Automotive&AssemblyPractice

Couldextended-rangeEVsnudgemorecarbuyerstowardfullelectric?

Slowingbattery-electric-vehiclesalesgrowthreflectsconsumerpriceconsciousnessandrangeanxiety.Couldextended-rangeEVspersuademorebuyersoftraditionalcarstomaketheswitch?

ThisarticleisacollaborativeeffortbyKevinLaczkowskiandPatrickHertzke,withAnna-SophieSmith,DestonBarger,MadhumithaAravanan,andPaulHackert,representingviewsfromMcKinsey’sAutomotive&AssemblyPracticeandtheMcKinseyCenterforFutureMobility.

February2024

Australia,Brazil,China,France,Germany,Italy,Japan,Norway,andtheUnitedStates.

Couldextended-rangeEVsnudgemorecarbuyerstowardfullelectric?

2

Asbattery-electric-vehicle(BEV)salesgrowthinmostmarketshasslowed,theautomotiveindustryisweighingnewmethodstoaccelerateelectrificationmomentum.Inadditiontoplug-inhybridelectricvehicles(PHEV),extended-rangeelectricvehicles(EREVs)havereemergedasonepotentialsolutiontoassuagerangeanxietyandcostconcernsamongcurrentownersofinternalcombustionengine(ICE),hybrid,andelectricvehicles.

Manypotentialbuyersofelectricvehicles(EVs)arereluctanttopayapremiumtopurchaseaBEVinsteadofanICEvehicle.Alongsideprice,drivingrangeis

atopsourceofuneaseamongcarbuyers.Forcarownerswholiveinapartmentsorinothertypesofhomesthatlackregularaccesstoovernightcharging,aswellasfordriversplanninglong-distancetrips,scantpublicchargingcanbeaconcern.Andthoughmostdrivershaveadailycommuteoflessthan50miles,othershavemuchlongercommutes.1

GiventheirinherentcapacitytoquellrangeanxietyandtheirstrongsalesmomentuminChina,EREVshavecaughttheattentionofOEMsinEuropeandtheUnitedStatesasonepotentialwaytoboostEVsalesgrowth.EREVswerepartofthefirstwaveofelectrificationadecadeago,buttheydidn’ttakeoff,becauseinnovation-drivenearlyEVadoptersweremostlyonlyinterestedinpureBEVs.2EVbuyinghas

movedfromearlytech-savvyadopterstomainstreamcarbuyerswhoarelookingforabroaderrange

ofoptions.3WhileEREVsaresimilartoPHEVs,theycombineasmallICE-poweredgeneratorwithanelectricpowertrainandcanofferanelectric-onlydrivingrangeof100to200miles(versusacomparablePHEV’srangeof20to40miles)anda

totalrangeof400to500miles(seesidebar,“EREVsandPHEVs:Howaretheydifferent?”).4

InformedbyMcKinseyanalysisanddatafromanOctober–November2024surveyofcarbuyersintheUnitedStatesandEurope,thisarticleexploreswhetherEREVscouldattractmorecustomerstoelectricdrivingthanBEVsorPHEVs.Italsoexamines

whetheritcouldbeworthwhileforOEMstoinvestinadifferentpowertraintechnologyinanenvironmentwherebudgetsareoftentightandchallengingregulatorydeadlinesarerapidlyapproaching.

EREVsappealtocarbuyersintheUnitedStatesandEurope,butconsumereducationisvital

McKinsey’slate-2024surveyofmorethan2,800new-carbuyersintheUnitedStatesand2,300inGermanyandtheUnitedKingdomfoundthata

sizablesegmentwouldconsideranEREVfortheirnextvehiclepurchaseiftheoptionwereavailable.5What’smore,two-thirdsofthesepotentialbuyersnotedanintenttopurchaseanICEorhybridvehicleintheabsenceofanEREVoption.ThisindicatesthatEREVscouldmotivatemoreICEvehicleownerstotransitiontoelectricdriving(Exhibit1).

Alongsideprice,thetopreasoncitedbysurveyedconsumersforpreferringICEvehiclestoEVsiswhat’scommonlyknownas“rangeanxiety.”Thisdescribes

ageneralsenseofuneaserelatedtothefollowing:beingunabletodriveforaslongorasfarinanEVasinanICEvehicle;lackingfast-chargingstationswiththefrequencyorconvenienceoftraditionalgasstations;needingtorechargetoofrequently;orrunningoutofelectricpowerbeforereachingachargingstation.

InterestinEREVswashigheramongownersofpremium-brandvehiclesthanamongmass-market-brandcars.TherewasalsoslightlyhigherinterestinEREVsamongcurrentownersoflargercarsandSUVsthanamongownersofsmallercars.

