Why is vehicle diversity so difficult to achieve in a mature market?

When fit-for-purpose vehicles are needed more than ever to drive energy and space efficiency, can we learn something from the painful attempts at microcars in Europe, and what does it take to carve out a positive environment for diverse personal mobility solutions?

In my previous article I tried to outline my view of the rights and wrongs of the European automotive industry and what’s needed for it to not be eaten alive by Chinese competition in the next ten-year or so period. It’s a big topic which doesn’t lend itself well to be summarized in 2500 words, but I tried. My views sparked quite some reactions. There are multiple perspectives to see this from and the problems can look differently depending on the angle. I especially want to thank those readers who engaged in fruitful private dialogues and made me pick up the thread again with this follow up article.

Being in the midst of the debate, one quickly discovers that there is a camp where people have decided that the collective European auto industry is either made up of morons, or by short sighted capitalists who can’t think beyond the next quarterly report, or both, and therefore they are doomed. And while nobody is perfect in this world, such a generalization is of course unfair and not a true reflexion of a very complex reality.

The big question

So, when the industry is faced with a potential €15b penalty in the EU for not meeting fleet CO2 emissions targets, some in the above-mentioned camp are asking why the likes of VW and Renault haven’t cranked out small, affordable short-range electric microcars to blend the fleet with and be ok? The absence of such products is seen as an obvious sign of either incompetence or greed. The latter because of the assumed low margins on such products. Instead, we only get over-sized family vehicles which, when electrified, become way too expensive, with a VW ID.3 starting at around €36.000 (with an assumed big loss on the gross margin of VW).

Consumer polls where traditional car owners have been asked if they would buy a small affordable electric commuter vehicle are sited as proof of a big market, just awaiting products to buy. But so was the case when Ferrari got overwhelming votes for Yellow as the preferred colour, and then everybody bought the red anyway.

So why isn’t there an electric Tata Nano in a local Frankfurt dealership when you need it?

Yeah why?

The microcar concept as such has been tried in Europe before, even in recent years. We recall the first two-seater Smarts and their sub-sequent derivatives and the also two-seater Toyota IQ which is no longer with us. The Smart became a painful experience for the various owners of the project but after decades of development and technology shifts, the Smart still lives and is now offered as a super-compact electric microcar, made in China by a j/v between Mercedes and Geely, so combining the best of the old and the new world and benefiting from low assembly cost, now badged Smart EQ Fortwo.

But “affordable”, or even “cheap” has no rigid definition. Last time I checked, a Smart EQ Fortwo will still set you back about €25.000. Then you get room for two people, almost no luggage, and a range between charges of maximum 100 km on a good day. So as soon as you leave your daily 25 km commute and go further, range anxiety sets in. And if you want to bring more than one friend with you, someone has to take the bus. And you are bound to share the same traffic jams as everybody else and pay the same for parking and tolls. So, the vast majority of people looking for personal mobility in the €25.000 range will most certainly chose a four year old VW Golf instead, giving them a proven vehicle with tons of more comfort and flexibility. Or if they are really determined to go electric and don’t bother about range or used-value, they can choose a four-seater Nissan Leaf or Mini Electric for a little more money.

So why isn’t there an electric Tata Nano at around €4.000 for the consumer who doesn’t care about fancy wheels, heated seats, connectivity and other bells and whistles and just wants the most rock bottom, old fashioned, dirt-cheap personal transportation back and forth to work? Well, apart from the competition from twelve year old Golfs, there are some other obstacles to consider in a mature and (over-)regulated market like the EU.

For a vehicle to be classified as an “M” vehicle in the EU, i.e. a passenger vehicle with four wheels and no more than eight passenger seats and allowed to drive on all public roads, there are a number of cost drivers that come into play, which the Nano didn’t need when sold in India. We are talking about passive crash worthiness requiring a whole different energy absorbing body structure, belt pre-tensioners, airbags front and side, ABS brakes, ESP, pedestrian protection, collapsable steering columns and pedal boxes, theft protection, other EMC requirements etc etc with all the additional cost that comes with the car getting longer, wider and heavier at the same time. A whole different animal altogether. If we throw out the small petrol engine, replace it with an electric motor, add a decent range battery and a charger with all its power electronics, high voltage wiring, battery cooling systems and so on, the cost ends up on a different planet than the Nano. If you consider that the car will be unsellable without climate control and a minimum of infotainment features, chances are that we end up not far from the €25.000 we’d have to pay for a Smart.

