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2023 Automotive Insights Symposium Day 1 Panel The Response Transcript

KRISTIN DZICZEK: Before we dive into this panel, though, the last panel made me think-- Dave Gokey from Argonne National Labs-- they have a ton of great research on EVs, and energy use, and equity, and where the chargers should go and all that. So I'm going to commend that you check their stuff out.

But we here at the Fed do some research on EVs, and supply chains, and all kinds of other things too. So we have a new paper that came out today by one of my colleagues, who's now a former colleague, unfortunately, about discrimination in auto lending, which is pretty awesome. And then I did a paper late last year on semiconductors and kind of breaking the whole semiconductor situation down.

We've got a blog post on used EVs and we have another paper by my colleague, Thomas Klier, and one of his co-authors about the geographic location of EV plants and where the EV belt is moving. So those are on ChicagoFed.org under publications. I would commend you to check those out.

But I'm super happy to have this panel, because we're talking about affordability all day. And some of that happens in the showroom, some of it happens in the finance area. But some of it is built in from the beginning about what those vehicles are going to be, how much they're going to cost, and where you can gain efficiencies and scale to make the vehicles more affordable.

And so this panel looks at the strategies, and manufacturing techniques, and approaches that manufacturers have to try to bring us to a more affordable EV future. I'm going to introduce my speakers in order. They're each going to give a short presentation.

And, again, if they have released their slides they will be on our website soon and if not, no. And I don't who released them or not, but we will be happy to share with you what we can share with you when this is all over. And so Thanks again for being with us and I'm going to now introduce Dan Nicholson.

Dan Nicholson is the Vice President of Electrification Controls Software and Electronics-- You had nothing to do lately, Dan-- for General Motors. So, Dan.

DAN NICHOLSON: Yep, thank you very much. I think I'm going to stand up, if that's OK. It's the afternoon and you're eating popcorn. So I hope to provide some level of entertainment, but mostly information about what General Motors is doing as we pursue our goal of 000-- 0 emissions, 0 crashes, and 0 congestion. That's the vision that we have, that Mary Barra has put in front of us. And we're working hard each and every day to make that happen.

So for the last four years, I've been responsible for electrification controls and software at General Motors. And we've got two exciting platforms that I'm very proud that the team has come up with-- Ultium, our electric vehicle platform, and Ultifi, which is our software-defined vehicle platform. So those are kind of my two babies that I'm really proud of.

And today, we're mostly going to talk about Ultium. So I'm really excited to be here and thank you very much for having me. So this is really about our journey to an all-electric future that General Motors believes in. And we were one of the first companies to really pledge that by 2035, for light duty vehicles, we would have an all-electric portfolio for North America.

And several others have sort of copied that and fallen along on that vision. But we were the first ones to come up with that. So we are now exiting sort of the initial phase of our EV journey and bringing our Ultium vehicles to market. So that's really super exciting.

We launched the Hummer. The Hummer EV was the first vehicle off our Ultium platform. And that had quite an impact on the market and got quite a lot of attention. And then last year, we also introduced the Cadillac LYRIQ, which is an awesome luxury SUV, a terrific Cadillac that's all-electric. And both of those have done incredibly well in the market.

And there's over 90,000 reservations for the Hummer and the LYRIQ. We've got more than we can sell in the first more than a year of production, and we're really excited about how that's going. We are scaling our capacity to 1 million vehicles, 1 million EVs, a year in North America by 2025.

So we are really ramping up. And that is where the affordability comes from in this industry. It's lots of engineers, and purchasing agents, and others working hand in hand. And I think we have one of the best partnerships in the industry in terms of how our engineers and purchasing work together. And that's what makes a difference for General Motors.

In fact, our new vice president, new last year, of global purchasing and supply chain, Jeff Morrison, his prior job-- he's an engineer by training-- and his prior job was actually working for me as the executive director of electrification. So he's gone from purchasing to engineering for a three-year stint and then back to purchasing. And that's an example of the kind of partnership we have that really makes a difference when you're trying to build at scale and scale up in the entire supply chain all the way back to the mines, which is really, really important.

Right now, today, as we get moving, we've got 60% of our product development resources working on software and EVs. And we think that'll be 70% by 2025. So we still have a really awesome internal combustion engine ICE portfolio that we're super proud of that's really a lot of our strength. But we're more and more pouring a higher percentage of our resources into software and EV, because that is the future.

And at General Motors, we want to make the future come as soon as possible. And that's what we're hard at work doing every single day. So the second phase is where we really scale our technology and our EV launches.

And these are the EVs that we currently have on sale today. And please don't forget that GM was the first full-line manufacturer to introduce a longer range, affordable EV with the Bolt EV. That was introduced in 2017. We've reintroduced that last calendar year at a price point that is now $27,495-- so very affordable.

It's an excellent buy, and lots of customers love that. And we think we're really doing well. And we're trying to drive even more adoption. We've supplemented that with the Bolt EUV, which is slightly bigger, slightly larger, slightly more upscale-- has our Super Cruise technology, which is absolutely incredible.

And those are awesome vehicles, in addition to the Hummer and the LYRIQ, which I already mentioned. And we also introduced last year the BrightDrop Zevo 600. So this is for commercial, last mile, and other sorts of delivery-- an absolutely excellent vehicle, and zero emissions, and off to a terrific start, which we really appreciate.

Last year, Bolts had a record sales year-- sales up 9.3% year-on-year. So that's really good. And Bolt EUV is now the number one mainstream EV in the market today. So that's really important. And we plan in 2023 to sell over 70,000 Bolts worldwide.

So we've got the Hummer, we've got the LYRIQ, we've got the BrightDrop. And what do we have coming in the second wave? This is how we're filling out the portfolio. So in terms of affordable, we've got the Chevrolet Silverado EV, the Blazer EV, and the Equinox EV.

And the Equinox, we've announced, will have a starting price around $30,000. We also are following that up with GMC Sierra EV. We've got an SUV version of the Hummer coming that's absolutely dynamite. We've got the Cruise Origin for autonomous robotaxi type of service and another BrightDrop Zevo 400 that's also coming.

Keep in mind, the Silverado EV, when that rolls out, will have a work truck version that will have an MSRP of $39,900. So in the world of full-size trucks, that is very affordable. And Chevrolet is really committed to value for our customers and showing that we are a full-line manufacturer and that we bring value that customers really want to pay for.

All of these vehicles are built on the Ultium platform, which is a propulsion architecture enabling our entire global EV portfolio-- so everything from high volume crossovers and SUVs, full-size pickups, to even low-roof luxury cars like the super awesome Cadillac CELESTIQ are all built on the Ultium platform. That's really important. You see pictures of that here, and that's a key to what we've been working on for a long time at General Motors.

And now, we're in the stage where we're actually scaling that up. We optimized reuse of the drive units, the motors, the power electronics, and also our wireless battery management system. So all of those elements are reused in the Ultium platform. And that's how we get the economies of scale.

And, again, our engineering purchasing team go to work to drive down these costs as we scale up. It enables EV versions of our entire ICE lineup to date and things that wouldn't have been cost effective to do with ICE portfolios. So one example of that is the Blazer EV.

The Blazer EV will be offered in both front-wheel drive and rear-wheel drive versions. So that is unheard of in an ICE architecture portfolio. It's nearly impossible based on emissionization and everything that you have to do and layout of the engine. But with EVs, that kind of flexibility is possible.

So we're really excited about that. And we're excited about the things that EV architectures and our Ultium platform can bring to the marketplace that will provide value for customers. The flexibility and efficiency are big Ultium advantages. So that's really exciting.

