(FirstEnergy Corp., CC BY-ND 2.0)
The sales of electric vehicles (EV), which include Battery-Electric Vehicles (BEV) and Plug-in Hybrid Electric Vehicles (PHEV), still account for just a small fraction of the global automotive market. According to data by Bloomberg New Energy Finance (BNEF), 2 million electric vehicles were sold globally in 2018 (an increase of 82 per cent y/y), with Battery-Electric Vehicles accounting for 68 per cent of the sales. Meanwhile, a total of 87 million new passenger cars were sold worldwide during that time.
In China — which is currently the largest global market — 1.1 million EVs were sold in 2018, which is about 83 per cent more than in 2017. According to the European Automobile Manufacturers Association’s (ACEA) data, in 2018 the sales of electric vehicles in Europe reached 384 thousand units (an increase of 33 per cent), out of which 201 thousand were BEVs. According to the ACEA, 1.3 thousand new EVs were registered in Poland in 2018, including 620 BEVs.
The optimism of analysts
The expectations regarding the rate of growth of the electric vehicle market are enormous. BNEF predicts that the sales of EVs will have reached 10 million units by 2025, 28 million by 2030, and 56 million by 2040.
The European Federation for Transport and Environment (T&E), which is an organization lobbying for environmental protection, now claims — based on forecasts of the research company IHS Markit — that we are approaching a breakthrough in the availability of EVs in Europe. While only 60 models of such cars were on the European market at the end of 2018, by 2021 their number is supposed to reach 214, out of which 92 will be BEV, 118 will be PHEV, while the rest will be Fuel Cell Electric Vehicles (FCEV). It is expected that four years later, i.e. in 2025, the number of available models of electric vehicles will have reached 333.
T&E predicts that while the production of EVs will be mainly located in four European countries — i.e. Germany, France, Spain and Italy — the companies involved in the supply chain will be scattered all across the continent, including locations in Poland.
The increase in the number of available models is supposed to be followed by a drop in prices, including those of the cheapest cars, and — most importantly — an increase in sales. While EVs only accounted for approximately 2 per cent of the sales of new cars in Europe in 2018, according to BNEF, their share should reach approximately 15 per cent by 2025.
Consumers are looking at prices
The expectations of the analysts are one thing, but the expectations of consumers are another thing altogether. The research and consulting company J.D. Power analysed the answers of almost 5.3 thousand internet users from around the world as part of the “J.D. Power 2019 Mobility Confidence Index Study”. The company noted that for nearly half of the survey participants the current prices of BEV are too high compared with the prices of cars with internal combustion engines.
BNEF expects that by mid-2020s in most market segments the purchase price of a BEV will have become equal to that of an analogous internal combustion vehicle. The total cost of ownership — which includes the purchase price, the cost of fuel, maintenance, insurance and repairs — should become equalized even faster. Perhaps within two or three years. In this regard much depends, among others, on fuel prices.
In the survey conducted by J.D. Power, 75 per cent of those who already own a BEV indicated that they would buy another one, while among those who never drove an electric vehicle only 40 per cent declared willingness to purchase one. More than three-quarters of the surveyed respondents agreed that tax incentives or subsidies are an important factor in the decision to purchase a BEV. Tax incentives and subsidies have fueled an electric vehicle boom in China, Norway, and in the United States, and in recent years they have had a clear impact on the demand for EVs in Germany.
The withdrawal of tax incentives was the cause of a dramatic collapse in the sales of electric cars in Denmark in 2017. The drop in sales of EVs forced the Danish government to restore the incentives just a few months later, although on different terms and on a time-limited basis.
The subsidies are not a permanent fixture. In the US, a manufacturer is able to obtain such subsidies for the first 200,000 BEV units sold, and after that the amount of the subsidies is quickly reduced to zero. Meanwhile, the German government wants to modify the system of subsidies and increase them. The reason for this move is simple: the numbers of sold EVs are lower than expected. The government initially planned that there would be one million EVs riding on German roads by 2020. This goal now seems unrealistic in light of the data on the number of actual registrations, which show that only 150,000 EVs had been registered by the end of 2018. It may be possible to achieve this goal two years later. At least according to the consulting company Horvath & Partners, which predicts that the number of EVs on German roads will have reached a quarter of a million by the end of 2019.