AkeymarketsegmentthatmightembraceEREVsisEVownerswhoareconsideringswitchingbacktoanICEbecauseoffrustrationwithinadequatechargingavailabilityanddrivingrangeintheircurrentvehicles.Inthe2024McKinseyMobilityConsumerPulseSurvey,forexample,46percentofUSEVownersand19percentofEuropeanEVownersreportedtheywereconsideringswitchingbacktoanICEvehicle.6

1AlexFitzpatrickandAliceFeng,“Americans’averagedailytraveldistance,mapped,”Axios,March24,2024.

2Forexample,see“BMWconfirmsi3RangeExtender(REx)modelistobediscontinued,”WhichEV,November26,2019.

3“HowEuropeanconsumersperceiveelectricvehicles,”McKinsey,August5,2024.

4DrivingrangesbasedonMcKinseyanalysisofvehiclespecificationsfromOEMwebsites.

5BasedondatafromMcKinseyCenterforFutureMobility(MCFM)MobilityConsumerInsights.GermanandUKdatabasedonGermanandUKEREVPerceptionSurvey,November2024,n=2,312;USdatabasedonUSEREVPerceptionSurvey,October2024,n=2,843.

6BasedondatafromtheMcKinseyMobilityConsumerPulseSurvey,February2024,anonlinesurveyof36,954currentmobilityusersin

EREVsandPHEVs:Howaretheydifferent?

Anextended-rangeelectricvehicle(EREV)isamixofbattery-electric-vehicle(BEV)andinternalcombustionengine(ICE)technology.Whilethetypicalplug-inhy-bridelectricvehicle(PHEV)usesaparallelelectric-motorandICEpowertraincon-figuration,anEREVusesaseriesconfig-urationthatincludesasmallICE-poweredgeneratorthatrechargesthebatterypack.

TypicalPHEVshavesmallerbatterypacksthaneitherBEVsorEREVs.InatypicalPHEV,anICEfunctionsasamechanicaldriveafterthebatterypack’sstateofchargebecomesloworifthedriverneedsextrapowerinelectricmode.TheaverageelectricdrivingrangeforaPHEVis20to40miles,andoncethePHEV’sbatteryisdrained,itfunctionsasanICEvehicle.

EREVsandPHEVscanbothbechargedatregularEVchargingstations,homechar-gers,andfast-chargingoutlets,andtheirICEenginescanberefueledattraditionalgasstations.Butastheirnamesuggests,EREVscanofferalongerelectricdrivingrangeof100–200miles(exhibit).1

1DrivingrangesbasedonMcKinseyanalysisofvehiclespecificationsfromOEMwebsites.

Exhibit

Inanextended-rangeelectricvehicle,agasengineandgeneratorextenddrivingrangebutarenotconnecteddirectlytothedrivetrain.

Electricvehicle(EV)andhybridvehicleconfigurationsandcharacteristics

BatteryEV

(BEV)

Extended-rangeEV

(EREV)

Plug-inhybridEV

(PHEV)

Hybridvehicle

Powertrain

Electricmotor(e-motor)

E-motor

E-motor(primary)andinternalcombustionengine(ICE)

ICEande-motor

Refuelingorrechargingsource

Electricityonly

Electricityandgasoline

Electricityandgasoline

Gasolineonly

Emissions

Zeroemissions

Zeroemissionsinelectricmode

Zerotolowemissionsinelectricmode;moderateemissionsinhybridmode

Reducedemissions

Systemstructure

E-motor

Inverter

Battery

E-motor

Generator

Inverter

Engine Battery

Engine E-motor

Inverter

Generator

Battery

Engine E-motor

Inverter

Generator

Battery

Source:McKinseyanalysisofvehiclespecifcationsfromOEMwebsites

McKinsey&Company

Couldextended-rangeEVsnudgemorecarbuyerstowardfullelectric? 3

Couldextended-rangeEVsnudgemorecarbuyerstowardfullelectric?

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8

Exhibit1

Anextended-rangeelectricvehicleoptionappealedtoasignificantsegmentofsurveyedcarbuyers,eventhosedisinclinedtopurchaseelectricvehicles.

Considerationofpotentialextended-rangeelectricvehicle(EREV)option,1shareofrespondentswhoownacartoday,%

Germany

UnitedKingdom

UnitedStates

Nextcaris

WithoutEREV

option

WithEREV

option

Change,percentagepoints(p.p.)

WithoutEREV

option

WithEREV

option

Change,p.p.

WithoutEREV

option

WithEREV

option

Change,p.p.