We talk about, inside our company, vehicle integrated propulsion systems-- so how many different propulsion systems do you have to have per vehicle? And if you look at our portfolio, we have 1/4 the number of EV propulsion systems defined by battery pack drive unit configuration combinations than we do for our ICE portfolio-- the same ICE portfolio.

So this is where a lot of the simplification and the scale comes into place. And we've also been able to take 95 weeks-- that's a large chunk-- out of our global vehicle development process, or GVDP we say at General Motors, to bring EVs to market. So once we've got the architecture in place, we can roll out models.

And that's why you're seeing we're able to roll out Silverado, Blazer, Equinox all in the same year, because they're all built on existing vehicle electrical architectures in the Ultium platform. And for each vehicle entry, we basically have 25% fewer part numbers for that vehicle than with a comparable ICE vehicle. So that's really exciting. And the important things that we've got that help us with the business as we go forward and build even more scale on our way to 2030 and 2035.

So we've demonstrated that versatility today with our Ultium platform. So we've got NCMA pouch cells-- that's nickel, cobalt, manganese, aluminum-- that we sell in North America. Ultium is also designed and in use in China. We're selling the LYRIQ in China now. That's with prismatic cells in China.

So we can accommodate both these nickel-rich chemistries that are important for maximum energy and maximum range. We also can accommodate LFP or lithium ion phosphate chemistries that have been gaining lots of usage in China. So our Ultium platform is flexible and ready for all those things.

The Ultium platform allows us to continually innovate battery technology without having to redesign the entire car or the entire architecture. So for next gen and whatever comes next, next gen lithium ion phosphate or other things, we can accommodate that. And we're already looking at items like cell to pack integration and how those things work.

So we've got a lot of people really focused on this and focused day after day. There's an incredible amount of innovation happening. And innovation happens when you put smart people together, give them difficult challenges and hard problems to work on, and just watch the solutions that come from the minds of engineers and other professionals in the organization working together.

And that's really the dynamic that we've got going at General Motors. And it's very exciting. And we've got a whole army of people really excited to bring the future as soon as possible. So that's really great.

We've got flexibility that enables growth. Here's a picture from our Ultium cells joint venture where we're making the cells today in Ohio. And we also have announced plants that will be coming in Spring Hill, Tennessee and in Lansing, Michigan. Those are plants two and three that are already on the books and we'll be launching this year and next.

So we're really excited about everything that's going on. And that flexibility really helps us to really provide value for customers. Because at the end of the day, customers are going to win and decide in the EV race which companies have the best products and whether an EV is right for them. And we are trying to give customers maximum choice.

And that is good for the business, for General Motors, and also for our customers. Thank you very much for your kind attention.

KRISTIN DZICZEK: Thank you. Thank you, Dan. And next up-- you don't have slides.

ADITYA JAIRAJ: Don't have slides.

KRISTIN DZICZEK: So pass it to Daniel.

ADITYA JAIRAJ: There you go. OK.

KRISTIN DZICZEK: No, [INAUDIBLE]

ADITYA JAIRAJ: Sorry.

KRISTIN DZICZEK: Yes. I'm sorry. So let me introduce you. So this is Aditya Jairaj. Aditya, I was reading Automotive News and I see that Nissan has started a new strategy and created a new development office, the EV Transformation Office.

Now, Nissan made the Nissan Leaf for a long time. It's one of the most affordable small EVs. And I'm like, well, what are they going to do to push electrification across their portfolio? And what's their approach going to be?

So I call up some friends and I say, who's doing that? So I have met Aditya and he's going to tell us about it.

ADITYA JAIRAJ: Thank you very much, Kristin. Let me stand up. So, first of all, thank you for staying awake in the afternoon. Hope you're enjoying the popcorn. A couple of things which I wanted to make everyone aware of-- these may be some hidden secrets-- Nissan is the first manufacturer to have introduced a mass market EV with over 100 miles of range-- first manufacturer worldwide.

We did this in 2010 with the Nissan Leaf. Kristin mentioned that. We're the first manufacturer on the planet, on the planet, to have over 5 billion consumer-driven miles-- no incidents. We're the first manufacturer to have brought affordable EVs into the lives of the mainstream folks.

So this is what we've been doing. We've got a few more products now which are in the market. And we've got a whole slew of products coming in the pipeline. But the key point is for Nissan, affordability has been at its forefront.

The Leaf, which is in market, has won the Kelley Blue Book, the KBB, total cost of ownership award now four years in a row. So total cost of ownership takes into account not just initial cost, but also cost of maintenance and cost of the upkeep. So total cost of ownership four years in a row, Nissan Leaf has been the winner. So that's the first point I mention.

Affordability is at the forefront at what we do. For us, making EVs accessible to the masses is extremely important. And that's what we've done over the last few years as we have progressed through our EV journey. Recently, we launched the Nissan ARIYA, which is our first crossover with over 300 miles of range.

The reason why this was our next product in the market was because we were trying to tap the heart of the segment. Crossovers today are a significant portion of the industry. And the intention for us was to provide consumers an option in this segment which was fast growing. So this is what we've done in the past.

We have learned a few things in the last 10 years, mainly in terms of, one, consumer behavior, two, in terms of how consumers drive EVs-- again, a subset of consumer behavior-- and then third is how to optimize. And optimization is extremely important when we talk about affordability. So using this as the base, our pledge that we made is by 2030, we will have an electrified option for every segment that we participate in.

So, again, it's very important to also keep in mind-- by 2030, estimates are that in the US, EVs will account for about 40% to 50% of total new car sales. So we want to provide consumers that option. And once you provide the option, ultimately, the consumers will decide.

And again, in terms of coverage, we have the Leaf, which is affordable. We've got the ARIYA, which is in the segment which is predominant in the industry today. And as we go forward, we'll have different body styles on a common platform that will come out over the next few years, which, again, I stress on common platform-- common platform is important.

Skateboard design is important because only this way will you be able to use the same platform, have different body styles, and, hence, reduce costs. So that's basically our philosophy. We're using the know-how that we've developed over the last 10 years. We're looking at what consumers want now and what consumers may want in the near future and trying to attack the problem that way.

Now, going to another topic-- now, when you talk about EVs, when you buy an EV, you are buying a whole lot of batteries, right? So at the end of the day, when your vehicle is not, quote unquote, "roadworthy" , anymore it still has a tremendous amount of value.

And when it comes to EVs, this value lies in the batteries. So a battery may not be usable in an automobile for various reasons after a given point. But these batteries still have tremendous value, second life value.

They can be used for stationary storage. They can be used for a host of different applications that require batteries. So one of the other focus areas for us is battery second life. So our intention is to make sure that we maintain control over these batteries because, one, we can be responsible and get these batteries back within our ecosystem. We don't want these batteries to end up in places they should not.

And two, there is opportunity with these batteries in terms of second life. So because we have this opportunity with the Leaf, we have some of these batteries coming in. And we have different pilots in place across the nation where we're using these batteries for different applications.

So what we call this is 4R-- recycle, reuse, and a host of other applications. The intention is to make sure that we keep this within our ecosystem and also drive some customer benefit. So that's another area that we're focusing on in terms of how we can make it more affordable.

Because take, for example, this-- when you buy an EV, you pay whatever you pay for it. But if you are told, hold on to this certificate-- come back and give it to us when you don't want to use this as an automobile anymore and you can get x number of dollars back if you give the batteries back to us. There's value in that. That helps with affordability.

