Electric vehicles (EVs) have been around since the advent of the automobile. At the turn of the 20th century, they were quite popular in urban areas in the US with access to electricity. However, a new innovation called the assembly line lowered the cost of building internal combustion engine (ICE) vehicles and the availability of cheap and abundant gasoline quickly turned electric-powered vehicles into a novelty, where they would remain for the rest of the 20th century. And now, 100 years later, with the growing awareness of global climate change, advances in battery technology and changing consumer attitudes, could the moment for EVs finally have arrived? The implications of this transition — from everyday personal transport to corporate fleets, battery manufacturing to aftermarket service and private-sector retail to public infrastructure — could turn many traditional sectors upside down.
While efforts to control the spread of COVID-19 and the resulting decline in oil prices complicate factors in the short term, advances in battery technology and lower manufacturing costs are increasingly narrowing the price gap between EVs and traditional gasoline-powered vehicles. However, the ecosystem of services and enabling infrastructure that developed around the latter remains largely theoretical.
EY recently hosted a virtual, cross-industry co-lab event where we explored the emerging value pools created by this transformation and discussed how companies from different sectors can look to compete within them. Businesses can seize first-mover relevance in a market that is poised to grow exponentially and establish direct access to a new and growing consumer base, perhaps even becoming a material participant in the evolution of smart cities and other infrastructure plays.
With so much to accomplish, 75% of industry leaders at our co-lab believe that the future of e-mobility depends on collaboration. But where does your company fit into the transition? What role would you play in the value chain — and with whom do you need to partner?
With the growing awareness of global climate change, advances in battery technology and changing consumer attitudes, the moment for electric vehicles may have finally arrived.
Now: favorable trends, momentarily disrupted
COVID-19 has temporarily disrupted the expected march toward EVs as factors such as low oil prices and reduced incomes have made ICE-powered vehicles more attractive in the near term. However, price improvements in battery technology are anticipated to lower the total cost of ownership (TCO) for EVs compared with ICE or hybrid vehicles, along with an expansion of vehicle body types offered, which should increase future EV purchases.
With the expected paradigm shift in mobility, EY has developed a new way of forecasting the industry with our EY Mobility Forecasting model. Developed using a neural net model to forecast the metrics which we believe will become critical in this future state — vehicle registrations, parc and the vehicle miles traveled. Multiple potential scenarios are built into the model, including the evolution of technology and sustainable mobility, to create forecasts over the next 30 years, covering the US, Europe and China. In its inaugural run, the model has provided some interesting insights. For example, total light vehicle registrations are predicted to fall by 16% in 2020, and by 2025 will still be 4% lower than pre-COVID-19 expectations. Our model also highlights an increasing divergence in the shift in the drivetrain mix between Europe and the US. In Europe, 45% of light vehicles will have “alternative” drivetrains -– either battery electric vehicle (BEV), plug-in or hybrid –- compared with only 20% in the US. By 2030, that split will widen even further to 72% in Europe versus 29% in the US. Currently, it tells us that ICE vehicles make up about 85% of the light-vehicle market in the EU — but that rate will fall to about 30% in 2030.
Geography is a key factor to consider. Strict EU emission standards will bolster EV acceptance and could see pre-pandemic estimates eclipsed by 2030. China, the largest market for EVs, is extending its subsidy scheme. The US is seen as a laggard among major markets, but automotive companies are rethinking their EV vehicle types, moving away from the practical economy-size cars, and moving to more full-featured CUVs and pickups as battery technology improves and range anxiety eases for larger vehicles.
Next and beyond: the value pools being developed
While EV/ICE price parity and the need to limit emissions to address climate change are likely, questions surround the enabling infrastructure; how it will take shape, and which companies will shape it. We see five factors that will accelerate the adoption of EVs:
- The ability to roll out infrastructure at scale
- Affordable e-mobility solutions for customers
- Improved economics of EV investment, using innovative solutions such as fractional ownership
- An integrated and standardized cross-industry EV supply chain
- Clear regulatory frameworks for e-mobility
No single industry can enable all of this. In our recent co-lab, participants agreed that convergence between the roles and responsibilities of sector players is becoming a new reality and will populate the e-mobility value chain. In this developing ecosystem, incumbents will compete alongside and work with market disrupters to capitalize on the opportunities. Collaboration, according to one manufacturer, will enable businesses to “deliver value for money by getting to a price point more quickly, rather than waiting for scale.”
Overall, the EV value chain is relatively simpler: battery and vehicle manufacturing, retail, charging and after-sales services. But our research indicates that 29 value pools exist in this ecosystem for players across many sectors, including oil and gas, power and utilities and financial services and leasing companies. For companies in advanced manufacturing and mobility, the following three stand out:
- EV manufacturing: While there are large distinctions between electric and ICE vehicles — for instance, EVs rely much more on digital technology, with no transmission and other parts — auto manufacturers have the plants and talent that are best suited not only to produce the vehicles but also to understand the end consumers and market dynamics.
- Fleet transition: When you think of an EV, perhaps you envision a personal sedan. But there are a host of medium-duty and heavy-duty options, such as transit buses, for example. In fact, fleets are the early adopters of EVs due to a higher vehicle utilization, with the lower running costs of EVs. Manufacturers have a built-in knowledge base of the needs of fleets and the use cases for different vehicles.
- Battery life cycle management: Currently, lithium-ion EV batteries typically need to be replaced after about seven years. After a typical EV battery is removed, around 50% to 70% of the power capacity is retained, which could be repurposed for tasks such as power backup, renewable-energy storage and grid stabilization. By 2025, about 75% of EV batteries will be reused and recycled to harvest new raw materials. For manufacturers skilled in the circular economy, in which infrastructure and processes exist to repurpose parts designed with that goal in mind, these batteries present a large opportunity in the aftermarket.
Automotive companies need to build business models to tap into these new pools emerging along the EV value chain. Once you can determine where your company is best suited to play in the emerging EV ecosystem, you can also see your limitations, and determine which partners you should collaborate with to fully capitalize on the opportunities. As one co-lab participant put it: “Different components of the value chain and linkages between players who haven’t worked together before, as well as how those capabilities and interfaces occur, will be exciting to see.”
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A young(ish) guy that I’ve known for a number of years, a man who spent the better part of his career writing for auto buff books and who is a car racer on the side, mentioned to me that his wife has a used Lexus ES Hybrid.