A commonly used expression in the automotive industry—“we lose money on every sale but make it up in volume!”—aptly describes the challenge of profitably producing electric vehicles (EVs).
Automakers have few alternatives to EVs, given the significant penalties imposed in Europe for not meeting stringent carbon emission targets, namely 95 grams of carbon dioxide per kilometer. This implies that automakers need to ‘push’ EVs into the market, irrespective of the negative profit impact such actions might have. Given the stakes, raising profitability—or simply getting closer to breakeven—is of paramount concern.
But it doesn’t have to be this way. Stepping beyond established business models and traditional industry logic, companies can indeed make EVs profitable. EV business models could even exceed the profitability of internal combustion engine (ICE) powertrains if companies recalibrate their current business models and eventually embrace radical change….