As battery-electric-vehicle (BEV) gross sales development in most markets has slowed, the automotive business is weighing new strategies to speed up electrification momentum. Along with plug-in hybrid electrical autos (PHEV), extended-range electrical autos (EREVs) have reemerged as one potential answer to assuage vary nervousness and price considerations amongst present homeowners of inner combustion engine (ICE), hybrid, and electrical autos.
Many potential consumers of electrical autos (EVs) are reluctant to pay a premium to buy a BEV as an alternative of an ICE car. Alongside value, driving vary is a high supply of unease amongst automobile consumers. For automobile homeowners who stay in residences or in different varieties of houses that lack common entry to in a single day charging, in addition to for drivers planning long-distance journeys, scant public charging is usually a concern. And although most drivers have a each day commute of lower than 50 miles, others have for much longer commutes.
Given their inherent capability to quell vary nervousness and their robust gross sales momentum in China, EREVs have caught the eye of OEMs in Europe and the USA as one potential option to increase EV gross sales development. EREVs had been a part of the primary wave of electrification a decade in the past, however they didn’t take off, as a result of innovation-driven early EV adopters had been largely solely all in favour of pure BEVs. EV shopping for has moved from early tech-savvy adopters to mainstream automobile consumers who’re in search of a broader vary of choices. Whereas EREVs are much like PHEVs, they mix a small ICE-powered generator with an electrical powertrain and might supply an electric-only driving vary of 100 to 200 miles (versus a comparable PHEV’s vary of 20 to 40 miles) and a complete vary of 400 to 500 miles (see sidebar, “EREVs and PHEVs: How are they totally different?”).
Knowledgeable by McKinsey evaluation and information from an October–November 2024 survey of automobile consumers in the USA and Europe, this text explores whether or not EREVs may appeal to extra clients to electrical driving than BEVs or PHEVs. It additionally examines whether or not it could possibly be worthwhile for OEMs to put money into a special powertrain know-how in an atmosphere the place budgets are sometimes tight and difficult regulatory deadlines are quickly approaching.
EREVs attraction to automobile consumers in the USA and Europe, however shopper schooling is significant
McKinsey’s late-2024 survey of greater than 2,800 new-car consumers in the USA and a couple of,300 in Germany and the UK discovered {that a} sizable phase would take into account an EREV for his or her subsequent car buy if the choice had been accessible. What’s extra, two-thirds of those potential consumers famous an intent to buy an ICE or hybrid car within the absence of an EREV possibility. This means that EREVs may encourage extra ICE car homeowners to transition to electrical driving (Exhibit 1).
Picture description:
Three pairs of stacked horizontal bar charts evaluate survey information displaying how together with an extended-range electrical car (EREV) possibility affected automobile consumers’ preferences for his or her subsequent car buy. The paired charts are categorized by the areas the place consumers had been surveyed: Germany, the UK, and the USA. In Germany, the UK, and the USA, respectively, 15%, 13%, and 18% of consumers most well-liked an EREV when it was included as an possibility. The portion of consumers that most well-liked inner combustion engine (ICE) autos and plug-in hybrid electrical autos (PHEVs) decreased by 10, 7, and 12 share factors for ICE autos and by 2, 7, and 1 share factors for PHEVs in Germany, the UK, and the USA, respectively, when an EREV possibility was included.
Supply: McKinsey Heart for Future Mobility, Mobility Client Insights—German and UK information based mostly on German and UK EREV Notion Survey, November 2024, n = 2,312, and US information based mostly on US EREV Notion Survey, October 2024, n = 2,843
Finish of picture description.
Alongside value, the highest cause cited by surveyed shoppers for preferring ICE autos to EVs is what’s generally often known as “vary nervousness.” This describes a basic sense of unease associated to the next: being unable to drive for as lengthy or as far in an EV as in an ICE car; missing fast-charging stations with the frequency or comfort of conventional fuel stations; needing to recharge too incessantly; or working out of electrical energy earlier than reaching a charging station.
Curiosity in EREVs was greater amongst homeowners of premium-brand autos than amongst mass-market-brand automobiles. There was additionally barely greater curiosity in EREVs amongst present homeowners of bigger automobiles and SUVs than amongst homeowners of smaller automobiles.
A key market phase which may embrace EREVs is EV homeowners who’re contemplating switching again to an ICE due to frustration with insufficient charging availability and driving vary of their present autos. Within the 2024 McKinsey Mobility Client Pulse Survey, for instance, 46 % of US EV homeowners and 19 % of European EV homeowners reported they had been contemplating switching again to an ICE car.
Regardless of EREVs’ obvious attraction to quite a lot of automobile consumers, shopper schooling that clearly conveys the advantages of EREVs and customarily demystifies the distinctions between all EV and hybrid-vehicle choices is significant. Customers have issue understanding how EREVs differ from PHEVs, BEVs, or different hybrid autos. Customers in the USA seem to seek out the distinctions between totally different EV and hybrid powertrains particularly perplexing. Amongst US automobile consumers included in McKinsey’s survey pattern, almost half (48 %) agreed with the assertion “I’m overwhelmed by the variety of powertrains (presently accessible) to select from.”
