The slow train coming:
Electrification of the automobile
The electric car is not exactly new, but commercialising an electric car for the mass market is far from straightforward. Nevertheless, the technology is improving and volumes will grow significantly over the next decade. However, 'electrification' of the auto industry will involve a big role for hybrids, and the internal combustion engine is far from dead.
The UK and French governments have both said that sales of new petrol and diesel engine cars should cease in their respective markets by 2040. There have been similar announcements around the world that seem to hold out the prospect of cleaner transportation and cleaner air in our growing cities. In the wake of Volkswagen's 'dieselgate' affair and a torrent of bad PR for diesels, car customers are turning away from diesels, even in the most heavily dieselised markets in Europe. Electrification is emerging as one way to fill the gap.
Tackling CO2 will also mean that carmakers invest in alternative and more efficient technologies to get CO2 emissions down (the 'diesel solution' to CO2 for Europe's policymakers now undermined). We're already seeing some important technological developments making it to market. The direction of travel seems to be firmly towards an electrified future.
However, there is nothing new about electrified vehicle propulsion and it has stubbornly failed to make a major market breakthrough since the first electric taxis appeared on the streets of New York in 1897.
The market acceptance of full battery electric vehicles has been slow. The internal combustion engine has shown remarkable resilience. The widespread adoption of technical enhancements such as turbochargers for more power has permitted engine downsizing for better fuel economy. One-litre displacement direct injection gasoline engines with the equivalent power output of a 1.6l engine of ten years ago are now offered by all of the major volume manufacturers. The primacy of combustion engines has also been further underpinned by low oil prices.
Electric vehicle technology has struggled to make a significant market impact in global terms.
The nascent technology in today's electric vehicles is seen as relatively expensive. Lithium-ion battery cell packs have been costly (though that is changing, rapidly). Unit costs have been high for major EV components. Scale economies have yet to be effectively exploited.
The technology comes with innate technical challenges too. The batteries are heavy and energy density is low. Electric vehicles that need every weight saving gain going are hampered to start with by battery bulk and mass. Lithium-ion batteries are also beset with range limitations − the range on a full charge is considerably less than that available on most conventional engine cars. Moreover, there is an infrastructure issue with battery charge point networks and the time that batteries take to charge (unless expensive 'fast charge' solutions are employed). And lithium-ion batteries themselves contain materials that are in short-supply (most notably cobalt).
All of these engineering and infrastructure challenges have long been known and it would be unfair to say that progress has not been made. However, it has been slow and the automotive market and industry has long been happy to continue to deliver combustion engine powered vehicles in mass-market segments. The market hasn't been pushing for EVs either. Concerns about high prices, range, reliability and infrastructure have left an embryonic EV sector largely ignored by the mainstream auto sector.
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The electrification 'push'
There are, however, signs of major change and a number of factors have combined to raise prospects for electric vehicle sales. Manufacturers face higher costs to develop more efficient combustion engines that can meet tougher targets on toxic emissions and on CO2 greenhouse gas contributions. This is perhaps most evident in Europe with the tougher CO2 targets set for 2021, but there are also tougher fuel economy standards coming into effect around the world. There are growing restrictions on the use of fossil fuel burning vehicles in city centres. Engineers have performed wonders to get the combustion engine to today's levels of efficiency − and cleaned up toxic tailpipe emissions in the process.
Eking out further incremental efficiency gains for fossil fuel burning engines comes with significantly higher costs and the major carmakers have concluded that they can only meet future regulatory targets by addressing powertrain mix in the fleet of sales. That means more electric vehicles and hybrids to complement the conventional combustion engines offerings.
Manufacturers such as BMW want to be able to offer products with powertrain configurations that can be offered according to market demands and regulatory requirements in markets across the world. Electrification is now seen as an essential core element in carmaker powertrain strategies and that's a big change from the position in the industry even five years ago.
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EV tech cost coming down
The automotive industry is also succeeding in lowering electric vehicle technology costs.
