Peugeot CEO Carlos Tavares Is An EV Noob

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After the cancellation of the Geneva International Motor Show, as compensation for the missed opportunity to interact with the press, Carlos Tavares, CEO of Peugeot, held a conference call with a number of journalists. There were some discussions about the future electrification of the automotive industry. His comments on the subject were shocking for the ignorance they revealed.

Let me first state that everybody has a right to their own opinion. Nobody has a right to their own facts, though. Opinions not developed using facts are also known as prejudices. Prejudices are not good guidance to steer a large automotive company through the coming transition. That is why it is a serious problem to have Europe’s #2 car CEO showing a complete lack of understanding of what is happening in the industry.

Consumer Choice

His first comment to discuss is about the development of multi-drivetrain technology: “So that we can adapt in a very agile way what the consumers are asking.” As if there is any doubt about the future of the car market. The heavy lifting on that question was done by Martin Eberhard and Marc Tarpenning when developing the business case for Tesla. A decade later, around 2012, when Tesla, GM, and Nissan showed their solution for battery prices being too high, the market reaction turned into a natural, real-world experiment, something all researchers love but which is very hard to create.

The GM solution was technological brilliance, the range-extended Volt — a sub-compact car with a very small battery and a gasoline range extender. It is now discontinued because it is outdated and there is no mass market for it.

Nissan brought the world the Leaf, another sub-compact car. The battery was as small and cheap as possible, even lacking a Temperature Management System (TMS). It still exists, but has a battery with 3 times as much energy capacity (but still without a TMS).

Tesla made a top-of-the-line car with three battery sizes; 40kWh, 60kWh, and 85kWh. The most popular and expensive was the 85kWh version. For those for whom that was too expensive, or who realized they did not need that much range, the 60kWh version was the choice. Normally, with equally attractive offerings, the cheaper versions sell in higher numbers, simply because the market at a lower price point is larger.

Those who thought the 60kWh was outside their budget did not buy the 40kWh model. They decided not to buy a cheaper but inadequate version with a battery that they considered too small. The smaller-battery models were not as attractive as the larger-battery models. Today, the Model S only exists as a 100kWh model. The market expects a new version with a larger battery later this year.

The lesson was that for mass market acceptance a minimum range of more than 200 miles (300 km) was needed. That lower limit is now growing to 250 miles (400 km).

Back to Carlos Tavares’s statement about consumer demand. Henry Ford famously said (or is rumored to have said) that if he had asked his customers what they wanted, they would have answered: “Faster horses.” Steve Jobs did not ask his customers whether they wanted a smartphone. All the “experts in marketing” said the smartphone was a bad idea. Tony Seba always uses the example of AT&T asking McKinsey about the market prospects of the cell phone, which turned out to be 200 times higher than they predicted.

You can’t ask customers what they want when they don’t know the product. But you can predict it based on behavior analyses. New products that are clearly superior can first find a niche as luxury products. Think of high-resolution flatscreen TV sets. When the price drops below the price of the product it replaces, that old product is wiped out, very quickly wiped out. Electric vehicles are superior driving machines. Battery electric powertrains are dropping in price. All fossil fuel powertrains are increasing in price. There is only one outcome possible. No market research needed to know what that is.

Greenie Addicts

The whole press jumped upon the next comment Carlos Tavares made when discussing the difficulty of reaching mainstream customers. “We are selling our electric vehicles to green addicts. We didn’t move to the pragmatists. …”

It is an insult to be called an “addict.” Plus, 50% of Norwegian car buyers in 2019 and more than half of the Dutch buyers from last December being called addicts is not just insulting, it shows a complete misunderstanding of the car market.

The car market is accepting a new technology. That acceptance follows the normal phases of adoption. Most car markets in Europe are transitioning from “innovators” to “early adopters.” A few are entering the early majority phase, and Norway is converting the late majority to fully electric with the laggards looking at PHEVs.

That this is unknown territory for PSA is likely because PSA has never had a mass-market EV. In other words, you can’t sell what you don’t have.

A shocking fact for Carlos Tavares: the majority of Europeans are Climate Realists. In a few years, when the competition offers a better EV for a more competitive price, over 90% of European car buyers are in his “addicts” category.

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Subsidies

Governments use two instruments to get society to change its behavior — they are known as the carrot and the stick. When a desirable new development is initially expensive, subsidies are a good tool to create a market, later followed by fines or taxes to make the old way more expensive. China and Europe are supplementing the subsidies for cleaner vehicles with fines for the dirty fossil fuel burners.

