Preparing for the Mobility Revolution
Why EVs will soon proliferate: OEMs’ plans, ICE bans and infrastructure
In my previous articles, “Electric mobility’s ecosystem: structure, players and trends” (Feb 2017) and “How key success factors converge for significant EV sales growth” (May 2017), I analyzed the composition, status and trends of the electrified mobility ecosystem. This article examines electric vehicle (EV) sales trends, OEMs’ EV product plans, future bans on internal combustion engine (ICE), new developments in charging infrastructure as well as a profitability outlook. Thanks to this combination of factors, EVs sales are building massive steam.
Sales accelerate steeply though they are still marginal
Plug-in vehicles — battery electric vehicles or BEVs, and plug-in hybrid vehicles or PHEVs — represented 0.86% of global vehicle sales in 2016 vs 0.62% in 2015. China contributed about half of all plug-in vehicles sold (351k, excluding 190k commercial vehicles) compared to 221k for Europe and 157k for the US. But volumes are up significantly in 2017. In the US, BEV and PHEV sales grew 50% for the first half of 2017 to 87k (BEV: + 57% to 44k, PHEV: +44% to 43k). In Europe, plug-in sales increased by 36 % over the first 9 months to 148k (BEV: +43% to 71k, PHEV: +30% to 77k). In China, plug-in passenger cars sales were up 43% for the first 6 months to 181k. Despite significant sales growth, BEV and PHEV are still marginal, representing 1.4% of passenger vehicle sales in China, 1.2% in the US and 1.7% in Europe.
The shift towards EVs in Europe is boosted by the shrinking appeal of diesel engines resulting largely from Volkswagen’s Dieselgate. The diesel market share across Europe dropped from 52% in 2015 to 47% YTD 2017 and the slide continues. In Germany, the shift is even more drastic as the share of diesel decreased from 48% to 41% and even 38% in August. It is also increasingly costly to reduce NOx emissions and city governments are progressively forbidding access to diesel vehicles. As a result, European OEMs will spend less resources developing diesel engines and will narrow their historically broad engine portfolios to focus on the development of EVs.
Who dominates the EV market? The Renault-Nissan Alliance sold some 500k EVs to date, i.e. about 300k for Nissan’s Leaf, the global sales leader, since its introduction in 2010, and 200k for Renault’s Zoe, Europe’s market leader, since its introduction in 2012. Tesla comes second in cumulated sales with about 250k to-date; sales last quarter (when 220 Model 3s were registered) correspond to an annual run-rate of 105k vehicles. Still launching at the Fremont, CA plant, Model 3 shows promising demand with reportedly 450k paid reservations waiting for delivery. GM’s Volt (PHEV) and the more recent Bolt EV (BEV) are gaining traction in the US where they both passed the Leaf (at the end of its life) with 15k and 14k units YTD vs 10k. As to the Chinese market, it is overwhelmingly dominated by domestic brands.
Massive electrification of OEMs’ product portfolios will boost demand
In 2012, there were a total of 6 BEVs on the market between Europe and the US, i.e. Nissan Leaf, Renault Zoe and Kangoo, Tesla Model S and Roadster and Mitsubishi i-MiEV (aka Peugeot iOn/Citroën C-Zero in Europe). There are 15 BEVs in 2017 and we can expect over 50 by 2022. The number of PHEVs on the market will grow even more steeply.
A first wave of announcements took place at the 2016 Paris Auto Show (see my article). Since then, it has been a cascade of announcements by most key players. They continue to present with increasing detail how and when they will electrify their portfolios. Some go full electric (BEV), others will introduce electrified versions on each of their models, others seem to be taking a wait and see approach. One thing is clear, we will witness a blitz of BEVs, PHEV and 48v HEVs starting in 2018.
As the global market leader, the Renault-Nissan-Mitsubishi Alliance plans to offer 20 electrified vehicles by 2022, of which 8 BEVs. This will include an $8k, 60 mile range, Renault Kwid-based BEV to be produced and launched in China in 2019. Renault alone is planning 8 BEV and 12 hybrids by 2022. Daimler will offer electrified powertrains on all 50 models by 2022 (BEVs, PHEVs and 48v HEVs), incl. 10 BEVs. BMW ’s range will include 25 electrified vehicles — 12 BEVs and 13 PHEVs — by 2025. The VW Group is pushing for synergies never seen before amongst its many brands. The result: an electrified version for each of its group models by 2030. Volkswagen (the brand) will introduce 80 new electrified vehicles by 2025, aiming at selling 1 million EVs per year by then. Audi will roll out 20 electrified vehicles before 2025, incl. a dozen BEVs; aiming at generating 30% of their overall sales from BEVs and PHEV then. Lastly, Skoda will launch 5 BEVs or PHEVs by 2025. GM will unveil 2 new BEVs within the next 18 months and will offer 20 electrified (incl. FCEVs) globally by 2023. PSA plans to launch 5 BEVs between 2019 and 2021 and to introduce electrified powertrain variants in 80% of its models by 2023. Ford has announced hybrid versions of all Lincoln models and a total of 13 electrified vehicles by 2022. All Volvo cars introduced after 2019 will be either EVs or HEVs; the company will launch 5 BEVs between 2019 and 2021, making Polstar an all-BEV brand. Jaguar-Land Rover will offer electrified versions of all new vehicles starting in 2020. No news from FCA. Little has emerged out of Japanese OEMs besides Nissan; the others have historically favored (P)HEV. Toyota and Honda have been pushing FCEVs (fuel cell) recently, all but Nissan are clearly followers in the BEV trend.
