# Should Electric Carmakers Shift to More Mission-Specific Vehicles?

For plug-in vehicle makers, “a radical new form of market segmentation” holds the key to reaching beyond wealthy, green-minded early adopters, according to a new report from McKinsey & Co. The common approach of trying to build a vehicle that can satisfy virtually all the driving needs for a large swath of consumers may hinder the success of plug-in hybrid and all-electric vehicles if applied to this nascent market, the consulting firm finds.

Instead, automakers should tailor plug-in vehicles for the primary “driving missions” of specific consumer groups, McKinsey suggests — in other words, make a car that meets some of the needs of some customers.The researchers’ conclusion, as explained in a McKinsey Quarterly article, rests on the argument that a carmaker can produce more economic vehicles, and also develop more efficient advertising messages and go-to-market strategies, if it designs the battery pack (generally the most expensive portion of an electric car) according to a driver’s particular needs — no more, no less.

“Driving missions” can be divided into two major groups: stop-and-go driving in town, and commuting, which according to McKinsey, has higher energy storage requirements mainly because of “the higher average driving speed, and thus air resistance, encountered on freeways.” (The firm says longer range is a less significant factor.) As a result, the researchers argue that cars designed to meet commuting needs will “overserve” consumers using the cars for in-town driving at lower speeds, and carry a higher price tag than the stop-and-go group really needs to pay.

But while McKinsey estimates that as many as 38 million of the more than 100 million U.S. households could buy a vehicle designed for shorter trips (based on household incomes, current ownership of at least two vehicles, including one with low annual mileage), one need only look to the relatively low adoption rates for neighborhood electric vehicles, or NEVs, in the consumer market to acquire some skepticism about the rosy picture McKinsey paints for plug-ins with very limited range.

Viewed in another light, what McKinsey presents as “radical market segmentation” actually offers a not-so-radical argument for plug-in hybrids as a bridge technology between the gas, hybrid and electric vehicles of today, and future generations of vehicles that may be able to take advantage of lower cost, higher energy density batteries (and thus serve more types of driving missions at better value).

The hard truth at this point, McKinsey writes, is that it remains “much less expensive to use gasoline to cover infrequent trips that exceed a PHEV’s all-electric range than to carry ‘spare’ battery capacity” in a plug-in vehicle that has more all-electric range. That depends on gasoline and electricity costs, of course, while the environmental benefits of switching to electricity depend on the portfolio of energy sources used in the power grid.

Regardless of which way the pendulum of energy prices swings, within a few years, we’ll have some real-world data on how well plug-in vehicle makers serve their first mass market consumers. The segmentation may not be radical, per se, and price tags skew to the high end, but some variety can be found among upcoming models, from Think with its electric two-seater (less than $25,000, 111-mile range), on up to Tesla with its Model S sedan ($57,400, 160-mile range), and the offerings from Coda, Daimler, Nissan, General Motors and others in between.