So that's another area that we are trying to focus on which will help in affordability and also make sure that these batteries are used in the manner that they need to. And then before I finish off, last item-- the opportunities that EVs provide go beyond just the product, right? So when you talk about an EV today or a vehicle today, there's a lot of functionalities that you use on your phone.

You've got an app. You can start it. You can stop it. You can do all the basic functionalities. However, going forward, you'll be able to also, actually even now, you'll be able to use your EV, for example, a stationary storage for power.

So let's say you have a blackout. We had some blackouts in Tennessee a few weeks ago. You have a blackout, you don't need a generator. You can use your EV.

So Leaf is the first vehicle to have bidirectional charging capability. So what does bidirectional charging capability mean? You can send energy both sides. You can either charge your car or your vehicle, or your vehicle can charge your home, or your building, or any other appliance that you have.

So using EVs beyond just for the means of transportation is going to be extremely important to drive affordability down. You don't have to buy a generator. Today, for an average sized home in the US in order to buy, and install, and get permits for a generator, it costs about $20,000. If you have the functionality within your EV, you don't have to buy a generator.

Second, in California and many other states today, time-of-day tariff is extremely important. So what does time-of-day mean? Peak hours, for example between 6:00 in the morning and 10:00 in the morning and 6 and 10 in the evening, the cost of energy can be substantially higher than the cost of energy during the day and at night.

All right, so what we want to do is enable EVs to pump energy back into the grid, or into your building, or into your home when energy costs are high. And then you want the EVs to be charged when the energy costs are lower.

So this provides revenue opportunity, customer benefit, and, hence, take affordability to another level. So these are the other areas that we are exploring beyond just the product, beyond just the factory in order to make EVs affordable to the masses. And these have a slightly long gestation period.

But from what we have seen, we have pilots with the Leaf going on right now in California with the different utilities-- there is tremendous value that these ancillary services provide in terms of generating revenue for consumers, for the manufacturers, and, hence, drive affordability to levels that we have not seen at this point.

So that's basically what Nissan has been doing and what's in our future. I didn't have slides, but hopefully I kept you awake and look forward to the interaction.

KRISTIN DZICZEK: OK. Thank you, Aditya. And next up, we'll hear from Daniel Kennel. I have a Dan and a Daniel. So Daniel Kennel. Daniel is Managing Director at BorgWarner, one of the critical propulsion suppliers these days, right?

DANIEL KENNEL: Thank you, Kristin. So before I want to start how BorgWarner and suppliers can impact the affordabilities of EV. A little bit of history. I joined BorgWarner in 2016 and that was the year when we had to do a major reset on the street. We had a terminal value of zero and most bankers said, this company will never make it. They will never make the transformation towards electric vehicles.

So we had a big task in front of us in the meantime-- so, obviously, we are still here. In the meantime, a lot of amazing organic developments of market-leading technologies-- we acquired Delphi Technologies, but it was not good enough. And therefore, we had to set ourselves very ambitious targets.

And therefore, beginning of 2021, we communicated our charging forward strategy. And that means in 2021, we had less than 3% of EV sales. And our ambitious target is to completely switch our portfolio and sales to at least 45% EV revenue by 2030. Sounds easy on the paper, but it takes a lot of organic and inorganic actions to transform an over 100-year-old auto supplier.

So what's behind it? And this slide really gives you a little bit of an overview what we are doing, what we wanted to achieve. We have several targets inside that charging forward strategy. And one is organic-- organic sales development. And as of the last quarter of 2022, we already achieved our goal of at least $2.5 billion. We are $3.1 billion of organic revenue in 2025 organically achieved.

But we also want to grow, we want to expand. And we were able already to execute on a couple of acquisitions. We bought Akasol, market-leading CV battery pack manufacturer out of Germany. We invested into the vertical integration of electric motors with Santroll in China.

And we acquired two companies being active in DC fast charging, which we see as a major growth potential for us as a company. But investing, growing, and buying into the EV business is one thing. You have to do it in a sustainable way and in a profitable way. And therefore, we are very proud with the scale that we already have, with the technologies that we're having, and with the operational excellence from over 100 years of experience that we'll be break-even this year with our EV product lines.

And scaling up profitably is very important, because we know that the cost pressure from the OEM will become higher and higher and more in the future. So for us, it's critical as we grow that we do it in a sustainable way. Therefore, we are very proud of that.

Now, let's talk a little bit more how as a supplier we can directly impact affordability of EVs. We already talked about it-- we have to master the transformation now. If you're not now in a position to pivot your portfolio and business towards EV, it's probably too late. So you have to do it now.

And then we heard it from our other two panelists-- we need dedicated platforms and products because we need scale. Scale is a key driver, especially for electronics, electronics purchasing, battery. We need that scale to bring the raw material costs down, to bring the cell costs down, and really have a competitive product and have the price parity with ICE vehicles as soon as possible.

Then, from a supplier side, we have to do what we do best. And if you take a look across the industry, our large scale, state of the art manufacturing process with very, very low PPM rates-- I don't any other industry that excels in operational excellence like automotive does. And we have just to carry over to EVs and then we'll make it happen. We will do the ramp-up.

Another thing is we heard a lot of attractive technologies. And the reality is to a certain degree, the OEM-- they will have to rely on the suppliers as well. We need to keep pushing the limits, the boundaries on things like inverters, motors, e-axels. Battery is an important thing to drive efficiency, but it's not the consumer.

Electric motors, inverters, those are the energy consumers. And the more efficient you are on those products, the less energy you use. So we need to keep pushing the boundaries here to bring overall costs of the vehicle, of the propulsion system down.

Infrastructure-- I mentioned charging. Consumer acceptance is often linked to range anxiety. And we need to create a charging infrastructure that is comparable to current gas station infrastructure. We need to make it easy and that people are not starting to freak out-- hey, I only have 100 miles left-- what do I do?

So therefore, BorgWarner decided to actively participate and create charging infrastructure on a global level. For us, it's a key enabler. The higher the customer acceptance, the higher the EV sales. And, therefore, we have scale and cost will come down.

The next point is probably a little bit more business as usual, but we'll probably talk about in the panel later as well. We need to keep improving cost structures. At the very beginning five, six, seven years ago, EV development, EV manufacturing took place in high cost countries because it was forward-looking. It was still niche.

Now, it really scales up. So we need to follow the same principles that we follow with ICE business. So we have to continuously assess, right size our portfolio, and we have to switch to best costs if needed.

And then the last point-- there's a lot of money currently on the market. You have to spend your money wisely in a sustainable way. You have to make sure that it helps you be profitable on long-term. And as an example, we just invested $500 million in [INAUDIBLE] speed, because we want to make sure that we can provide our customers probably the market-leading silicon carbide inverters over the next couple of years. And we have access to silicon carbide.

So you need to make smart investments that allow you to further accelerate your growth. Summarizing that from a BorgWarner standpoint, we definitely have the strategy and execution capabilities to master our transformation. And we are very well on track to achieve at least 45% EV revenue share by 2030.

And as a supplier, in order to be a strong partner to the OEM, you have to be healthy. You have to have a sustainable transformation.

Only if you have product leadership, and by product leadership, I mean you have to have the right technology at the right price at the right moment wherever our customers need it-- only if you achieve product leadership, combined with the operational excellence of over 100 years of auto experience, we will have a sustainable position, we'll be a trusted partner. And we have the chance to directly impact EV affordability for the consumer as well. That's it.