60

50↓–10

34

27

↓–7

70

58↓–12

20

18

↓–2

34

27

↓–7

10

9

↓–1

16

13

↓–3

28

28

→

17

13

↓–4

3

3

→

4

4

→

3

2

↓–1

N/A

15 ↑+15

N/A

13 ↑+13

N/A

18

↑+18

Internalcombustionengine(ICE)

Plug-inhybridelectricvehicle(HEV)

Batteryelectricvehicle

Fuelcellelectricvehicle

EREV

ICE

HEV ICE

HEV

Note:Figuresmaynotsumto100%,becauseofrounding.

1Statedintentbasedonconsumersurveyresponses.

Source:McKinseyCenterforFutureMobility,MobilityConsumerInsights—GermanandUKdatabasedonGermanandUKEREVPerceptionSurvey,November2024,n=2,312,andUSdatabasedonUSEREVPerceptionSurvey,October2024,n=2,843

McKinsey&Company

DespiteEREVs’apparentappealtoavarietyofcarbuyers,consumereducationthatclearlyconveysthebenefitsofEREVsandgenerallydemystifiesthedistinctionsbetweenallEVandhybrid-vehicleoptionsisvital.Consumers

havedifficultyunderstandinghowEREVsdifferfromPHEVs,BEVs,orotherhybridvehicles.

ConsumersintheUnitedStatesappeartofindthedistinctionsbetweendifferentEVandhybridpowertrainsespeciallyperplexing.AmongUScarbuyersincludedinMcKinsey’ssurveysample,nearlyhalf(48percent)agreedwiththestatement“I’moverwhelmedbythenumberofpowertrains(currentlyavailable)tochoosefrom.”7

7BasedondatafromMCFMMobilityConsumerInsights,USEREVPerceptionSurvey,October2024,n=2,843.

EREVofferingsintheglobalmarketarescantbutgrowing

Currently,therearefewEREVsintheglobalmarket.IntheUnitedStates,EREVsintheSUVandtrucksegmenthavebeenannounced,includingthe2025Ram1500Ramcharger,whichreportsa145-milepureelectricanda690-miletotaldrivingrange.8

InChina,LiAutohasintroducedseveralEREVs,includingitsL9,whichreportsa134-mileelectricrangeandan817-miletotalrange.9AndAITO’sM9reportsa140-to170-mileelectricand840-to871-miletotalrange.10VW-backedScoutMotorshasalsoannouncedseveralEREVmodelsthat,according

tothecompany,havereceivedconsiderablymoredepositsthantheirTerraandTravelerBEVs.11

Anelectricrangeof100–200mileswouldmeetmostdrivers’dailycommutingneeds,whileatotalrangeof350–600milescouldeliminaterangeanxiety.ThismayindicateasweetspotfortheEREVmarket(Exhibit2).

TheUnitedStates’regulatoryenvironmentmaymakeitthemostfavorablemarketforEREVs

Goingforward,theremaybesignificantopportunitiesforEREVsalesintheUnitedStates—andintheEuropeanUnion,despitequicklyapproachingdeadlinesforzero-emissionvehiclestoaccountforallnew-vehiclesalesthereby2035.

Thezero-emissionsvehicledeadlineundercurrentEUregulationsmeansEREVscouldbesoldintheregionthrough2034.OEMswillneedtoconsidertheirnarrowwindowofopportunityintheEUandpotentialdevelopmenttimelinestodeterminewhetherconsumerdemandwillgenerateenoughprofittowarrantinvestmentinEREVpowertrains.Notably,

EREVpowertrainsmaybeamorefuture-proofoptionforOEMsthanPHEVpowertrainsbecausetheycombineaBEVplatformwithasmallICE-poweredgeneratorthatisnotconnectedtothedrivetrain.

UnliketheEuropeanUnion,theUnitedStateshasnozero-emissionsrequirementinplacefornew-carsales.Atthefederallevel,EnvironmentalProtection

Agencystandardstiecompliancebonusestoelectricdrivingranges,whichindicatesapotentialadvantageforEREVsoverPHEVs.12Forexample,anEREVwitharangeofatleast70milescouldreceivea65percentbonusincompliancestandards,whileaPHEVwith

a25-milerangecouldreceivea30percentbonus.13TheCaliforniaAirResourcesBoard’sAdvancedCleanCarsIIruledoesmandate100percentelectrificationinnewcarssoldby2035,butone-fifthofthosevehiclescouldbePHEVsorEREVs,andmanufacturerscouldreceivefullcreditforeachvehiclewithanelectricrangeofatleast70miles.14

Thus,intermsofregulatoryrequirements,newopportunitiesforEREVsmaybegreatestintheUnitedStatesmarket.