This is partly a natural consequence of heavy investment and gradually emerging scale economies as volumes rise. The cost of lithium-ion batteries used in fully electric vehicles has plummeted. According to Bloomberg New Energy Finance, the price of lithium-ion batteries fell from around US$1,000 per kWh of storage capacity in 2010 to around US$350 by 2015. And it's still going down. There are improvements in battery cell density ahead − more energy per cell to increase range and decrease battery pack weight and cost.
Tesla founder Elon Musk is planning a major ramp-up of battery production at his 'Gigafactory' in the Nevada desert. That will bring battery pack unit costs down further.
Higher volume is key. According to the US Department of Energy, increasing production volumes from 25,000 units to 100,000 units for a BEV battery pack allows a cut in battery pack production costs per kWh by 13%.
The International Energy Agency (IEA) forecasts that by 2030, Battery Electric Vehicles (BEVs) and Plug-in Hybrid Electric Vehicles (PHEVs) will become fully cost competitive with ICEs in Europe, where fuel taxes are high and oil prices likely to rise. Market penetration will undoubtedly rise as EV purchase costs and TCOs (Total Cost of Ownership) decline.
Investment bank Morgan Stanley expects electric vehicles to account for between 10% and 15% of the market by 2025. ING, a Dutch investment bank, has forecast that the car market in Europe will be fully electric by 2035. Although purchase prices for EVs will remain relatively high, electric vehicles have low costs of operation. This could enable a high range battery electric vehicle to become cost competitive with a comparable gasoline engine car by the mid-2020s. The second half of the 2020s, in particular, could see a rapid rise in market penetration for electric vehicles − especially in China and Western Europe.
Another advantage for electric vehicles is that they are, in engineering terms, simpler designs (fewer moving parts than conventional engine cars) which suggests the potential for further cost savings in manufacturing and also in aftermarket servicing costs (for further TCO reductions).
The image of electric vehicles has also improved. Tesla has played a large part in that improved market perception; the company was created with the vision to disrupt the automotive market with vehicles that were both environmentally responsible AND desirable as vehicles in their own right. Starting with a roadster, Tesla looks to have proven a point that was reinforced by the success of the Model S, Model X and Model 3. When Tesla introduces a new model, there's a choreographed media frenzy and razzmatazz that is subsequently followed by a bulging order bank. Other manufacturers are also well aware of the market niche and brand opportunities that electrified vehicles offer. BMW's 'i' brand, for example, is another take on a premium offering that has electrification as a key brand attribute − modern, responsible, sophisticated, clean and, above all, desirable.
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Charging infrastructure explosion
People can debate the 'chicken and egg' conundrum in respect of electric vehicles and charging infrastructure, but there is evidence that a tipping point has been reached in terms of the provision of public battery charging points. The number of charging points worldwide is estimated to be approximately 5.2m at the end of 2018, up 44% from the year before. Most of this increase was in private charging points, accounting for more than 90% of the 1.6m installations last year.
National and local governments have subsidised the provision of charging infrastructure, especially in Europe. Demand for charging points has risen sharply and is expected to continue to do so as the numbers of EVs in use rises rapidly. There are also innovations taking place to create 'corridors' of fast chargers (battery charging time is an issue for EVs).
Range anxiety is also widely forecast to diminish as battery density and performance improves. Current EVs typically have a range on full charge of around 120mi. That's now moving up to around 150mi. (latest Nissan Leaf) and BEV ranges are widely expected to grow to a typical level of 200mi. on more affordable electric vehicles over the next few years.
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Hybrids have also become an important part of the picture. Gasoline-electric hybrids were pioneered by Toyota, but plug-in electric hybrids with batteries that can support significant electric-only running have proven popular. They are ideally suited to short urban journeys, but also able to undertake long-haul journeys when necessary. Crucially, they don't come with the 'range anxiety' issues and perceptions that still harm the image of full EVs.
There are a number of diverse solutions for hybrids − full hybrids, mild hybrids, plug-in hybrids (PHEVs). One solution that is attracting huge interest is the so-called 48-volt hybrid.
This solution is a low-cost way to provide electrical assistance to a gasoline engine. The 48v electrical architecture (simpler and cheaper than 60v normally used on hybrids and EVs) is significant because it also holds out the possibility for much cheaper electrified vehicles. It is estimated that 48v mild hybrid systems offer 50-70% of the value of a full hybrid but at 30% of the cost.
