United States
    • Dr. Thomas Schiller Germany
    • Ryan Robinson United States
    • Craig Giffi United States
    • Dr. Thomas Schiller Germany
    • Ryan Robinson United States
    • See more See more See less
      • Craig Giffi United States
      • Dr. Thomas Schiller Germany
      • Ryan Robinson United States
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    • You can build it, but will they come?
    • EV charging infrastructure: Someone needs to own it
    • What about fuel taxes in an EV world?

    To encourage consumer uptake of advanced vehicle technologies, the automotive ecosystem still has some work to do, including figuring out just who will build and pay for electric vehicle charging infrastructure.

    Stakeholders up and down the automotive value chain are pumping billions of dollars into making connected, autonomous, shared, and electric vehicles (EVs) a reality. In today’s climate, most automakers are so concerned about being left behind, they’re frantically trying to keep multiple research and development (R&D) balls in the air at the same time. But the cost of juggling multiple programs is enormous, and trying to do it at a time when most industry analysts agree that the sales upcycle the industry has enjoyed for a decade is all but exhausted is next to impossible.

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    High R&D costs are one likely reason some automakers have recently posted softer financial results,1 and they may also be prompting automakers toward cost-cutting measures, such as rationalizing their global manufacturing footprints. Further, high R&D costs could explain, at least in part, why some manufacturers are contemplating their exit from entire vehicle categories, as shedding unprofitable segments would allow automakers to spread their R&D budgets a bit further among those that remain.

    Another way automakers are seeking to control rising R&D costs is by actively looking to acquire technical expertise rather than developing it in-house. Some original equipment manufacturers (OEMs) recognize that developing advanced technologies themselves would take far too long and yield less than successful results. Accordingly, many automakers are intensifying efforts to pursue technology startups in global automotive innovation hubs, such as Israel.

    Yet another approach is to forge strategic partnerships to spread the cost—and risk—of developing advanced technologies across a greater number of players. Indeed, some OEMs are trying to plug visible gaps in their R&D programs by leveraging expertise from rival companies. The number of such partnerships is growing daily, challenging the traditional concept of competitive positioning. In fact, some recent headlines suggest that the rise in partnerships to pool technical expertise may be a precursor to renewed industry consolidation.2 Along with this, some automakers, especially those that have been slow to get in the advanced technologies game, may undertake significant rationalization efforts—particularly in their supply base—as they come under increasing pressure to remain relevant.

    You can build it, but will they come?

    Underlying automakers’ massive R&D investments is the assumption that consumers will actually pay for these advanced technologies when they appear on the market. However, results from the 2020 Deloitte Global Automotive Consumer Study suggest that achieving a return on invested capital for new technologies may be more difficult than some automakers think.

    Consider the curious case of the autonomous vehicle (AV). Three years ago, media headlines and industry stakeholders were tripping over each other to herald the imminent arrival of commercially viable AV fleets. But since then, the projected timeline for the first commercial AV launch has moved further and further back, with some industry observers now wondering if it will ever happen.3 More to the point of this article, results from our automotive consumer survey suggest that consumer interest in AVs has stalled. In last year’s survey, just under half of respondents in several countries believed that AV technology will not be safe,4 and this year’s results paint a very similar picture. Except in India and China, where the percentage of people that think autonomous vehicles will not be safe has actually gone back up. What’s more, this year’s survey found that most consumers in Germany (67 percent) and Japan (61 percent) are not willing to pay more than approximately US$500 extra for AV technology (figure 1).

    This unwillingness to pay for AV technology is part and parcel of a more general lack of willingness among consumers in developed economies to spend extra for other types of advanced automotive features. For instance, close to half of the survey respondents in Germany, and a respectable fraction of those in the United States (31 percent) and Japan (28 percent), indicated they would not pay more for a vehicle that could communicate with other vehicles and with road infrastructure to improve safety. That said, unwillingness to pay extra for connectivity was much lower among consumers in India (6 percent) and China (5 percent). This may be because consumers in more mature automotive markets have been trained for many years to expect manufacturers to introduce advanced technologies at little or no additional cost as a way to differentiate themselves in the market. In developing countries, where a much larger proportion of consumers are first-time vehicle owners, similar expectations about how vehicles are equipped may not have had a chance to solidify.

