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Electric Vehicles Are Poised for Big Growth, if Automakers Step Up to Meet Demand

Consumer interest in electric vehicles (EVs) is starting to pick up speed. EV sales hit a new record in 2016, up 37% from 2015 and sales in January were a whopping 70% higher than sales in Jan 2016. New models, lower costs, longer driving ranges and expanding charging infrastructure combine to make EVs more accessible to more consumers.

McKinsey EV report graphic

Despite this recent surge in sales, EVs still account for only about 1% of the total automotive market. What’s stifling EVs from gaining a larger share of the market? A new McKinsey report identifies easy profits from traditional gas engines, lack of consumer familiarity of EVs, and a changing automotive landscape make it harder for automakers to focus on making large investments in their EV fleet.  But the report finds that with the right approach, automakers can boost EV sales in a cost-effective, profitable way.

McKinsey researchers found there is a significant opportunity for growth in the EV market as consumers get more familiar with EV technology and comfortable with charging, commuting and traveling with an EV. Like traditional gas engines, nearly all potential buyers are aware of EVs. However, only half of potential EV buyers are actually familiar with features and livability of EVs. That general lack of familiarity leads only few buyers (~30%) to truly consider an EV and an even smaller percentage to pull the trigger to buy one (~3%).

McKinsey also identifies an on-going supply and demand “mismatch” that’s preventing more EV sales. Right now, the premium vehicle market is being satisfied by Tesla and a few other luxury electric models. But many consumer needs are not being met in other segments of the vehicle market, and within SUVs and crossovers in particular. The lack of diversity in EV models is hampering sales because the available models are only meeting the needs of a  sliver of consumers.

So what can be done to address these challenges? McKinsey identifies three main strategies: more EV options, more competition and update business models to meet changing consumer needs.

First, automakers need to diversify EV product offerings to meet different consumer segments. For example, consumers in cities want to see more affordable options, and more purpose-built options with smaller batteries and shorter-ranges. Other segments, labeled by McKinsey as “urban families” and “trendy families”  want to see have more driving utility, large range of sizes among available EVs with longer battery ranges.

Brand awareness and loyalty was another factor that the report suggested may be hindering growth. Companies like Tesla are relatively new,and they are meeting the needs of early-technology adopters and really well-off consumers looking for the status symbol. However, there is a large group of potential buyers who trust more established brands, but have few, if any, PEV options available to them. What this means is that established brands have more opportunities to compete with Tesla than they may realize.

Automakers are struggling to find the right balance. Over the next 10 years, the auto industry will be dramatically shaken up by megatrends that change the way we live and travel.These trends, while daunting for automakers to tackle all at one,  are self-reinforcing and offer the industry an opportunity to transform their established business models.


The McKinsey report suggests that as society moves toward a new relationship with vehicles and commuting and next gen EVs proliferate, automakers would be wise to accelerate a transformation of their fleet and their brands to be more EV-centric.