Electric vehicles are increasingly appealing
According to a recent study by the consulting firm Roland Berger, Asian consumers are much more eager to buy an EV as their next vehicle (50%) than Europeans (30%) and even more so Americans (15%). The study shows that the lack of desirable models is a reason for 31% of American buyers to stay away from EVs, vs 42% for pricing or insufficient infrastructure. In Asia, the ratios are 20%, 42% and 54% respectively whereas Europe is somewhere in between with 23%, 49% and 37%. A booming range of electrified vehicles covering varied price points and form factors will definitely have a significant positive impact on EV sales.
Vehicle performances are also clearly improving. Range, perhaps the most critical parameter, went from 75 miles on average for the vehicles offered in 2012 (except the more exclusive Tesla with 200+ miles) to 130 miles in 2017 (same exclusion). The Bolt EV I drive is homologated at 238 miles, though I can get about 10% more if I don’t go on the freeway. I love the accelerations and the energy regeneration. It is painful to get back into my other (ICE) car which converts kinetic energy into heat whenever I brake. I am sold. Another key improvement to the product appeal has to be the charging speed. In a couple of years, the market will benefit from high power charging stations, ie up to 350 kW vs 120 kW for Teslas and 43 kW at best for all other models. Overall, a good proof of EVs’ market appeal is Tesla’s $35k Model 3: 450k paying reservations to-date.
Charging Infrastructure gains in density
The relative lack of charging infrastructure — about 60k stations in the US, 110k in Europe and 200k in China — is certainly a deterrent to EV deployment. According to Roland Berger’s study mentioned earlier, 54% of Asian car buyers cite this as a reason for not buying an EV (#1 reason); the proportion is 42% in the USA and 37% in Europe. The key players are stretching their muscles to address this issue. Tesla is boosting its global supercharger network from 6.3k currently to 10k by end 2017. US charging market leader ChargePoint is investing in Europe where it benefits from an $82m capital injection by Daimler. A number of initiatives are at work in the US (eg Electrify America, imposed on VW Group after the Dieselgate) and Europe (eg Daimler-Ford-BMW-VW’s joint effort or Nissan’s own deployment plan).
The end of the internal combustion engine is now programmed
Norway, France and the UK are pro-actively setting deadlines for the extinction of the ICE species, respectively in 2025, 2040 and 2040. The German parliament is pushing for 2030. The city of Paris just presented its plan to ban diesel cars by 2024 and gasoline ones by 2030. The US government is heading in the other direction, planning to roll back fuel economy targets, but it is counteracted by California’s recent initiative to potentially also ban ICE vehicles by 2040.
China has taken the most aggressive steps towards EVs. Though it is aimed mostly at gaining energy independence, the recently announced New Energy Vehicle (NEV) policy will clearly benefit air quality. The NEV policy will impose quotas to all OEMs selling more than 30k vehicles per year, ie a “score" of 10% in 2019, 12% in 2020 etc. The 12% translate into BEVs or PHEVs representing about 4% of all vehicles sales. In parallel, Beijing announced a plan to transform its entire taxi fleet (70k gas and diesel vehicles) to electric propulsion within 5 years, whereas the city of Shenzhen requires that all new taxis entering the fleet be electric.
How about profitability?
Until now, acquisition prices have been kept within (certain) customers’ reach thanks sub-par OEM margins and public incentives. Whereas the latter will progressively disappear, the former are expected to get back in line as volumes grow and battery tech brings cost reduction. According to key industry players, electric cars will be economically on par with ICE-powered ones by 2022-2025. Renault claims their next generation of BEVs will generate an operating profit that exceeds the group’s 7% margin target, whereas the current generation only has a positive margin on variable cost. Similarly, GM says their next batch of electrified vehicles will be profitable. Tesla has been in the red for the past 12 years (except 2 profitable quarters), but promises that Model 3 will bring profitability. First movers (Renault-Nissan, GM and Tesla) clearly have an advantage.
A shift to renewable energy sources is a must
EVs by themselves do not solve the environmental issue. Replacing ICE by electric power will improve air quality only where vehicles are used. In order to maximize the impact of this deep transformation — eg address global warming and air quality issues — power generation must be greened. Utilities must massively shift to renewal sources at the expense mainly of coal and natural gas burning power-plants. Good news: the International Energy Agency (IEA) is increasingly bullish about the development of renewables. According to the agency’s Sept 2017 report, the share of renewables in power generation will reach 30% in 2022 — 69% for Denmark — up from 24% in 2016. One more reason why EVs will get increasing traction.
Plug-in sales trends are promising. But it is the combination of a broad range of attractive and affordable products, an adequate network of charging stations and a set of fine-tuned yet aggressive regulations that will trigger a full fledge shift towards true zero emission vehicle fleets. The EV boom is near!
Also published on LinkedIn (https://goo.gl/s1xBQF)