KRISTIN DZICZEK: Thank you. Thank you, Daniel. And next up, we have Rod Lache. One of the benefits of coming to the Fed for me is that I can call just about anyone and ask them anything I want to. And that's kind of fun. But, Rod, I've been able to do that for a long, long time.

Rod has been an analyst in the auto industry for, I don't know, as long as I've been in the industry. So, a long time and he's with Wolfe Research. And I brought him to the manufacturing panel because Rod really looks at what are these costs, what are the scale, how is this all going to work out. So, Rod, tell us.

ROD LACHE: Thanks, Kristin, and thanks, everybody. I'm not that dynamic, I'm not going to be able to stay inside of that little square. So I'm going to sit here and just go through a couple of slides that I have to talk about the industry and where we see this heading. So, first of all, let's talk about where we've been.

Last year was an incredible year in terms of growth for the electric vehicle industry by any measure. We had 76% growth in China. China in 2019 was 4% penetrated with EVs. Last year, they were 21% penetrated in EVs. That's pretty amazing.

Europe was up 20% last year in a market that was actually down. The US was up 60% last year-- again, in a market that was actually down. But here, obviously, the market penetration was quite a bit lower at about 5.5% if we look at just EVs. The differential was in part driven by government support that helped EVs get off the ground in some of those other markets.

So, for example, in China, if you buy an EV, through last year, you had 13,000 RMB of purchase credit. You didn't have to pay the 10% sales tax. That was a huge driver. You also had much easier access to license plates, which is a difficult thing in tier one cities.

In Europe, obviously, you had the EU pushing the industry to achieve very, very aggressive CO2 standards. And there were also super aggressive incentives in a few markets like Germany. In the US, we have had a few subsidies here and there.

But the cost of EVs has been really high. Generally, electric vehicles have been priced over $50,000. And if you look at the US market, excluding pickup trucks-- pickup trucks really skew this-- but if you exclude pickup trucks, only 15% of the US market is vehicles that are $50,000 or more. And that's essentially where the EV market has been competing.

And we think that that's about to change. And some of that is going to be driven by innovations. Over the intermediate-term, we see innovations in the market that should drive the cost of batteries a lot lower. So on average, the cost per pack, we estimated at around $165 per kilowatt hour last year, we see that declining.

This assumes flat commodity costs, which could be a flawed assumption. But if you assume flat commodity costs, we see it going to about $110 by 2025. And we put some of the bridging items behind that on the bottom of the slide. And we will share these slides with anybody if you wanted to have them.

But that alone will not get the industry to parity by 2025. Some other advancements will be needed. We're going to need to go to silicon anodes. Right now, the anodes within a battery, which is where the lithium ions are stored, are generally made of graphite. It takes six graphite atoms to hold one lithium ion.

The next generation silicon atoms, as you go to silicon, one silicon atom will hold four graphite atoms. You'll have much quicker charging. There are a lot of benefits that are going to happen. And we think that that's happening. We're starting to see that in consumer electronics.

But even by 2025 is really we've got visibility on and the cost is going to decline a lot. What's interesting now, we think, is that the IRA in the US could result in many of those benefits coming in a lot sooner. And there are two parts of the bill that people have talked about.

Most of the discussion has been on these purchase credits of up to $7,500 when you buy the car. This year, if you do that and you fall below the income threshold, which we think roughly 72% of EV buyers right now fall within that threshold, they buy the right EV, you could get that $7,500. But you get that as a credit when you file your taxes at the end of the year.

And then in 2024, you'll get that as an upfront reduction in the price of EV. I'll get back to that one in a minute. The part of the bill that gets a lot less press but is less ambiguous and pretty powerful is the manufacturing credits separate-- that manufacturers will get up to $45 per kilowatt hour for every battery and pack that they make in the United States.

It's a big deal, because, as I said, through 2025, we should be able to go from $165 to $110. And then if you get this credit, obviously, we can bring those costs down maybe to $65, $75 here depending on the manufacturer.

The average cost of a small battery pack in a vehicle like a Chevy Equinox could go from $12,000 today to $5,000 as you look out to 2025. At that point, we do think that some vehicles are going to reach cost parity with internal combustion. The average engine transmission fuel system and exhaust, just to give you a reference point, is between $6 and $8,000.

So the battery pack plus the electric motor, the power electronics, the high voltage wire harnesses, battery management systems, all those things together, we think that is achievable-- not easy, but achievable. Now, let's separately talk about that purchase credit which, in theory, could give you an additional $7,500.

It comes in two tranches. You've got $3,750 that comes from meeting the criteria for critical minerals. Initially, at least, 40% of the critical minerals that are used in the battery pack need to come from the US or US free trade agreement countries. And then you get another $3,750 if more than half of the battery content comes from North America.

It's not so easy either of them, but that is something that some companies are going to achieve. So what does it mean in the bull case? And I use the Model 3 and the Model Y here is an example. So right now, the Model 3 is a $47,000 vehicle. That's where it starts.

The Model Y starts at $66,000-- pretty high prices for what those vehicles are. We just went through manufacturing credits that can bring that cost down by $45 a kilowatt hour, times 75 kilowatt hours, that's $3,400. And then you've got the purchasing credit that is another $7,500.

And then on top of that, we believe that internally, cost reductions for this company would add another $5,000 per vehicle. So if all of that gets passed on, the price of a Model 3 could go from $47,000 down to the low $30,000 range. It's a pretty big deal as far as the market opportunity-- a Model Y can go from $66,000 to the low $50s.

We've got GM talking about $30,000 Equinox-- all those things really expand the EV market. We think the effect will be significant, as I mentioned. Right now, it's only 15% of the market that these EVs are targeting, but we're going to target the rest of the industry.

So, look, there are a few challenges here. So I wanted to present that first. But we are still struggling with a few things, including the way that the IRA was interpreted. It was a very peculiar way, let's say. So as you know, right now, the purchase incentives are limited to passenger cars that are priced at $55,000 or below and SUVs that are priced at $80,000 or below.

But what's an SUV? So there are different government agencies that define SUVs differently. The US decided to choose one that, surprisingly, knocks out America's best-selling EV right now because it doesn't weigh enough.

So the Tesla Model Y has a gross vehicle weight of 5,300 to 5,700 pounds. It's not an SUV, according to the Treasury. It's a passenger car. On the other hand, the Volkswagen ID.4, which is actually physically smaller, weighs 6,050 pounds. That is an SUV.

So aside from the strangeness of that from the consumer's perspective, the bigger and more concerning implication is that it actually disincentivizes automakers from doing what we want them to do, which is to take costs out by employing innovations that will allow for greater energy density. We want to see these guys go from 250 watt hours per kilogram in today's batteries to 400 watt hours per kilogram in tomorrow's batteries.

But, boy, if you start implementing those innovations that help bring the costs down, do you really want to and lose this $7,500 credit that you can get today? So there are loopholes to allow a company like Tesla to get this. But there are unintended consequences from all of these loopholes, and happy to get into that in Q&A if anybody is interested.

Also in the US, it's not really a slam dunk to meet the IRA's North American content requirements. You've got to make cathode material, for example. 48% of the content in the vehicle's making the cathode materials. It's not just making batteries, it's the rest of the chain. It's not so easy to get to IRA-compliant materials.

For example, by 2025, we're going to have to completely eliminate materials that are mined or processed in China. And the chart on the lower right, which I apologize is hard to read, all those bars, we're showing you lithium, and graphite, and cobalt-- the red segments of those bars is with the stuff that is sourced in China. It's a big part of the supply chain today that we'll have to change.

