The ongoing discussions about profit margins on the “first” [mass scale] generation of EVs from the Big Three supposedly being razor thin or even leading to loses has left me wondering if anyone be it the US DOT or a NGO has attempted to estimate how much the total cost for retooling the US automotive industry towards BEVs might look like in the end.
Obviously, I understand a lot of factors -from funding streams at every level of government, to international relations, to even just timing- can play an immense role in the calculation of such an estimate but I’m curious if there’s even a ballpark estimate. Have any analysts attempted to come up with with a “realistic” estimate of, say, when GM will have fully absorbed the setup cost for Ultium and vehicle unit cost will just be determined by the opex overhead of a given production line rather than having to also account for the upfront capex of the whole platform and production chain buildup?
I don’t think you can, at least not in the fashion that you’re hoping for. There are a few reasons for this, but for instance, consider that tooling and engineering efforts towards EVs are synergistic with advances in core compute and line automation. Tooling efforts being rolled out for EVs are rolled back into ICE, and vice versa. There’s no clear hard line between an EV expense and a non-EV expense. Meanwhile, R&D costs are never fully ‘absorbed’ — they just keep pushing forward to new innovations and improvements.
As you suggest, even something like financing terms and changing sales environments can drastically change how quickly these capital expenditures are paid off. If Ford has to drop prices on the Lightning to make it sell, they’re going to take a lot longer to make money.
What we do know is that most OEMs are targeting around 2026 for ‘breakeven’, meaning net and rolling profitability. We also know that not long after that, most OEMs are expecting BEVs to reach cost parity. After that… well, everyone’s pay-down and investment scheme will be different.
Thank you so much for the detailed answer! Guess I should have figured capex would be hard to delineate as being purely BEV or ICE related if nothing else just on the basis of how many components vendors are trying to share across their platforms.
I was not aware of the 2026 industry estimate, do they have a range of different dates assuming better or worse market conditions and government support levels?
Guess I should have figured capex would be hard to delineate as being purely BEV or ICE related if nothing else just on the basis of how many components vendors are trying to share across their platforms.
Sure, and don’t forget, there are other non-powertrain developments happening orthogonally. For instance, if Hyundai expands into PBVs (including AVs) and those PBVs are EVs, how do we categorize that spend? Is that EV tooling or something else? It gets confusing quickly.
I was not aware of the 2026 industry estimate, do they have a range of different dates assuming better or worse market conditions and government support levels?
I haven’t really seen any date ranges, but I assume the rolling-profitability break-even point in particular is actually pretty clear for most OEMs. We’re seeing a convergence point of a few key regulatory inflection points and critical technologies at that time:
- Production of LFP packs ramp up in the west at that time. Just off the top of my head, Ford, LG, and Volkswagen all have LFP targeted for 2026.
- We should see dry electrodes become market-ready at that time. Same deal, should happen right around 2026, likely along with the LFP spike. This will bring cell cost down significantly.
- In Europe, Euro 7 kicks in putting significant pressure on OEMs to reduce their fleet emissions. Expect pure-ICEV to basically disappear from Europe entirely by 2025. In the USA, the CARB ACC2 regulations kick in, mandating ZEV minimums for cars sold in most of the coastal states.
- All of this means it’s suddenly worth it for OEMs to dedicate entire lines to BEVs, rather than just portions of lines or platform-flexible lines.
- On top of this, right around 2025 is when we see core compute become a mature, commoditized phenomenon, and when OEMs start having single, integrated software and compute hardware packages. You’ll sometimes hear this referred to as the “software-defined vehicle” paradigm, or “multi-domain compute”.
The end-sum result of all these individual elements coalescing is that most of the major OEMs have their next-gen platforms coming online right around that 2025-2026 timeline. For instance, Hyundai will target their new IMA-based eM and eS platforms for that time period.
So the question for me isn’t whether BEVs become net-profitable in 2026, but rather how net-profitable they become, and then as you suggest, roughly how well OEMs are able to recoup their investments.
Thank you so much for this phenomenal breakdown! I knew LFP production was set to continue to ramp up but I didn’t realize dry electrode tech was already projected to reach production so soon.
On top of this, right around 2025 is when we see core compute become a mature, commoditized phenomenon, and when OEMs start having single, integrated software and compute hardware packages. You’ll sometimes hear this referred to as the “software-defined vehicle” paradigm, or “multi-domain compute”.
This has been a long time coming and it’s nice to see vendors converge on using a single modular firmware solution across their range instead of having every design team cobble some bespoke headunit interface. Given the recent hiccups with OEM led software development like at CARIAD or Volvo just outright contracting out portions of firmware development to Google (I’m not entirely clear if Android Automotive actually assumes control of the drivetrain or is effectively just a frontend for whatever firmware Volvo has running on their motor and battery control units) do you think we’ll see the industry end up shifting to an industry wide base OS as a way to pool resources or do OEMs seem set on sticking to their in-house software stacks?
I’m not entirely clear if Android Automotive actually assumes control of the drivetrain or is effectively just a frontend for whatever firmware Volvo has running on their motor and battery control units
More of the latter. This is the multi-domain part of multi-domain computing: The cars run multiple operating systems simultaneously, and the multiple operating systems talk to each other.
Right now that happens over separate boards and separate chips, but in the future, it’ll all just happen on one physical chip with multiple cores, with all of the different bits and pieces essentially running on their own VMs.
do you think we’ll see the industry end up shifting to an industry wide base OS as a way to pool resources or OEMs seem set on sticking to their in-house software stacks?
I’d say we’re converging on a set of common standards, like everyone seems to just be using Android for IVI, but it doesn’t matter what the base layer is underneath Android — just that it talks with the same APIs.
Retooling always occurs. On an ongoing basis. Constantly.
Tooling wears out. The reinvestment in new tooling is assumed, always. Ford isn’t still making Model Ts because they once invested in tooling for them. In fact, they invested in aluminum bodies on the F-series line when the previous F series sold just fine.
The big three are used to massive capex. This is nothing new. The expense to pivot to EV isn’t dissuading them.
The question is more about volume than about time, IMHO. What I mean is. . . Bringing any new automotive platform to production, electric or otherwise, costs several billion dollars. Then you need to sell about 50,000 units per year of that platform. So how long will it take to ramp up to that level of production-and-sales?
This is where GM (and several other companies) are having it rough. With Tesla already holding a big chunk of the EV market, and the remaining portion sliced really thinly between different car makers and multiple models and platforms, it’s proving hard for any new automotive platform to reach the scale where it becomes economically viable.
And when I hear about car makers delaying their plans, I have to just shake my head. That means extending their pain.
I don’t have an easy answer for them, though. They can either tough it out for even longer while the electric car market grows, or else they can make a Tesla-like leap of faith: Throw intense effort into designing an amazing vehicle, set up the production lines to produce it on massive scale, and trust that the masses of people will be eager to buy your amazing vehicle. And then die by the sword if you got the product wrong, Edsel style. But I don’t see GM or most other “legacy” auto makers attempting that. It’s too far outside the modern auto industry corporate culture (to include officers, board and shareholders too).