Who are some of the major players in the electric car space
With climate change becoming a key issue in both domestic and global politics, we are witnessing the need for replacements to our current technology that greatly reduce the carbon footprint of our daily lives. The electric vehicles space is one of the major ways through which we will likely see an exponential change in environmental effect as we radically change the way we manufacture and fuel our cars, trucks, and other automobiles. Making our personal cars greener is a significant obstacle to combating climate change due to the volume of their emissions and the fact that consumers will always be attracted by cheap options. They will likely not change their behaviours unless they have an incentive to do so. Thus, the economics of electric autos need to make sense before they become widespread. The role of governments in the process cannot be understated as enacting policies to push consumers away from ICE (i.e. internal combustion engine) automobiles and towards green ones will make it easier for manufacturers to invest more into those products until they eventually are viable on their own.
Many of the traditional carmakers have entered this market in the hopes of establishing their foothold and gaining market share. With different countries passing laws that aim to set timelines for the phasing out of all ICE cars, those carmakers are also ensuring they enter the market and develop products and brands that will be their identity in the future. Some of these companies include Chevrolet, Toyota, Nissan, Ford, Kia, BMW, Mercedes, Volkswagen, and Kia. On the other hand, a few newcomers are innovating and taking this opportunity to break into a traditionally competitive industry by entering a segment where existing companies are not yet established. Companies like Tesla and BAIC are using this opportunity to establish themselves as industry leaders. Already, Tesla is the top-selling company for electric vehicles in the United States, and it aims to be the market leader all around the world.
While electric vehicles had started becoming ubiquitous in the late 2000s, public attention to the space began when Tesla entered the scene. While its Roadster was a niche product that sold less than 2,500 cars, its Model S proved that the consumers are open to highly-priced electric vehicles. The Model S billed itself as an exciting luxury vehicle which was a new approach. The approach worked: The Model S is the second-best selling electric car in the world with 253,000 units sold, behind only the Nissan Leaf with 375,000 units. The Mitsubishi Outlander (178,000 units), Chevrolet Volt (176,000 units), and the Chinese-made BYD Qin (173,000 units) round out the top 5 (Kane, 2018).
Despite the perception among those unfamiliar with the space that all electric cars are similar in design and function, there are distinct types of cars that may or may not use gasoline or even electric charging. To preface the next sections, let’s explain those differences now.
- EV: Stands for Electric Vehicle and is a catch-all term for all vehicles that use electricity in some capacity to run.
- BEV: Stands for Battery Electric Vehicle. BEV’s use electricity only. They do not have petrol or diesel internal combustion engines and run purely through electricity stored in their battery. These vehicles need to be charged at charging stations often. An example is the Tesla cars, which rely on no traditional fueling.
- PHEV: Stands for Plug-in Hybrid Electric Vehicle. PHEV’s have both ICE engines and electric batteries, and may be able to run on both. A PHEV typically runs on its electric engine until its battery runs out of electrical power. Then, the ICE engine will turn on and charge the batteries of the car so that its engine may continue to work. An example of this type of car is the Chevy Volt.
- HEV: Stands for Hybrid Electric Vehicle. HEV’s do not require charging. Instead, the car employs a regenerative braking system that recharges the battery of the car. When the vehicle is travelling at low speeds, it uses its electric engine. When it needs more power, it switches over to its ICE engine. And when it requires more power still, it will turn its electric engine back on to provide an extra boost. The best-known example is many of the makes of the Toyota Prius (though not the Prius Prime, which is a PHEV).
As it is expected, those different models have different appeal to consumers, and that affects future trends that we may see in the industry.
What are some of the significant trends in the industry
According to a 2018 McKinsey report, 2017 sales of EV’s topped 1M units for the first time, and it projects growth to continue at a rapid pace. By 2020, it estimates that 4.5M EV units will be sold that year which represents 5% of the market (Hertzke, et al., 2018). Similarly, a JP Morgan report sees a bright future for the industry and projects that by 2025, 38% of all new sales will be EV’s. This is based on consumer preferences for when they would start considering or preferring a new electric vehicle instead of an ICE one, and their projections of how the technology will improve by that point in time. It is noteworthy that the JP Morgan projects that a majority of that, some 23% of the total market including ICE, will be HEV’s (JP Morgan, 2018).
The future changes in the EV industry depend on many factors that are not directly related to the features of the cars being sold. One of the major determinants of EV effectiveness and range is battery capacity. Furthermore, government regulations and subsidies play an important part in inciting the public to move towards electric cars. Let’s examine these issues more in-depth.