And we've also talked about the cost of some of these materials. Until now, the demand for some of these materials has-- the growth in demand has been exceeding the growth in supply. And it doesn't take an economist to say, well, that's not good for cost. And as a result of that, actually, last year, we saw battery costs move in the wrong direction for the first time.

And we show some history there on this slide. And just to give you one example of the tightness-- so today, we're estimating that the electric vehicle market consumes 140,000 tons of nickel. We see it increasing, the demand for the auto industry, the EV market, increasing to 540,000 tons by 2025 and 1.2 million tons by 2030.

Now, what is the total global production of nickel worldwide? Right now, it's 2.7 million tons. And most of that doesn't go to the EV industry, right? Only 140,000 goes to the EV industry.

So just think about the scale of what needs to happen in order to accommodate that kind of growth. A lot of investment is going to be needed. And there are options for companies, but any way you look at it, it's going to take a lot of work.

Charging infrastructure is another one that we're watching closely. Right now, we have 180,000 public chargers for EV drivers. And while it's going to quadruple, we think it will get to about 750,000 by mid-decade, that number will not be enough to accommodate the 10 million EVs that we think will be on the road in 2025.

And that's assuming that all these chargers worked. There's early evidence here that charging companies, in many cases, are not really doing a good job of delivering on reliability. They're getting money, but in many cases, they're not being held accountable. And this is early days, but it's a big problem because you could potentially damage the industry for some time if that's not addressed soon.

So all that said, it's pretty clear that the market believes that these challenges are surmountable. We're reasonably confident in the measures that will be taken to reduce the costs of batteries. And even with the hurdles that we see in the IRA, there will be IRA benefits coming through.

And then we're seeing a massive amount of money being spent-- $50 billion in GM's case, $35 billion in Ford's case, a million units coming out by 2025. So the capacity will be there. You're going to see a barrage of new vehicles. That's going to drive growth.

Right now, we're projecting that in the US market we'll go from about 5.5% penetration to about 20% by 2025. So with that, that's it for me, Kristin. I'll pass it back to you.

KRISTIN DZICZEK: Well, thank you, Rod. Those were great intro remarks from everyone and I really appreciate it. You've probably heard this from me if you've heard me speak before, but when I think about EV adoption, I think there's really three parities. This is about affordability, so you'll think about cost parity.

But there's also utility parity-- is it the size of vehicle you want? Can it do what you want it to do? And there's convenience parity-- can you go somewhere without too much preplanning?

And I need to get to the Chicago main office sometimes and I drive there. And I don't want to be sitting in Hammond, Indiana, I'm charging, so I can make it through on the Dan Ryan. That's the length of charge I need to have.

So we're going to dive deep into these three parities that I have by looking at the product, the technology, the manufacturing, and supply chain strategies. I want to start, though, with the price. The reports are that 35% premium for an EV right now-- some of that's mix. The Hummer is a little expensive. It's out of my range.

But it's also top trim levels and things like that. But companies like GM and Nissan are promising us these sub-$30,000 EVs. What do you want to tell us about those model introductions, or the ones that you guys are planning and watching, that will bring those EV prices more in line with average vehicle prices? What vehicles are you looking at? You talked about yours, but let's talk about--

ADITYA JAIRAJ: Yeah. So if we look a little bit into the future, you hit one of the points-- one of the [INAUDIBLE] reasons for EVs today is range-- range and charging, you kind of cup it into one. So the average driver in the US drives about 35 miles a day, but sometimes drives more than that.

So for 300 and odd days of the year, you don't need more than, let's say, 100 miles. But two days a month or three days a month, you need 300 miles. So what do you need for this? A, you need good public charging. And B, you need quick charging when you go to a public charger, right?

Today, 20% to 80% of charge is anywhere between 25 minutes to 40 minutes. You don't spend 40 minutes in a gas station. You spend maybe 10, maybe 15 minutes. So you need that number to come down.

And second, you don't need that big battery size. Once you're comfortable, once you get over range anxiety, you don't need 300, 400, 500 miles of range. But you need to be able to charge quickly, conveniently when you need to travel so many miles.

So I think going forward, what's happening is two things-- one, more education on charging, more education on what it means not to have range anxiety. That's one. And then second, on the technology side, the next frontier about five years from now, approximately, is solid state batteries.

What are solid state batteries? Less volume, more energy density. So you'll be able to have the range that you need with less weight. It also means lower costs. So it's a combination of factors that is happening.

OEMs are involved. Consumers are involved, because consumers need to get over range anxiety. And, third, it's the ecosystem of charging that needs to develop over the next few years that makes long distance driving and EVs stress free and more comfortable.

KRISTIN DZICZEK: So then you have to put a load of rocks in them so that they're the weight that they need to be for the credit, right?

ADITYA JAIRAJ: We get over that.

KRISTIN DZICZEK: And you guys, what are you looking at?

DAN NICHOLSON: Well, you mentioned your second category, I don't how you called it--

KRISTIN DZICZEK: Utility parity.

DAN NICHOLSON: Yeah. Which for me, what that means is customers know the kind of vehicle they want. They know the size. If you want a full-size truck, it's hard to talk you into something different. If you want an SUV, it's hard to talk you into a sedan or whatever.

And so we are just now starting to see where there are EV entries in most of the segments. So that's the real change that's going to happen. We don't really know what the true consumer pull is for EVs until we've got the whole segment base covers.

And that's what we're really trying to do. We think when you give customers a choice, it's going to be higher than many people think. But even given everything that's gone on, it's growing incredibly-- 60% last year, we're up to 5.4% market share of EVs in the US. And everybody can speculate about when the tipping point is or when we'll hit 50%.

But we really need to see customer pull. But a lot of these other things like charging infrastructure, which are super important those can be either accelerators or derailers of the EV transition that's necessary. So I want to emphasize also how important not only the proliferation-- we need to see lots of chargers. On the way on I-94 to Chicago and all these places, you need to be able to that you can pull off, you can charge, and that they're highly reliable-- that when I pull up, there's a 99.5% chance that it's actually going to work.

Occasionally, there are yellow tags on the fuel pumps that say, this pump inoperable, but it's pretty rare. And it usually gets corrected pretty quickly. We are not yet enjoying that level of success with charging, and that's what we need to do.

And we need to do it without having proprietary charging networks. There's an [INAUDIBLE] 1739 standard-- almost all OEMs have adopted that. And it's really important. We do not have OEM-specific fueling systems, and could you imagine if we did? And doing that in charging makes absolutely no sense. So those are really important factors in driving adoption and keeping the flywheel turning here, to use a metaphor-- a nice metaphor-- to keep EV adoption happening at a very rapid rate.

KRISTIN DZICZEK: Well, and that universal charging is one of the critical parts of the federal funding for building out the charging network. It has to be accessible to all vehicles, it has to take all payments. So that proprietary network that we know about will not qualify for that unless they make some changes.

DAN NICHOLSON: And that's a really important principle.

KRISTIN DZICZEK: Yeah.

DANIEL KENNEL: We heard in one of the presentations in the other panel that we could talk about, we could start convincing people, hey, the operating costs of EVs are lower. But unfortunately, no private consumer has a TKO mindset. So we need to get that upfront invest down.

And we, as a supplier, literally, we don't talk on [INAUDIBLE] level. We talk on platform level. And we heard it from them, the Ultium-- we need OEMs doing a better job having few dedicated electric vehicle platforms because then we can leverage, then we can leverage scale. And this is the easiest economic way to bring costs down.

Of course, there is the whole range anxiety topic, but you have purpose-driven vehicles, I would say-- smaller vehicles, they tend to be in an urban range. They don't need 400 miles per hour. So you don't need a 70 to 80-kilowatt hour battery in there.

