By Adam Panayi, Managing Director, Rho Motion
Since the start of the year we’ve been on the road speaking at various events about the outlook for electric vehicle (EV) adoption, and what this means for the lithium-ion battery industry.
We’ve also had the opportunity to listen to the thoughts of numerous industry participants along the entire EV supply chain, enabling us to draw a rounded perspective on the opportunities and challenges faced by the market.
In this article we will summarise our main thinking on the factors driving the EV market both at present and into the future, utilising the research from our EV and Battery Quarterly Outlook, the Q3 2019 iteration of which is published this month.
As an update of where we are now, in the year to June 2019 passenger car and light duty vehicle Battery Electric Vehicle (BEV) and Plug-in Hybrid Electric Vehicle (PHEV) sales were up 40% on the same period in 2018, at just over 1 million units, with a little over half of the sales in China (see chart 1). In 2018, full year sales stood at roughly 2 million units, again half of which were in China.
One big unknown, however, is the impact of the reduction of Chinese subsidies on the market there when they hit in the second half of this year. Chinese sales for the year to June are up 60% on the same period in 2018, and while the reduction in the subsidy will undoubtedly impact on vehicle sales in the short-run, we expect that this will be mitigated somewhat by lower VAT rates.
It is important to note also that the EV market is heavily concentrated in a few key countries, with the top five markets for BEV & PHEV accounting for over 80% of total sales, suggesting that adoption still has a long way to go in most markets.
Looking forward it is reasonable to expect that subsidies will be reduced further as the market gains scale, and it becomes fiscally untenable for governments to support an ever increasing levels of sales. However we do expect that incentives will persist in the form of tax rebates, and as a corollary of penalties for owning and operating ICE vehicles.
Emissions legislation, particularly at a local level, is set to tighten further in an effort to ameliorate the immediate impact on public health from NOx and particulate matter emissions. In addition, upcoming OEM fleet average CO2 targets in most major markets are not possible to meet without some form of electrification of model offerings.
As such there are a number of other developments that will start to play a larger role in the market in the coming years. Foremost among these are the investments being made by major auto-manufacturers for the introduction or expansion of electrification in their model offerings.
The world’s largest automaker, the Volkswagen group, has been leading the field in its efforts to move towards electrification. Its strategy is focussed on the development of BEVs with the release of its Modular Electric Drive Construction Kit, from which it plans to produce 50 pure BEV models, beginning with the ID-Neo in 2020. GM has also looked towards the BEV route, with its BEV3 platform from which it plans to launch 20 BEV models.
At present the global split of BEV versus PHEV stands 76% (see chart 2), and has been rising over time. Enthusiasm for a wholesale shift to BEV is not universally shared, however. Ford, for example, is planning 40 electrified vehicles by 2022, of which only 16 will be full BEV, while BMW has designed a vehicle platform to accommodate both BEV and PHEV.
Honda has stated that while its entire model line up with be electrified by 2025, most of these will be hybrids. This hybridisation strategy is being pursued in order to mitigate issues around battery cell and raw material supply, as well as consumer acceptance and charging infrastructure roll out.
In our view the longer term strategy will remain a transition to BEV, and ultimately we expect that full-electrification will offer a lower cost option to the both the OEM and the consumer.
This also in part because battery costs are likely to continue to come down on a per kWh basis, as cell manufacturing scale grows, and production efficiency improves. As a result, according to our estimates we expect purchase price parity by 2024/25 for new BEV models, although this calculation accounts for losses at OEMs while they build scale in production of these vehicles, with profitability coming later as volumes grow.
Equivalent purchase prices for EVs compared to ICE (internal combustion engine) vehicles will be the major driver of EV adoption, and we expect that this will prove a critical turning point in the evolution of the market.
Significant risks for EV adoption remain however, and these principally relate to the battery supply chain itself.
The availability of key raw materials, and the chemical processing capacity to convert them into useful products, is a key area of concern. There will need to be sustained capital investment in the upstream areas of the supply chain, in order that the much larger investments being made in battery and vehicle manufacturing are not hindered by a paucity of raw material.
This could hold-up the development of commercial scale manufacturing of vehicles, as well as inhibiting the reductions in costs that will be needed to make EVs competitive in the vehicle market.
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