EREVsmightprovideacost-competitivealternativetoBEVsandICEvehicles

Iffocusedonprovidinganelectricrangeof150miles,EREVcombinedpowertraincostscouldbeasmuchas$6,000lowerthanBEVpowertraincosts.15However,thegapbetweenBEVandEREVproductioncostswilllikelynarrowasbatterycostsdecrease.TheproductioncostsforEREVsare

expectedtofallbetweenthoseforsimilar-sizedBEVsandICEvehicles.InaMcKinseymodeledscenario,anEREVpickuptruckwitha150-mileelectricrangeandatotalrangeof500milesormorecouldbe

8“Ram1500Ramcharger,”Ram,accessedNovember26,2024;AustinIrwin,“2025Ram1500Ramchargerhybrid,”CarandDriver,2025.

9JillShen,“LiAutoannouncesnewSUVL9withcompetitivepricing,”Technode,June22,2022;“LiAutoInc.unveilsLiL9,itsflagshipsmartSUV,”LiAuto,June21,2022.

10PhateZhang,“Huawei-backedAitolaunches5-seatvariantofM9tofurthertapluxurySUVmarket,”CnEVPost,September10,2024;“Products:AITOM9,”TopEV,accessedJanuary27,2025.

11MichaelWayland,“VW’sScouthasmorethan50,000reservationsforupcomingEVsasautomakeraimstogrowU.S.share,”CNBC,updatedJanuary8,2025.

12Multi-pollutantemissionsstandardsformodelyears2027andlaterlight-dutyandmedium-dutyvehicles,USEnvironmentalProtectionAgency,March2024.

13Multi-pollutantemissionsstandardsformodelyears2027andlaterlight-dutyandmedium-dutyvehicles,USEnvironmentalProtectionAgency,March2024.

14AnhBui,DaleHall,andStephanieSearle,AdvancedCleanCarsII:ThenextphaseofCalifornia’szero-emissionvehicleandlow-emissionvehicleregulations,InternationalCouncilonCleanTransportation,November2022.

15Basedonamodeledcomparisonbetweena68kWhEREVvariantanda18kWhvariantwithNMCbatterypack.DoesnotincludeInflationReductionActsubsidies.

Exhibit2

A100-to200-mileelectricrangecouldmeetmostcommuters’needs—apotentialsweetspotintheextended-rangeelectricvehiclemarket.

Totaldrivingrangeversuselectric-onlyrange,miles

Hybrid

Extended-rangeelectricvehicle(EREV)

Batteryelectricvehicle(BEV)

Plug-inhybrid

electricvehicle(PHEV)

PotentialEREVmarketsweetspot

900

LiL9

F150Hybrid

ToyotaCamryKiaSorento

600

HyundaiElantra

Totalrange1

MercedesS580eToyotaRAV4PHEV

FordEscapePHEVMazdaCX-90PHEV

MazdaMX-30REV

RivianR1T

MercedesEQS580

TeslaModelSRam1500REV

300

HyundaiIONIQ5 FordMustangMach-E

BYDDolphin

NissanLeaf

00 300 600 900

Electric-onlyrange

1ScoutMotorsannouncedanEREVwithanupto500-miletotalrangein2024,butitdidnotspecifytheelectricrange.

McKinsey&Company

designedusinga68kilowatt-hour(kWh)lithiumnickelmanganesecobaltoxide(NMC)batterypack;acomparableBEVwouldneeda228kWhbatterypacktodelivera500-milerange.Inthisscenario,anEREVpowertraincouldcost30to40percentlesstoproducethanaBEVpowertrain(Exhibit3).

IfOEMsareabletoachievelowerproductioncostsandprovideEREVpricepointsattractivetoICE-inclinedandBEV-resistantcarbuyers,EREVscould

representasignificantopportunitytorevitalizeEVsalesgrowth.ButOEMsshouldcarefullyconsiderthedecisiontoinvestinanEREVplatforminlightofincreasedportfoliocomplexity.IfanEREVyieldsanaveragecostsavingsof$3,000overtime,two-thirdsofwhichispassedontotheconsumer,thenanOEMwouldneedtosellatleastonemillionunits,providedanEREVplatformwouldcostaround$1billiontodevelop.

Exhibit3

Averageproductioncostsforextended-rangeelectricvehiclesarelowerthanforbatteryelectricvehicles,butthatmaychangeasbatterycostsdecrease.

Batterypack,engine,andgeneratorcostsforapickup,$thousands

12.0

15.0

14.4

20.2

14.6

Extended-rangeelectricvehicle(EREV)