The European approach is looking more and more effective. It does not matter how the carmakers lower their CO2 emissions, as long as they succeed in selling less-polluting vehicles to their customers. The current tactic is to convert low-margin small vehicles to electric while keeping the larger-margin big ticket items powered by the tried and trusted infernal combustion hellgates.

For the C-segment in which the Golf rules, the choice is still too expensive or has too small a battery. VW hopes to get the ID.3 at the intersection of those two choices, just enough battery without making it too expensive. Price parity is for the luxury D-segment and up. Everything below the Golf is a combination of too small a battery with too high a price. The market for these models is growing, but even with subsidies, there is no mass-market acceptance. To be successful, possible even without subsidies, you must start at the top.

Another Carlos Tavares comment: “When some markets are cancelling some subsidies, demand collapses.” This is relevant to the market a few years back. When ill-advised policies in Hong Kong and Denmark ended, which were indeed lavish incentives, those very young markets collapsed. When the Dutch weeded out PHEVs from collecting incentives without delivering on CO2 reduction, the market reacted as intended. It switched to fully electric vehicles. But that was yesteryear. Nowadays, we see that incentives can safely be lowered when the market becomes competitive without them. When Tesla lost the federal incentive in the USA (initially worth $7500), there was a spike in demand before the end date, followed by a dip caused by the pull-forward of demand. After those bumps, though, growth continued as before. The Dutch market has just experienced incentive adjustments. The extra attention these adjustments generated in the press and among the public accelerated the growth of the EV market more than the lower incentives made EVs less attractive.

Environmental Statement

The next nonsense the Peugeot CEO shared with the world: “the buyer profile remains an environmentally engaged subset of the market who is making a statement through their purchase.” That was an explanation for why only “10% and 20% of consumers are opting for battery-powered versions.” Most readers know what is wrong with this.

Buyers are just getting the best car their money can buy. That it gives them a greener image is a bonus for some, and a disadvantage to others. The main reason that only a small portion of the buyers choose the EV is simply a matter of awareness. In Dutch, there is a saying: “unknown makes unloved.” This where word of mouth will show its value for the EV market. Hearing firsthand from a neighbor, colleague, or relative how much better an EV is to drive and that it can be very nice for your wallet is what starts and accelerates the S-curve in demand.

A Shimmer of Understanding

What was said during the conference call was not all wrong. Tavares also talked about the lack of a dense charging network, the limited operating range of electric cars, as well as uncertainties surrounding the long-term price of electricity, concerns that are hindering broader adoption of electric cars.

He can start solving such a problem close at home. He should call the secretary that is responsible for EDF, the large French electric utility company. It has a daughter, Corri-Door, that provides charging along the French highways. It’s best if ~90% of the network is not shutdown over a disagreement with the charge point supplier.

We need carmakers and governments to push the development of charging infrastructure forward in a better way.

His last comment is even spot on: “The battle from now on is that zero emission vehicles become affordable between now and 2025.” They should also become more desirable to early majority and late majority buyers.

Mass-Market Fully Electric Vehicle Characteristics

To recap in one place what is in many places in many articles, what is needed for a BEV to compete with the best in its market segment, according to my personal opinion, is as follows:

1. Enough range in the eyes of the prospective buyer. Experienced and well-informed people have a lower range in mind than people with less knowledge, but the customer is always right on this subject.
   In normal, non-freezing weather, that is about an hour of highway driving for city-city cars and double that for larger vehicles. Autos bought for travelling, like when on vacation, should be able to do two hours of driving and then half an hour of charging repeatedly at a minimum. That starts with some of the city cars. (For me and others like me, the B-segment ZOE is on the large side.)
2. The price premium for a BEV over a comparable ICE should be less than the perceived extra value of the BEV. As an example for Peugeot, the e-208 should cost less than the gas or diesel 208 plus the value of the better driving quality, less vibration, and other electric driving benefits. Until we reach that situation, the point of sale subsidies that dealers can put “on the hood” of a BEV are the best incentives we have.
3. Recharging the battery from 10% SoC (state of charge) to 80% SoC should be possible within half an hour. Again, this should be possible in non-freezing weather. This number should be published.
4. Enough charging locations, both for overnight charging and charging when travelling. Especially the latter should be very visible, like gas stations or McDonald’s fast food locations. The dealers should be knowledgeable, if not instrumental, in helping customers getting access to overnight charging.

A few years ago, the thought that the first three of these characteristics were achievable was laughed at by the car industry. Now two models come close — the Tesla Model 3 and the VW ID.3. The first is taking over market share from fossil fuel vehicles, and the second should do so as well.

PSA should forget about selling to “Greenie Addicts” and join the fight for the early majority car buyers as soon as possible.