They usually, if you take a look at the ID.1, ID.2, they share the same platform with the Ford Puma, for example. So they have a platform sharing. They have 50-kilowatt hours, which is absolutely sufficient for the purpose of this vehicle.

And I think we need few platforms, purpose-driven platforms. And then we can bring costs down. And then we can offer entry level electric vehicles that fit the price people are looking for.

KRISTIN DZICZEK: OK, Rod, what are you watching?

ROD LACHE: We're watching the pricing of these vehicles and the costs as they're coming down. And I think that there's some encouraging things already that are happening-- obviously, notwithstanding the rise in commodities, which has been a problem. But, boy, in 2012, we were talking about $700 a kilowatt hour. And now, we're talking about $165.

And we've got line of sight on $110 and lower than that for the IRA. And that's enabling a whole bunch of vehicles that are going to be a lot more affordable. All the things that everybody mentioned are really important.

I would say, though, that EVs are not going to be for everybody. There are certain applications where, today, it probably doesn't make a lot of sense. And that's because, for better or worse, gasoline is an amazing store of energy.

There's something like 17,000 watt hours per kilogram of energy in gasoline, and the best batteries in the world today have 250 watt hours per kilogram. And even if the EV is much more efficient than the ICE engine, you get a lot more range, you can tow a lot more, you can do a lot of things.

That's one of the reasons why we think that this is going to sort of move from the bottom up from smaller vehicles and then become larger and larger over time-- that will be an issue that becomes less significant over time. But, boy, it depends on what you're talking about when you say tipping point. We can see 20%, we can see 40%-- do we see 100% yet? For us, the answer is, no.

KRISTIN DZICZEK: And I think many people point to Norway as being one of the highest penetration markets.

ROD LACHE: Yeah.

KRISTIN DZICZEK: And I went to Norway. There's EVs everywhere-- never saw so many EVs in all my life, lots of charging. They only had to build out a network, really, between Chicago and Detroit, though-- from Oslo to Bergen is not that far.

But the thing I always look at is it's so financially advantageous to buy an EV in Norway-- all the credits, and charging, and parking, and taxes, and all of that. Still, there are a good small share people who are buying an ICE vehicle. Like, why?

And I think that share in the US might be pretty large. It could be political. It could be geographic. It could be, I don't want to be in my cabin in the UP and be not able to get home in a snowstorm or something bad. So I think we may have more reticent buyers than other countries.

DAN NICHOLSON: I was taking notes because you gave me an idea for a really clever commercial-- discussion of Norway. I'll have to take that back and talk to our marketing people. For me, the discussions about when the last person gets out of an ICE and buys their last ICE vehicle, that's much less interesting than when we actually get to sort of 50% market share.

And I think the way, and the trajectory, and let's say how we get from 5% to 50% will actually help build momentum and dictate sort of when the last ICE is sold. Certainly, you can think of edge cases and towing a very large trailer to a state park with over 8,500--

KRISTIN DZICZEK: Taking your horses.

DAN NICHOLSON: Those are all real applications that people want to do. But we shouldn't let the edge cases sort of define how customers can really be satisfied, and also understanding the reason that we're doing this is because we're facing an urgent global warming situation. And so we actually need to treat it like it's urgent.

And at General Motors, that's what we're doing on the product portfolio side. I want to loop back around a little bit to commodity pricing, because there are a lot of smart people also working on the whole supply chain down to the mines. And the good news is for most of the things we're talking about-- lithium, especially, et cetera-- there's enough of it on the planet, right? So we're not trying to solve an impossible problem where we're trying to make batteries out of things that actually don't exist.

But it needs to be extracted, or mined, or gotten in some way. And one of the things that we can do, and now this is on, let's call it, the policy side, is to enhance and streamline permitting processes which will help North America, and South America, and other places to allow mining to actually happen, which will also allow the refining and the other making of cathode active materials, CAM, and all those things happen.

We're getting the footprint and the clean energy tax credits are supporting the manufacturing piece. But we've got to make sure the raw materials are flowing. And that means that we've got to have sustainable and clean processes in mining. But we also can't take 10 years of permitting to kind of get this done.

KRISTIN DZICZEK: Well, that leads to a question that I just thought of. There's a lot of lithium in the mountains in Bolivia-- really hard to get to, it's really cold. It needs to be evaporated. It's hard to do that in cold.

Are there-- of the lithium you know that's out there, are there things that are sort of, I think of them like the shale, or the tar sands, or something like, you don't get to extracting that until the price is sufficient to make that investment-- how much of the lithium is more accessible and how much of it is going to take a tar sands kind of moment?

DAN NICHOLSON: Yeah. I wouldn't want to take too much of the microphone. And I also don't want to kind of co-opt this conference or recommend another one, but if people are interested in that topic, the BMI conference, Benchmark Minerals Intelligence, is really a good one.

They are very focused on the battery supply chain at the extraction level. And so that industry is actually transforming as we speak. And they're looking 5 to 10 years ahead to kind of try and solve these problems.

And so if you're interested in that topic, I was there as a speaker. But I also stayed for three days in LA in November, I think it was. That is really good and it's a very interesting topic.

The other thing I'll say is in social media, be a bit careful, because there's always stories that come from various sources about why it's hard to get lithium or it's this. So there's these urban myths that are out there about how difficult it is. They're all true on one level, but they're not true in the sense that it doesn't paint the whole picture.

They take, again, one thing that's kind of hard and then they extract it to the whole thing. So what I think we need are policies that can actually help and support all the different places we need to do that. At General Motors, we're being very proactive.

For lithium, we have a venture that we've invested in at the Salton Sea, which is doing sustainable extraction using geothermal heat as an energy source to do that. So that's a new kind of innovative way.

For every hard story, there's some really cool stories out there. And we need to find more of the cool stories and get all these transforming. And that's what we're trying to do. But, quite honestly, we need more and more organizations doing that and more and more support from thought leaders.

KRISTIN DZICZEK: Brad, do you want to weigh in--

ROD LACHE: Well, I think there's this saying in the markets that there's no better cure for high prices than high prices. So you've got high prices for some of these things. You've got returns on invested capital that are extraordinary in lithium mining and manufacturing lithium carbonate and hydroxide. It's a great business to get into and there's a lot of capital flowing into that.

I haven't met anyone that has told me that this is not achievable, to get to 40% or 50% by the end of the decade because of that. Nickel may be a little bit more challenging because it takes a little bit longer physically to start getting some of that out of the ground. But then you've got other alternatives like iron phosphate as a cathode material. So I guess the bottom line is no one's really come up with a great gotcha that I've heard yet that this is not going to happen because of availability of materials.

KRISTIN DZICZEK: So one of the questions I get about electrification is there seem to be a lot of electric pickup trucks. And what we were used to in the beginning is the Bolt, and the Leaf, and these small cars. And now, the market is all about pickup trucks.

My explanation for that is there's a lot of commercial use. And a fleet of electric trucks can come back to the same place every night, it does not require a robust, multi-state charging network to get around because the cable company only drives about 60 to 100 miles a day. And the TCO makes a lot more sense from a corporate purchase of a fleet than it might make to an individual consumer.

So I want to talk about electric pickup trucks and the new guidance that we've seen from Treasury on the commercial vehicle credits and leasing. So how about, Aditya, why don't you start?