EREV choices within the world market are scant however rising
At present, there are few EREVs within the world market. In the USA, EREVs within the SUV and truck phase have been introduced, together with the 2025 Ram 1500 Ramcharger, which stories a 145-mile pure electrical and a 690-mile whole driving vary. In China, Li Auto has launched a number of EREVs, together with its L9, which stories a 134-mile electrical vary and an 817-mile whole vary. And AITO’s M9 stories a 140- to 170-mile electrical and 840- to 871-mile whole vary. VW-backed Scout Motors has additionally introduced a number of EREV fashions that, in keeping with the corporate, have obtained significantly extra deposits than their Terra and Traveler BEVs.
An electrical vary of 100–200 miles would meet most drivers’ each day commuting wants, whereas a complete vary of 350–600 miles may get rid of vary nervousness. This may occasionally point out a candy spot for the EREV market (Exhibit 2).
Picture description:
A scatterplot chart graphs the entire and electric-only driving ranges of electric-vehicle fashions which were produced or introduced by varied world producers. The x-axis represents an electric-only driving vary between 0 and 1,000 miles and the y-axis represents a complete driving vary of 0 to 1,000 miles. A label on the chart signifies that given what is offered available in the market and the size of the typical commute, a “candy spot” for future extended-range electrical car (EREV) fashions might exist within the 100- to 350-mile electric-only and 300- to 700-mile whole driving vary. EREV fashions are plotted inside a 30- to 150-mile electric-only and a 400- to 800-mile whole driving vary, plug-in hybrid electrical autos fashions inside a 25- to 60-mile electric-only and 450- to 600-mile whole vary, and battery electrical car fashions inside a 200- to 500-mile electric-only driving vary.
Finish of picture description.
America’ regulatory atmosphere might make it probably the most favorable marketplace for EREVs
Going ahead, there could also be vital alternatives for EREV gross sales in the USA—and within the European Union, regardless of rapidly approaching deadlines for zero-emission autos to account for all new-vehicle gross sales there by 2035.
The zero-emissions car deadline below present EU rules means EREVs could possibly be bought within the area by way of 2034. OEMs might want to take into account their slim window of alternative within the EU and potential improvement timelines to find out whether or not shopper demand will generate sufficient revenue to warrant funding in EREV powertrains. Notably, EREV powertrains could also be a extra future-proof possibility for OEMs than PHEV powertrains as a result of they mix a BEV platform with a small ICE-powered generator that’s not linked to the drivetrain.
Not like the European Union, the USA has no zero-emissions requirement in place for new-car gross sales. On the federal stage, Environmental Safety Company requirements tie compliance bonuses to electrical driving ranges, which signifies a possible benefit for EREVs over PHEVs. For instance, an EREV with a variety of at the very least 70 miles may obtain a 65 % bonus in compliance requirements, whereas a PHEV with a 25-mile vary may obtain a 30 % bonus. The California Air Assets Board’s Superior Clear Vehicles II rule does mandate 100% electrification in new automobiles bought by 2035, however one-fifth of these autos could possibly be PHEVs or EREVs, and producers may obtain full credit score for every car with an electrical vary of at the very least 70 miles.
Thus, by way of regulatory necessities, new alternatives for EREVs could also be biggest in the USA market.
EREVs may present a cost-competitive different to BEVs and ICE autos
If centered on offering an electrical vary of 150 miles, EREV mixed powertrain prices could possibly be as a lot as $6,000 decrease than BEV powertrain prices. Nevertheless, the hole between BEV and EREV manufacturing prices will doubtless slim as battery prices lower. The manufacturing prices for EREVs are anticipated to fall between these for similar-sized BEVs and ICE autos. In a McKinsey modeled situation, an EREV pickup truck with a 150-mile electrical vary and a complete vary of 500 miles or extra could possibly be designed utilizing a 68 kilowatt-hour (kWh) lithium nickel manganese cobalt oxide (NMC) battery pack; a comparable BEV would wish a 228 kWh battery pack to ship a 500-mile vary. On this situation, an EREV powertrain may price 30 to 40 % much less to supply than a BEV powertrain (Exhibit 3).
If OEMs are capable of obtain decrease manufacturing prices and supply EREV value factors enticing to ICE-inclined and BEV-resistant automobile consumers, EREVs may symbolize a big alternative to revitalize EV gross sales development. However OEMs ought to fastidiously take into account the choice to put money into an EREV platform in mild of elevated portfolio complexity. If an EREV yields a median price financial savings of $3,000 over time, two-thirds of which is handed on to the buyer, then an OEM would wish to promote at the very least a million items, supplied an EREV platform would price round $1 billion to develop.
EREVs may assist easy the transition from ICE autos to BEVs by serving as a bridge know-how for shoppers whereas charging infrastructure is improved and expanded and BEVs turn into extra mainstream and cost-competitive within the world market. Automotive consumers hesitant to buy EVs may welcome EREVs as an possibility, supplied producers could make the know-how accessible and clearly distinguish EREVs from PHEVs, different hybrid autos, and BEVs, significantly within the US market. For OEMs to learn from including EREV powertrain know-how, reaching an expeditious time to market is essential, alongside cautious planning and oversight for extra improvement prices and more-complex provide chains and manufacturing.
