Detroit's Big Three are looking to a battery-powered future, but forging their own paths

December 08, 2019

DETROIT – After years of skepticism about the potential demand for electric vehicles – and their long-term profitability – the domestic auto manufacturers have increasingly come to accept that battery power will underlie the industry's long-term future.

General Motors said Thursday it will team up with Korean supplier LG Chem to build a new $2.3 billion battery plant in Lordstown, Ohio, a joint venture that will help power at least 20 all-electric vehicles the Motown manufacturer plans to have in production by 2023.

Thursday's announcement comes just weeks after cross-town rival Ford Motor revealed its first long-range battery-electric vehicle, the Mustang Mach-E, set to go on sale next autumn. For its part, the second-largest of the Detroit Big Three plans to invest $11.5 billion in its own electrification program.

As for Fiat Chrysler, the smallest of the domestic carmakers has long been the laggard in EV development – its former CEO once asking customers not to buy its only all-electric model. But, a senior executive now tells CNBC there will be "a lot of (battery-based) product coming" over the next several years.

Together, Detroit's Big Three intend to spend tens of billions dollars on battery-cars over the coming decade. But where they've traditionally taken relatively similar approaches to cope with changing market trends, each manufacturer is following its "own unique path" this time, said Ron Cogan, an automotive analyst and publisher of Green Car Journal. That reflects the reality that no one yet has a clear idea of how battery technology will evolve, nor how it will be accepted by consumers.

Nowhere are those differences more apparent than in the directions being taken by the two biggest domestic companies.

GM was an early player in battery-car development with its all-electric EV1 produced between 1996 and 1999. It would take another 17 years before its first long-range BEV, the Chevrolet Bolt, reached showrooms but, in the intervening years, it added an assortment of hybrids, including the first mass-market plug-in, the Chevrolet Volt.

Ford followed a similar path, at least initially, with an all-electric Ranger debuting in the mid-1990s and, since then, a mix of short-range BEVs, PHEVs and conventional hybrids.

But, as the decade draws to a close, their paths are rapidly diverging.

For one thing, GM is killing off the Chevy Volt plug-in, while the all-electric Bolt has become the foundation of what CEO Mary Barra on Thursday called "a path to an all-electric future."

"A fairly large chunk of our products in the next three to seven years will be electric vehicles," Rick Spina, GM's vice president of electric and autonomous vehicle programs, told CNBC in a telephone interview late last month. "We're very heavily biased towards EVs," long-range models, in particular, with hybrids and plug-in hybrids set to phase out of its line-up, he said.

Though there will have been a four-year gap between the debut of the Bolt and the second long-range model GM will roll out next autumn, a Cadillac SUV, there will be an escalating roll-out of new models soon afterwards.

Spina insisted GM's goal of having 20 all-electric vehicles in production by 2023 is still "on track," something Barra echoed during her Thursday news conference.

Covering all the bases

"Ford (also) has taken a lot of heat for being behind on EVs, but the Mach-E could be just the thing the company needs to quiet the naysayers," said Edmunds senior analyst Jessica Caldwell.

During a July interview, Ford Automotive President Joe Hinrichs said the automaker is developing an array of long-range all-electric models, some for global distribution, others targeting regional markets like the U.S., Europe and China.

Ford has been vague with details, though Reuters this week reported the new Ford Mach-E will be followed by a large SUV for the Lincoln brand. Ford declined to comment on that report or, more broadly, discuss future vehicle programs, but several insiders have verified the Reuters report.

Where GM is singularly focused on BEVs, however, Ford will cover all its bases, including hybrids, PHEVs and BEVs, Ted Cannis, the head of global electrification, said.

"Not everyone adopted smartphones and HD TVs in one day," he said, suggesting that until costs come down, range goes up and public charging stations become ubiquitous, Ford will retain "a broader portfolio of solutions."

For its part, the smallest of the Detroit Big Three has long taken a scattershot approach to electrification. That reflected the electro-skepticism of former CEO Sergio Marchionne. In May 2014, he told potential buyers of the Fiat 500 EV, the company's first all-electric model, "I hope you don't buy it because every time I sell one it costs me $14,000" more to build than it was being sold for.

Sales, not surprisingly, were abysmal.

Demand for the company's first plug-in hybrid, a version of the Chrysler Pacifica, however, has been more upbeat. Fiat Chrysler has also been one of the first to introduce micro-hybrid technology, a 48-volt system found on products like the Ram 1500 pickup, providing a modest boost to mileage and additional power for a relatively modest price premium.

Since Marchionne's unexpected death in July 2018, his successor, Mike Manley, has been more focused on the automaker's electrification program, committing $10.2 billion and hiring Mickey Bly, the former head of the Chevrolet Volt program, to oversee corporate powertrain development.

"There's a lot of (battery-based) product coming," Bly said in an exclusive interview. "We're not leaders now, but we will be soon."

Fiat Chrysler's powertrain chief declined to offer many details, but those close to the program offered some hints, suggesting a number of pure BEVs are in development, including a version of the Pacifica minivan. But, if anything, Fiat Chrysler's approach will be more in line with Ford's, with a mix of different electric drivetrain options. Even the classic Dodge line-up of muscle cars, such as the 707-horsepower Challenger SRT Hellcat, may wind up using a micro-hybrid system to deliver even more tire-spinning torque.

One big question is what the planned merger with France's PSA will mean.

If anything, industry analysts like Sam Abuelsamid, of Navigant Research, expect to see an even more aggressive push into battery propulsion – a technology strong supported by Carlos Tavares, the French carmaker's CEO, who will retain that role following the merger.

While there are significant differences, several things unite the electric-car strategies. For one thing, the companies expect to move away from "compliance-car fuel-sippers," vehicles marketed solely to meet minimum government mileage mandates – typically at a loss – said Ford's Cannis.

That was the approach originally taken with what became the Mustang Mach-E. Cannis revealed at its Los Angeles Auto Show debut, that barely two years ago, Ford tore up those plans, giving the electric SUV a more aggressive design, improved handling and more power.

Expect to see GM follow the same strategy for future models, starting with the Caddy SUV, said EV chief Spina. And so will Fiat Chrysler.

More joint ventures ahead

The three domestic automakers have also recognized that they can't do everything alone. That was demonstrated by GM's decision to form the new joint venture with Korea's LG Chem. The domestic giant also has teamed up with Honda on the development of both next-generation batteries and fuel-cell technology.

"Strategic partnerships have become essential to moving the industry forward," said Stephanie Brinley, principle automotive analyst with IHS Markit. "They're a part of the new ecosystem."

Ford, meanwhile, has formed several battery-car alliances. Among other things, it invested $500 million in suburban-Detroit start-up Rivian, which is expected to provide the underlying platform for the new Lincoln SUV debuting in 2021. Ford gets another electric platform for European EVs, Hinrichs confirmed, through a new alliance with Volkswagen, itself a major proponent of BEVs.

Consumers, of course, will need to increase their appetites for these products.

"As you know, word of mouth is a very important thing when you're selling any consumer product," said GM's Spina, noting that owners of products like the Chevrolet Bolt and the competing Tesla Model 3 give their vehicles routinely high marks.

As more people buy battery-cars, Spina anticipates positive word of mouth will spread and, whether hybrid, plug-in or all-electric, "there won't be enough downsides to keep people away from EVs."

CNBC

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