The micro-EVs offered domestically in China at sub €10.000 prices also have a long cost walk from their current state, to something possible to sell in Europe. They have not been tested against European safety norms but judging from the other independent tests made, those vehicles probably stand the same chance of surviving European homologation as the poor driver to survive a 50% offset frontal crash at city speeds. These vehicles implode and effectively squash the occupants.

Is there another way?

If we agree from the above reasoning that the “M” category microcar market is difficult at best, partly proven also by the fact that the ones actually available are rarely seen in our streets, we could try and go even lower and look at the three or four wheeled vehicles that don’t require all the regulatory stuff of a proper car, namely those categorized as “L5 – L6” vehicles. With this classification, one can probably design, produce and sell an electric commuter vehicle for around €5.000. But then you get a single or two-seater with a legislated maximum top speed of 45 km/h and no access to motorways to get you swiftly from your suburban home to your downtown office. The above-mentioned Chinese sub €10.000 micro-commuters would also, legally fall into this category, which is probably why nobody tried to import and sell them here.

There is also a possibility of a “L7” four wheeled motorcycle allowed on all public roads. But since a motorcycle cannot have a fully covered bodywork, your commute can get cold and wet. Renault are actually offering the Twizy in this category with a quite competitive price of about €7.000. But you haven’t seen one, right? Maybe I saw one last April if I think long and hard.

But why aren’t “L” category vehicles mass-produced by the automakers with all their economy of scale to blend their fleets and lower CO2 penalties then? Well, that’s because our EU politicians in all their wisdom have decided that nothing but “M” category vehicles can be used for pooling CO2 emissions, so in combination with the proven lack of demand, there is absolutely no incentive for them to even try to do so. The strategic intent behind the Renault Twizy is unknown to me.

How about shared vehicles?

All this bureaucracy that limits the choices for both manufacturers and consumers can all be overcome in the new wonderful world of flexible vehicle subscriptions, right? I can drive my 45 km/h electric four-wheel moped, or my two-seater micro-car through the city on the days I don’t need anything else and when I decide to go camping with the family on a sunny Saturday, I just pick up my phone and order an EX90 to my doorstep and take off in style? That sounds good in theory but has proven much more difficult in reality. What started off as a business model made in heaven for people who didn’t want to marry a car but preferred a more no-strings-attached mobility lifestyle, turned out much less flexible than first imagined.

Car sharing is not dead. It’s a model that’s here to stay and develop and I’m sure some of the kinks in the user experience can be worked out. However, subscription programs tend to get polarized towards either glorified lease plans, or long-term car rentals, rather than the ‘any car at your fingertips at any time at an affordable cost’ ambitions that sparked so much euphoria a few years ago. The capital needed to be tied up for operators to manage such fleets and maintaining such flexibility just makes the whole thing unviable.

So, basically, we are (almost) as stuck with the vehicles of our choice as ever and still have to make decisions about vehicles that fit our needs 365 days a year, rather than from hour to hour.

My point is…

While I am convinced that a much more diverse spectrum of vehicles, both in size, number of wheels and seats, powertrain technologies and fuels are needed in order to create sustainable and practical personal mobility for the future, any such development requires for all different stakeholders of transportation to work in lock step to enable them.

As mentioned in my earlier article, the European auto industry has been slow in responding to Chinese competition and they have a tough road ahead to change mindsets, build new and secure battery value chains, significantly reduce time to market etc. They have tons of homework to do! But the examples above are meant to highlight the need for the whole transportation eco-system, even lawmakers, to be part of the solution and not part of the problem. Locking the industry into strict vehicle definitions with attached regulations that cements current state isn’t helping. We all know how confused city councils were when the first electric scooters showed up in the wild and some cities tried to ban them altogether. They didn’t know they existed until they got run over on the pavement outside city hall for the first time. That’s being part of the problem!

Likewise, for lawmakers to ban certain technologies, like they have done with ICEs from 2035 is also not helping. Luckily, there are companies, including auto makers, that are still investing into biofuel and e-fuel research which, for some driving cycles and geographies, would be a more desirable solution to the CO2 issue than electrification, and should be allowed to co-exist alongside it.

Transportation is, and will remain, a big mess of contradictory priorities and you can’t maximize them all at the same time. Efficiency, availability, CO2, toxicity, safety, space, economy, jobs, even democracy and national security. Different stakeholders represent different priorities in this mess. The tension between those is fundamentally good since it helps challenging status quo and create better solutions in the longer term. But now is not the time for sub-optimization and political (or commercial) pride. The house is on fire. Step off the hose!