Avoid Cost Creep In Electric Vehicle Manufacturing

From a costing standpoint, electric vehicles (EV) are not simply battery-powered versions of traditional vehicles with internal combustion engines. Instead, electrification poses its own set of costing challenges that need to be carefully managed to avoid cost creep. Here’s a rundown of some of those challenges and some tips you can follow to identify hidden cost drivers.

Coordinate your focus. Because the EV market is still an emerging industry, many manufacturers haven’t had enough time to build a foundation for functional group management. For example, your engineering team’s designs might include expensive materials, while your purchasing team knows the materials are out of budget, resulting in a loss of time and resources. To resolve these issues, we recommend developing processes to promote greater coordination between functional groups in your design, manufacturing and sales departments.

Offset low production volumes. EVs are produced at smaller volumes compared to their internal combustion engine counterparts. Due to this discrepancy, their supply base usually applies a premium to EV components to offset the profits lost from the lower production volume. Keep in mind — some strategies are easier to implement than others whenever production is scaled to the fleet or commercial level. Therefore, we recommend you try to reduce costs while bundling like manufacturing processes, stampings, casting, etc.

Look at component costs granularly. EVs are built with high-quality materials and technology, driving up their price. The components used in their subsystems may also be subject to foreign trade restrictions. For example, purchasing a cheaper battery manufactured in a country with a large tariff may not be the most cost-effective option. We recommend taking a granular approach to reducing the costs of these various subcomponents. Account for every aspect of a component’s manufacturing process, including the place of manufacture, the machinery used and the required hours of labor.

Establish cost control. In addition to their decades of experience, traditional automotive OEMs already have established methods and teams in place to reduce costs. While these OEMs are refining their methods, EV startups are still creating theirs. So be sure to prioritize cost reduction, making it a "Top Priority" in your design and manufacturing process. Be sure to apply a perspective that takes into account the vehicle’s subsystems cost creep. If one subsystem increases in cost due to design restrictions, try to decrease the cost of another subsystem to offset the total impact.

Get in touch with us to learn more about containing electric vehicle costs.