    The story is roughly similar when it comes to advanced powertrain technologies. Fifty-eight percent of German survey respondents said they would not pay roughly the equivalent of US$500 extra for a vehicle with an alternative-fuel engine; 54 percent of consumers in the United States said likewise. On the other hand, only 37 percent of Chinese survey respondents said they would not pay more than about US$500 extra for an alternative powertrain, likely reflecting the significant growth in China’s new-energy vehicle market over the last few years. But even so, Chinese consumers’ interest in alternative-fuel vehicles may be starting to wane, perhaps in response to the government’s decision to pull back on incentives.5 Only 57 percent of this year’s Chinese respondents said that they would most want something other than a traditional gasoline or diesel-powered vehicle in their next vehicle (figure 2), down from 65 percent in 2019.

    Consumer interest in alternative-fuel engines varies across countries

    Automakers still have reason to invest in developing new powertrain technologies, however. Interest in alternative-fuel vehicles is rising in several other markets. Fifty-eight percent of consumers in the Republic of Korea said they would most prefer their next vehicle to have an alternative fuel engine, up from 43 percent in 2019. Fifty-one percent of respondents in Germany said the same, up from 37 percent a year ago. Even in the United States, where a combination of loose environmental policy, low fuel prices, and tight incentives have kept interest in hybrid and fully electric vehicles largely at bay, 41 percent of consumers said they are actively considering an alternative-fuel vehicle in the future, up from only 29 percent last year.

    EV charging infrastructure: Someone needs to own it

    For EVs to really take off, consumers should be convinced that they won’t be left at the side of the road with a dead battery. Range anxiety and the availability of charging infrastructure are two of the top three concerns holding people in many countries back from purchasing an EV—even though these fears are becoming less justified as the technology improves with every passing year.

    EV technology has progressed to the point where an EV’s battery capacity would satisfy the vast majority of consumers’ actual transportation requirements. In fact, our study results show that even though 41 percent of US consumers believe full battery electric vehicles should have a range of at least 300 miles, the average vehicle owner travels just over 27 miles per day. However, in the absence of large, exogenous factors such as a fuel price shock, a shift in government policy or incentives, or even a diesel scandal, getting consumers over their collective fears regarding EVs remains difficult. It doesn’t help that EV manufacturers and infrastructure providers face the “chicken and egg” problem of whether to encourage demand by installing charging infrastructure first, or wait until after demand has risen to a certain point before investing significantly in a charging network.

    However, the biggest problem may be that no one in the automotive ecosystem seems especially eager to take responsibility for the kind of holistic charging infrastructure investments that will likely be required. Some vehicle manufacturers have stated that they are not in the business of selling fuel, although some pioneers have been forced into the charging space to make their overall business strategy viable. For their part, traditional fossil fuel providers are happy to maintain the status quo. Government agencies are channeling some funds to specific projects to promote innovation, but these amounts are nowhere near the overall investment likely needed.

    When put to consumers, the question of who should be responsible for EV charging infrastructure becomes somewhat clearer. Thirty-eight percent of consumers in Japan believe that it is the EV manufacturer’s obligation to build out the necessary charging network, and many in the United States (36 percent) and India (34 percent) hold the same view. However, opinions in the Republic of Korea and Germany are decidedly different. In the Republic of Korea, only 24 percent of consumers said that the OEM should be responsible for building charging stations, and half thought it should be the government’s responsibility. Moreover, German consumers were roughly evenly split in placing the responsibility on OEMs, government, existing fuel companies, and electric utilities. As we’ve seen in some other industries, the question of establishing a viable, holistic EV charging network may open the door to a public-private partnership (P3) that would have the resources to scale an appropriate response to this issue.6

    An interesting side note is that, when asked how long it should take to fully charge an EV, only 17 percent of German consumers said less than 10 minutes. In fact, less than 10 percent of US survey respondents said the same. Further, 27 percent of US respondents and 30 percent of German consumers would be willing to wait between 30 minutes and one hour to charge their electric car.

    What about fuel taxes in an EV world?

    To date, one of EVs’ most compelling benefits has been essentially free or very low-cost fuel. But governments, of course, have an interest in maintaining the considerable revenue stream currently generated by fossil fuel taxes. In fact, the level of refueling taxes applied in Germany (46 percent), Japan (47 percent), and India (49 percent), have translated into a substantial and stable source of government revenue over several decades. Even in the US, a loss of the 19 percent tax applied to each gallon of gas pumped would be a considerable gap to backfill. Therefore, the more that global governments encourage EV ownership through incentives and other stimulants, the more they should figure out how to either tax electricity to earn revenue comparable to that generated by fossil fuel taxes, or come up with alternative revenue sources to fill the void. These alternatives could take the form of user fees or other, similar mechanisms, but many of these ideas are very unpopular with consumers.7

    At the end of the day, both automakers and governments should find new revenue streams to fill potential gaps left by an evolving industry. Even though some of the technologies now being developed may take years to become commercially available, considering the implications now may yield significant benefits down the road.