ADITYA JAIRAJ: Sure. So I have a little bit of a different take on pickup trucks. So if you look at the industry today, crossovers are maybe the most significant, followed by pickup trucks. So in order to increase adoption rates, you have to target the most predominant segments, and pickup trucks are there.

And as Dan said, it's all about giving the consumer the choice. So pickup trucks are 20% to 25% of the industry. You give consumers the choice. The product is good enough. It will do well.

So that's one. And second, yes, there is total cost of ownership advantage with commercial operations. So the key point there is consistency in use. School buses, for example, they do whatever-- 60, 70 miles a day, five days a week-- they're not used at night, they can be used for storage, et cetera, et cetera.

So the consistency in use provides a much easier use case to tackle. I think that's the other important point. And the third point is, again, we spoke a few minutes ago about this-- when a consumer drives an EV, experiences an EV, more likely than not, they're not going to go back.

Because I don't how many of you have driven EVs here, but I've been driving one since 2016. What does an EV give you? It gives you instant torque. Your cabin is quiet. Whatever the size of the vehicle, your cabin is quiet.

And number three, it gives you the thrill when you drive. Now, the thrill factor can be different for different people because of that instant torque, but it's a very small drive. So when you experience an EV, most likely than not, there are some other fringe cases, you won't go back.

And if your usage is consistent, for example, within commercial vehicle operations, there is no going back. So it's a tri-factor of reasons. Commercial vehicles, yes, they will be a higher proliferation. At the same time, if you also look at some of the other markets in the world where two-wheelers are more predominant than four-wheelers-- for example, in countries like Indonesia and in India, where two-wheelers are five, 10 times the size of four-wheelers-- because of the consistency in use, the adoption rates are much, much higher. So, yes, commercial vehicles, I think, will see a higher adoption rate to start with, and then passenger vehicles and trucks will then follow.

KRISTIN DZICZEK: Do you want to talk about trucks?

DAN NICHOLSON: Yeah. So I agree with Aditya said. I won't repeat. I think your point is for commercial operators, they actually look at total cost of ownership. So they get it, and they see it, and they want that almost immediately.

I think the other point is the full-size truck market, including full-size SUVs, is big in the US. And people, they love the idea of EVs but they won't switch segments.

So if I want a truck-- and we see that with the Silverado EV that's getting a lot of attention. And I can't tell you how many people have come up to me in the last year since we sort of introduced it and teased it and said, oh, I want one of those-- general contractors, even, people that you wouldn't think of that maybe really want that.

So I think it's going to be big, but we've got to give people the choices that they want. And in the US, truck market is big. We might even see a little bit of segment growth. Because what's interesting is I've also heard a lot of customers that would never consider a truck from an image standpoint. But now, oh, it's a zero emissions truck.

Well, my neighbors won't make fun of me. So maybe it is cool to have stuff I can haul stuff around in the back. So I think you're going to see a lot of cool stuff going on. And trucks are big in the US because they're big.

KRISTIN DZICZEK: Right. Well, and the commercial credit, I think, is a critical part here too. So one of the key parts of the commercial credit is it does not have the entity of concern. It doesn't have a North American sourcing component to it. So you can use different batteries and sourcing from low cost countries like China in a commercial vehicle. So what do you think that Treasury guidance opens up for us?

DAN NICHOLSON: The non-finalized Treasury guidance--

KRISTIN DZICZEK: Yeah, the non--

DAN NICHOLSON: End of the year and is now due March 31-- I think it's really, really important. I think to achieve what congress intended, they need to interpret that in a really smart way. I think it's really important for the US to actually be a leader in technologies like batteries, and semiconductors, and other sorts of things. So I think that's important. And the foreign entity of concern things should be taken very seriously, including intellectual property.

KRISTIN DZICZEK: Brad.

ROD LACHE: Well, I agree with everything that was said up until now. I think that, look, just backing up to the pickup truck argument-- commercial buyers make decisions based on economics. Retail consumers make decisions based on economics and emotion. And I think that there is a great argument for commercial buyers.

On consumers, there is, I think, initially an emotional argument. People think it's great, and I get all this utility, and they're willing to pay a big premium. But the reality is that you've got to remember the laws of physics.

And you've got a crossover SUV that's got 75 kilowatt hours worth of battery, and then you've got these trucks that are much bigger that need 135 to 200 kilowatt hours of battery in them. You start to go into the math and you say, boy, there could be a $10, $20,000 cost premium to do that.

And so I think that might limit, at least initially, some of the entry here. And then on the question on the commercial credit-- I think that there's some good things that are going to come out of that. But there's also some things that are not really intended by the law, at least from where I sit.

Just for example, there's this loophole that people are talking about where a finance company that leases will be considered a commercial entity. And the leasing company can get this tax credit. Well, who does that really go to?

So there are some companies that have-- American companies-- that have invested a lot in America, in the United States, and that have built up tax credits. Now, the tax credits that they get now from doing this, they'll come on the back end of what they already have in place. So in some cases, they may not get this for a couple of years.

But there are a lot of foreign companies and other leasing businesses that don't have those tax credits and they can come in and take advantage of it. So there are a lot of issues here in terms of how it's going to be applied and maybe that may not result in the intention of the law.

KRISTIN DZICZEK: Right. And we're going to talk a lot about that tomorrow with our government speakers tomorrow afternoon. One of the questions here, I'm going to twist it a little bit with mine-- so a question from John Warner-- and with the IRA defining China as this entity of concern and limiting the components going into EVs, how will that affect the supply chain for Chinese components going into ICE vehicles?

DANIEL KENNEL: I mean, let's say that we have learned in the hard way in the last 24 months how dependent we are on China and other countries. So I think independently of the IRA and other initiatives, we need to diversify our supply chain. And we don't do it for the next couple of years and we are not doing it for any credits, we're doing it for the long run.

So I think that's the most important thing. We're not doing our supply chain diversification for IRA or just to get rid of our China dependence. We have to make sure that our supply is constant over the next couple of years. We cannot allow, again, right now, in the EV boom, cannot deliver vehicles that people want from us.

So I think OEMs and suppliers who are investing a lot of effort, time, and money into building up supply chain locally, diversifying supply chain, that comes along with revalidation of a lot of parts. It has a long tail, a lot of money. And we're doing that for the long run. So always when I hear the IRA discussions, I'm less concerned about the next couple of years because we are doing that for the next 10 years.

KRISTIN DZICZEK: So I think a lot about ICE vehicles, and manufacturing scale-- I'm an industrial engineer too. And so on the ICE side of things, we have shrinking volumes as EVs come to market and take up more of the market share. We have some suppliers who are pulling out or minimizing their ICE business.

We likely have more stringent fuel economy and greenhouse gas emission standards coming for ICE vehicles as well. And so you're going to need to continue to invest and improve ICE performance and spread those costs out over a much smaller volume. And that's going to happen at the manufacturers, as well in the assembly plants as EV plants are ramping up and ICE plants are kind of ramping down.

So I heard one automaker tell me that they're going to go to single sourcing on some of their biggest programs, because there just aren't enough of the companies that are willing to make those investments to go all the way to the end of ICE. So let's talk about how does this impact this transition-- ICE costs are going to continue to increase. That might help you get to parity faster. But what do you see that as the industry, as the suppliers sort of start to consolidate into fewer players and have greater market power?

ROD LACHE: Well, I think, maybe just to kick this off, I think that put up a slide, Kristin, that showed 80% capacity utilization is sort of the break-even point. I think that there's close to 3 million units of capacity being added right now over the next few years, just in EVs, that will drive down capacity utilization by 15 points, right?