By 2025, as many as 20% of all light vehicles sold globally will have a hybrid overlay. The systems are coming in rapidly. Audi's latest A8, for example, has an electrified 48v mild hybrid system fitted as standard.
Another important point on 48v is that the technology is coming to market just as diesel starts to fade in Europe under the weight of bad publicity, city centre usage restrictions and a likely steady reversal of pro-diesel tax regimes. Vehicle makers see 48v as playing a vital role in meeting CO2 targets that were previously going to be met with high diesel shares in sales.
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New registrations of electric cars and plug-in hybrids hit a new record in 2017, with over 750,000 sales of electric cars and some 1.15m sales of plug-in hybrids. China, the world's largest car market, also leads the electrified vehicle market by a considerable margin. Some 579,000 electric cars were sold in China in 2017, a figure likely to have increased to approaching 700,000 units in 2018. However, international data shows that Norway − a small automotive market − is very significant in electrified vehicles. It has the highest market penetration for electric vehicles − at around 30%. The reason for this is that the government in Norway has introduced a range of measures and incentives designed to stimulate electric vehicle sales. For example, BEVs are exempt from the 25% VAT on car purchases and there are a large number of waivers on fees such as road tolls. Norway's experience is testament to what can be achieved if the incentives are in place to overcome problems such as insufficient charging infrastructure and high purchase prices.
China's electrified vehicle sector is one to keep an eye on. Official policy is to encourage its development and to meet growing demand with home-grown supply. China's new energy (electrified) vehicle (NEV) market is forecast to expand to 2m annual sales a year by 2020.
NEV vehicles in China are being heavily encouraged by official government policy and include full EVs − Battery Electric Vehicles − and plug-in hybrids (PHEVs). Diesels in China are largely absent in light duty vehicles and the government is keen to encourage electrified vehicles as part of a raft of policies to tackle air pollution problems and lower China's CO2 emissions.
Like Norway, China is introducing consumer purchase incentives and others alongside wide public-sector deployment. Some cities in China already have restrictions on internal combustion engine vehicles. China's NEV sales have surged as generous government subsidies fuelled consumer demand and NEV production. Mild hybrid (48v) technology is expected to see rapid take-up in China and a number of suppliers are putting production capacity in place to meet higher demand from carmakers.
China has also introduced quotas or credits to ensure that carmakers produce electrified vehicles in much bigger numbers. Analysts suggest that the electrified vehicle sector in China will be given additional momentum by the increased take-up of lower voltage 48v technology which will lower the cost of electrified powertrains and pave the way, eventually, for low-cost BEVs built on cheaper 48v electrical systems. With its naturally large scale economies and an element of 'directed focus' from government, China could emerge as a particularly strong global player in electrified vehicles and associated technologies. There are already domestic makers, such as BYD, who are progressing EV technologies rapidly.
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Perspective needed on forecasts
Despite the increasing importance of electrified vehicles in addressing the megatrends of reduced emissions and increased fuel economy, the total market is forecast to remain niche well into the 2020s.
Our forecasts are for the total electrified vehicle market − including full hybrids as well as fully electric vehicles − will account for slightly more than 6.5% of global light vehicle production in 2020, increasing to nearly 28% by 2033.
Fully electric vehicles currently account for a little over 2% of annual global light vehicle production − around 2.3m units. By 2033, the annual global output of fully electric vehicles is forecast to be more than 19m units, led by rapidly rising demand in China and Western Europe.
It is worth noting that, even after several years of reporting on plug-in vehicles, many analysts, reporters and auto-industry executives apply less-than-robust forecasts for BEVs.
Most obviously, there is frequent confusion between numbers thrown around for annual BEV production and the total cumulative production of modern BEVs starting in 2011 or so.
For example, it has been reported in some quarters that there will be "14m BEVs by 2020", which is sometimes taken as a proportion of global light vehicle production. This figure would translate to around 15% of annual production, which would be a huge cost burden for the industry, not least in terms of the hundreds of billions of dollars needed to build the requisite lithium-ion capacity. The 14m figure can be properly seen as the likely cumulative production of BEVs by 2020 and, in that context, it seems a more reasonable assumption.