In China the government also has changed the rules concerning the subsidies for electric vehicles in 2019. According to estimates prepared by the Centre for Strategic and International Studies, in the last 10 years in China the overall expenditures on various forms of subsidies for the production of EVs reached USD58.8bn, out of which USD12.4bn was spent in 2018 alone. Starting from the end of June 2019, the government has abolished subsidies for electric vehicles with a low range (reaching up to 250 km; before that cars with a range of up to 150 km were not subsidized), while the remaining subsidies have been significantly reduced. In the case of subsidies granted by the provincial authorities, the government has outlined a fast-track timetable for their reduction to zero. The only vehicles exempt from these new regulations are buses and FCEVs. The funds saved in this way are to be shifted, among other things, to the construction of charging stations.
Battery production boom
Lithium-ion batteries are a critical component of electric vehicles. Their production is dominated by companies from South Korea, Japan and China. China has the largest installed production capacity. According to the analysts at Wood Mackenzie Power & Renewables, in 2018, the combined global manufacturing capacity of the world’s battery factories reached almost 200 GWh, and China accounted for over 60 per cent of that production potential.
The group of major global players in the battery market only consists of several companies. These include the South Korean LG Chem, Samsung SDI and SK Innovation, the Japanese Panasonic (which cooperates with Tesla), as well as the Chinese companies BYD and CATL.
All the South Korean companies, as well as CATL, are investing in production facilities in Europe. LG Chem is investing in Poland, SK Innovation and Samsung SDI are investing in Hungary, while CATL is investing in Germany. These new factories will supply the European car manufacturers: BMW, Volkswagen, as well as Renault and the PSA Group.
According to the Korea International Trade Association (KITA), the list of the most important players in the battery market may change in the near future. New European companies should join the ranks of major battery manufacturers following the completion of the investments announced in recent years. This includes, among others, the Swedish start-up Northvolt or the German start-up TerraE, which will supply batteries to the European car manufacturers.
Regardless of these plans, carmakers are also building their own battery production facilities in Europe. This includes Daimler (which plans to produce batteries in Germany and in Jawor in Poland), as well as PSA. The French group plans to launch the production of batteries in its own factories in Slovakia and Spain, and also — together with Saft, a French battery manufacturer, which belongs to the Total group — at the Opel factory in Kaiserslautern.
KITA estimates that Europe only has a 4 per cent share in the global production of batteries. According to Wood Mackenzie, in 2018 this share reached 6 per cent (12 GWh), while the Asian plants were able to produce batteries with a total capacity of 144 GWh, and plants located in the Americas had a total production capacity of 31 GWh.
Wood Mackenzie forecasts that by 2026 factories located in the region of Europe, Africa, and Middle East (EMEA) will be able to produce li-ion batteries with a capacity of 228 GWh, while the factories in the Asia-Pacific region will have reached a production capacity of 345 GWh. The total global production capacities are projected to reach almost 650 GWh by that point.
The consulting firm McKinsey expects that by 2040 electric vehicles will account for 70 per cent of the total number of vehicles — including passenger cars, vans, trucks, buses, etc. — sold in Europe, and that the EVs produced in Europe will require batteries with a combined capacity of approximately 1.2 TWh. This means that in 20 years the expected demand for batteries will be more than five times higher than the combined production capacities of the currently existing and planned European factories. As a result, more factories will have to be constructed (McKinsey estimates that at the current cost of USD120m for 1 GWh of battery production capacity, that would require investments to the tune of USD150bn) or batteries will have to be imported from abroad.
Crucial raw materials
Ensuring the production capacities that will meet the expected demand for batteries is not the only problem. Other — and perhaps even more important — problems include access to raw materials necessary for their production, their prices, and ensuring predictable supply chains, which will be resistant to trade wars and political conflicts.