    Acknowledgments

    Cover art by: Daniel Hertzberg

    Endnotes
      1. Kevin P. Tynan and Michael Dean, “Global automobile manufacturing industry outlook,” Bloomberg Intelligence blog, July 29, 2019. View in article

      2. Chanell Turner, “Partnerships’ is the new automotive industry buzzword,” CBT Automotive Network, March 19, 2019. View in article

      3. Alex Davies and Aarian Marshall, “Are we there yet? A reality check on self-driving cars,” Wired, April 22, 2019. View in article

      4. Craig A. Giffi, Joe Vitale, and Ryan Robinson, Tempering the utopian vision of the mobility revolution, Deloitte Insights, January 4, 2019. View in article

      5. Arjun Kharpal, “As China cuts support for its electric carmakers, auto firms could face a ‘war of attrition’,” CNBC, June 19, 2019. View in article

      6. Elyse Maltin, “What successful public-private partnerships do,” Harvard Business Review, January 8, 2019. View in article

      7. David Gutman, “New poll: Tolling freeways, city streets deeply unpopular across the board in Seattle and King County,” Seattle Times, January 20, 2019. View in article

    Show moreShow less

    Topics in this article

    Technology Management , Manufacturing , Future of Mobility , Automotive , Consumer Industry

    Customer and Marketing Strategy

    Stakeholder expectations for growth and profitability have increased while the global business environment grows more complex and fluid. In this environment, the influence and agenda of marketing executives have expanded, yet their organizational context has not fully caught up—they often have only indirect input on many of the critical customer and marketing-related decisions enterprises need to make. Navigating these tensions is what today's chief marketing officers (CMOs) face.

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    • Joseph Vitale, Jr.
    • Global Automotive leader
    • Principal, Deloitte Consulting LLP
    • jvitale@deloitte.com
    • +1 313 324 1120

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    Craig Giffi

    Craig Giffi

    Vice Chairman, Deloitte LLP

    Craig Giffi is the leader for the U.S. Consumer & Industrial Products Industry practice spanning the Aerospace & Defense, Automotive, Consumer Products, Process & Industrial, Retail & Distribution, and Travel, Hospitality & Leisure Industry practices for Deloitte LLP. Craig has primary responsibility for Deloitte’s activities as a member of the Council on Competitiveness working with industry CEOs, university presidents and labor leaders to shape the debate on competitiveness.

    • cgiffi@deloitte.com
    Dr. Thomas Schiller

    Dr. Thomas Schiller

    Managing Partner Clients & Industries

    Dr. Thomas Schiller is Managing Partner Clients & Industries. In this role, he is responsible for interdisciplinary market orientation and leads the client and industry programs. He also manages the cross-business innovation program for Deloitte Germany. On a global level, Thomas Schiller is in charge of business relations with one of the world's leading German car manufacturers. He has more than 20 years of consulting experience in Strategy & Operations and is an expert in competition and the strategic orientation of the global automotive industry, especially in growth markets. Thomas Schiller specializes in expansion and performance programs, as well as sales and after-sales optimization. In the automotive-related environment, he has led numerous projects with a focus on product and market strategies, branding, sales, fleet management and financial services. Prior to his role as Managing Partner C&I, he was responsible for the automotive sector in Germany and Europe and was a member of Deloitte's global automotive leadership team. Thomas Schiller holds a PhD in business administration and university degrees in mechanical engineering and business administration.

    • tschiller@deloitte.de
    • +49 89 290367836
    Ryan Robinson

    Ryan Robinson

    Automotive Research Leader

    Ryan is the research leader supporting the global Automotive sector for Deloitte's Consumer Industry Center at Deloitte LLP. His primary focus is creating engaging, actionable insights to deepen the conversation around key trends and issues occurring across the global automotive sector landscape. For the past two decades, Ryan has supported companies throughout the automotive value chain, from manufacturers and parts suppliers to private equity firms and after-market service providers. He has been a frequent speaker at industry conferences and has been quoted as a subject-matter expert in major media outlets around the world. Robinson holds degrees in philosophy, classical archaeology, and English literature from Concordia University in Montreal, Canada.

    • ryanrobinson@deloitte.ca
    • +1 647 502 9566

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