Batteries have had two significant transformations that were instrumental in the rise of electric cars. The first is declining cost: prices of car batteries have decreased by 73% between 2010 and 2016. Cheaper technology means that it becomes more widely used. Furthermore, the range that car batteries are projected to cover increases from the 100-200 Km range before 2016 to 350-500 Km by 2020. While these increases seem revolutionary, they likely will not be enough just yet to get consumers to abandon ICE vehicles completely. According to some estimates, we may not see EV’s that are equivalent to ICE’s until 2028 (Erich & Witteveen, 2017). Another factor is charging time as that is a barrier to potential acceptance by customers. Current technology enables charging for 20 minutes with a range of 300 Km. We will likely see further improvement in the near future.
Currently, there is fierce competition for electric batteries with a few players dominating the market. The lithium-ion batteries market is dominated by Asian manufacturers. The main players are Panasonic, CATL (a Chinese company), LG Chem, SSDI (a subsidiary of Samsung), and Guoxuan High Tech (another Chinese company). (JP Morgan, 2018). Other but much smaller players make up the remaining 1%. Given how essential the batteries are to the range and speed of EV’s, this market will prove to be the battleground for advances in battery technology not just in the EV space, but in general usage. This has huge implications for renewable energy adoption around the world.
Another issue to consider with regards to batteries is the usage of natural resources in their production. Different types of batteries require different metals. In general, EV batteries contain lithium and cobalt. However, the supply of cobalt is limited and that reflects in its price. Similarly, the rate of production of lithium is another limitation on what car batteries can do. Dealing with those limitations will be vital to keeping up with global demand (Debarre, et al., 2018).
Meanwhile, governments have tried to help push the adoption of clean vehicle technology forward by providing incentives, whether direct or indirect, to entice consumers to make the switch. Many jurisdictions around the world have enacted a carbon tax, a general deterrent against the use of polluting fuels. Carbon taxes make electric vehicles of all types more desirable as any way to save the cost of gasoline or diesel makes more economic sense. Places like California, New York, and Canada have introduced such taxes or an equivalent cap-and-trade system with the same results. Governments have also introduced rebates for EV’s that make them more desirable on a pure cost basis. Since EV’s tend to be more expensive than equivalent ICE cars, the rebates are a way to bridge the gap in cost and accelerate the move towards clean technology. California and China are two prominent examples of jurisdictions that have such programs available, though China is looking to phase those rebates out.
China, in particular, is pushing hard for advances in this sector. With several manufacturers that are vying to expand their foothold in the market as well as battery manufacturers with a large share of the market, China sees EV’s and related industries as a method to gain market leadership in a sector and establish its economy as a place where industries are market leaders rather than market followers. It is pursuing this goal by trying to maximize growth in usage of EV’s in the country. This is done through several approaches. The country has price rebates in place that reduce the cost for customers looking to buy a car, making the vehicles more cost competitive. Furthermore, it is limiting the number of ICE vehicles on the road. In many parts of China, vehicle ownership is limited by restricting the ease with which consumers can obtain a license plate. In Beijing, license plates are awarded through a lottery process and not everyone obtains one. In Shanghai license plates are awarded through an auction (McDonald, 2019). However, EV’s are exempted from such regulations and push consumers to the new tech (Hertzke, et al., 2018). China has also recently passed a policy to push car manufacturers to produce and develop more EV’s. Titled the New Energy Vehicle (NEV) mandate policy, it is based on a cap-and-trade system and builds on top of the existing corporate average fuel consumption (CACF) credit system already in place. The government assigns manufacturers mandatory requirements for NEV credits which can be achieved by either manufacturing or importing new EV’s. It awards cars points based on how “clean” they are. “Cleaner” EV’s are assigned higher scores and make achieving the point targets easier. Manufacturers that achieve their credit quotas may sell their surplus credits to manufacturers who are unable to do so. The credits may also be used to offset deficits in the already-in-place CACF credit system. By doing so, the policy allows flexibility for manufacturers in choosing how to achieve their emissions reduction targets (Transportation, 2018).
With these programs in place, China is poised to continue to expand as the largest EV market in the world. Already, 40% of all EV’s sold worldwide were sold in China in 2016, and JP Morgan estimates that figure to reach a staggering 59% by 2020 before seeing 55% by 2025. Currently, the country has a bigger EV market than the US and Europe combined. While many of those vehicles are domestically manufactured, and do not meet international safety standards, they are a base on which the industry can expand its market share and improve its offering. Companies like BYD and BAIC are market leaders in the country and domestic manufacturers have 94% of the market.
The adoption of electric vehicles will be an important step to help combat climate change. It will affect not just our personal transportation, but that of goods travelling from all over the world. Countries, governments, and companies that take the time now to stake their claims and become market and technology leaders will be well-positioned as the global economy moves into the middle of the 21st century.
Source from: MERatings