So just think about how hard it's going to be to get to that 80% capacity utilization in the industry. I think you kind of answered the question by saying, boy, as the utilization of ICE declines and as fuel economy standards continue to tighten, emission standards continue to tighten, it's inevitable that the cost is going to be going up.

And everybody that's looking at this cost parity is assuming that battery costs are falling, but internal combustion is static. It's just not. It's going to continue to go up.

And I think that at some point-- maybe it's towards the end of this decade-- we're going to be talking about how much of a premium are you willing to pay for internal combustion to get the utility that you need because of towing or whatever range or things that you really want that you can get out of that. And so this conference will be very different at that point in time.

DANIEL KENNEL: Well, I think, unfortunately, we are not there yet at a single sourcing that suppliers have high pricing power. Unfortunately, we're not there yet. So we are still in the phase where there is big, big price competition in the ICE market.

And we saw in our numbers, still 95%, we're still making probably $13, $14 billion revenues per year with ICE engines, with ICE components. So saying that, it's, of course, not a question of capital expenditure. It's a question of capital utilization.

And going forward, we need to make sure that we consolidate our internal footprint to keep the capital utilization in the locations up. And then we have locations, manufacturing floor, opening up. And we need to repurpose that. We need to repurpose that towards electric vehicles, towards our new product lines that are ramping up.

But capital utilization is absolutely critical. I personally think we are still at least a decade out until we see, hey, BorgWarner is the last supplier for turbochargers and we can charge GM whatever we want. I think, unfortunately, we are still far away from that. And we will still see a lot of players being pushed out.

PEs are very active in getting ICE assets because they have a long tail and they are profitable. And they will get over that hurdle over the next couple of years. So I wouldn't underestimate the longevity of the ICE business, because we are talking about Europe and the US, which is combined 40 million, not even half of the global manufacturing. There will be still a lot of regions out there that will fully depend on ICE vehicles.

KRISTIN DZICZEK: And 280 million vehicles on the road that are ICE.

DANIEL KENNEL: Exactly. So I'm less pessimistic or optimistic that will happen at the end of the decade. But yeah, capital utilization is absolutely critical.

ADITYA JAIRAJ: And just to add one point here-- when you take this into manufacturing, manufacturing systems also have become very flexible. For example, the Leaf, which is built in Smyrna, Tennessee, is built on the same line that we build for other ICE vehicles. It's the same line. It's the flexibility which has been incorporated within the system.

So as we progress towards more and more EVs, ICE will still remain, maybe smaller in size, but if you have these flexible manufacturing systems, you can improve utilization and, hence, make sure that costs actually go down.

KRISTIN DZICZEK: Well, some of our attendees went to see the Ford Lightning plant yesterday, and we saw some tremendous flexibility there, like take a car right off the line if you want to. You're talking about Smyrna, which I've been to and where you can make various vehicles on the same line. The plant about half a mile from here used to make an electric vehicle and ICE vehicles on the same line, now factory zero.

One of our questions from the audience is, what are really the challenges of retrofitting existing plants for EV production? And then I want to add on to that-- for producing several automakers are looking at the same platform for ICE and battery electric-- not a dedicated platform. So you have a dedicated platform, you have a dedicated platform-- so you guys are going to get to weigh in on the not dedicated platforms. So challenges in retrofitting plants.

DAN NICHOLSON: So we've got quite some experience retrofitting plants. And we're doing lots of changeovers as we speak. Factory Zero, which is not far from here, we started, and that's where we're making the Hummer. And that will be a plant for the Silverado as well.

So it's not as bad as you think. And it's not so dissimilar to sort of changing over a plant from, for example, a car to a truck which we've done over time and the industry knows how to do. So I don't think that's a roadblock.

It does sort of commit you, with regard to the capacity issues, and ICE capacity, and EV capacity. And it's going to be really an interesting transition.

I was really excited as you were reading your last question, because if it were easy, it wouldn't be as exciting. So there's going to be winners and losers. And it's not simple. And people have to make choices. So that's really good.

With regard to architectures-- dedicated architectures for EVs is the only way to go. There's not really anybody credible, I think, that would make a technical argument that it isn't the way to go. Several people are sort of caught in between and have an architecture that's one way or the other because they're not executing yet their final plans, but dedicated architectures are the way to go. And the sooner OEMs get there, the better off they'll be.

ADITYA JAIRAJ: Just to add to Dan's point, when you have a dedicated architecture, your efficiencies are better. If you retrofit an existing ICE platform for EVs, you're not able to have higher efficiencies. I think that's important.

So, for example, the new Nissan ARIYA we just launched, the footprint is similar to a midsize crossover, right-- the footprint. But when you look at it inside from interior space, the wheelbase is much higher than what you would get in a typical newer midsize crossover. And that's because it's a dedicated platform and you can be very efficient in terms of packaging.

So you can get more out of a limited footprint. So I think the world is going towards dedicated platforms. Non-dedicated platforms are, I would say, just an interim as we step forward.

KRISTIN DZICZEK: This is an interim step. Yeah. I know if it's not dedicated, you've got a bunch of things you have to do to carry an engine in a transmission and handle the noise, vibration, and harshness and all that you wouldn't need if you put a battery, and a motor, and any transaxle in there. So you kind of have some not optimal scenarios for the EV in the ICE platform.

So, gentlemen, you want to weigh in?

DANIEL KENNEL: I mean, to your initial question of how hard is it to retrofit a manufacturing location from ICE to EV-- as a supplier, the answer is, it depends. If we are in the circuit board business, if you want to populate a circuit board, those requirements are fundamentally different than if you put together a transmission.

But if you put together electric motors or other products, those are mechanical products, right? Of course, you have to have certain-- the flooring, et cetera-- you have to have certain cleanliness requirements, but it's not that fundamentally different. So I think as a supplier, it might be a little bit easier than for an OEM.

And to the other topic, I fully agree on the platform approach. That's where the industry needs to have those hybrid version. That was a nice interim solution, but they're not efficient at all.

KRISTIN DZICZEK: Rod, you get to clean us up. We're almost at the end.

ROD LACHE: I see this time and time again. These gentlemen have a lot more intimate knowledge of this, but I think the manufacturing issues doesn't sound to me like it's a big issue. But the engineering issues are very challenging when you want to have that.

And I'll give you just two examples that I heard recently. One is in most internal combustion vehicles, you've got hoses for cooling. And, generally, the hoses are pressurized about 20 PSI because the engine gets really hot and it can boil off the coolant.

All of the companies that have these hybrid architectures, they use 20 PSI hoses, even when there is no engine in the EV. And the company with the lowest cost uses 5 PSI hoses-- it'd would be Tesla with these little things that look very flimsy, but it's perfectly fine.

Another example would be, apparently, there's a residence of the vehicle chassis that you need to have to prevent vibration from the engine to intrude into the cabin. It would be very uncomfortable if you didn't have that. Some companies say that you need to have 38 Hertz.

And they build very robust cross members within the vehicle. Just behind the instrument panel, you've got this beam that basically is structural, and it creates rigidity, and it has to improve the resonance. You look at these dedicated platforms, they've got a very simple aluminum tube with a bunch of plastic hung off of it. It weighs nothing.

Just so many ways when you're thinking about engineering a bespoke electric vehicle, it is very, very different than the internal combustion. I don't see anyone that's really solved that.

KRISTIN DZICZEK: Great. Well, gentlemen, we are near the end of our time. Thank you so much-- Dan, Aditya, Daniel, and Rod.

ROD LACHE: Thank you.

KRISTIN DZICZEK: Let's give them a hand.

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