The Electrification of Transport
After a century of near monopoly, the days of the dominance by the internal combustion engine (ICE) are apparently coming to an end. But, as with the wider renewable energy debate, if everyone is nearing agreement about the end-state, the key questions now focus on how quickly we will see the transition and what form it will take. Who and what will drive the change and who will be the winners?
Many have been forecasting the rise of EV for some years. We have been part of this:
- In 2004, our expert consultations suggested that the long-term future would be a mix of hybrid / electric vehicles and, in some locations, hydrogen fuel cells. In addition, making EV affordable at the mid-size family vehicle size was seen as a tipping point.
- In 2007, the focus moved more specifically onto how innovation and subsidy could drive down the cost of batteries.
- In 2010 wider discussions led us to share that, by 2020, experts predict that nearly one-third of all cars being sold will be electric and that electric cars will form up to 10% of the world’s vehicle fleet.
- While in 2015 the view was that getting battery cost down below $100/kWh is pivotal and last year additional workshops suggested that by 2030 maybe around 50% of all car sales would be EV.
As one expert suggested in 2010 “the alignment of technology development, targeted incentives and economies of scale together with a fundamental change in consumer sentiment has started the shift towards a future where electric mobility has a significant role to play in global transportation.” More recently other highlighted that “higher levels of EV growth is linked to the adoption of self-driving vehicles and new battery technologies.”
Today, with major investments underway globally – by existing manufacturers and new entrants as well as a raft of government regulation in sway – clarity on the transition is developing. So, given the fast-moving EV environment, what is latest future view? To help several organisations plan investments in the EV opportunity, we have recently been reconnecting with several experts to build a clearer, informed perspective, both globally and for the UK. Here is summary:
THE ELECTRIC VEHICLE LANDSCAPE
Firstly there is growing consensus: The likes of Bloomberg now report that, by 2030, EVs will form 35% of US and around 75% of UK new vehicle sales and correspondingly account for 5-10% of total energy demand. Moreover, it is evident that the core power train shift from ICE to EV is now inevitable. This is due primarily to three issues – total cost of ownership (TCO) economics, car manufacturers’ (OEMs) investment and commitments and political will:
- TCO – Pure EV is already the cheapest option in the UK (with subsidy) and attractive TCO is assured by 2020. High profile fleets such as Lyft and Uber are already positioning themselves as mixed mobility ‘one-stop shops’, including electric 2 and 4-wheel vehicles.
- OEMs – Public commitment to EV now include major brands such as Nissan, JLR, Volvo, VW, Daimler, BMW as well as Geely, BYD and numerous others in China. OEMs are nearly all now incorporating EV in their future product mix and, in turn, are calling for the need for infrastructure deployment to enable this.
- Political Will – With a focus on more CO2 and NOx legislation in cities, Stuttgart, Paris, Mexico City, Athens, Madrid, Paris all banning diesel by 2030. Moreover, countries such as Norway, The Netherlands, France, Germany, UK, China and India have indicated they will ban cars running on fossil fuels.
It should be recognized however that electrification however is only one of four key drivers shaping the future of mobility: Connected, Autonomous, Shared and Electric (CASE). Collectively, these are enabling greater convenience and consumer choice, a robust use of telematics, changes to ownership and servicing models, improved efficiency, increased road safety and more. While the pace of change in electrification (and wider mobility) is accelerating and will mature through the mass market by 2030, this remains a complex space within which many will need to operate with high competitive intensity and many uncertain moving parts.
For those seeking to invest, many see four key challenges:
- Although that the ultimate shift from ICE to EV is seen as inevitable, the structure of the market is fragmented, complex and emergent. Few believe that in the next few years there will be a single tipping point that makes the difference. As such, for many organisations seeking to invest in the EV ecosystem there is considerable timing risk as well as opportunity for participants as the market evolves and standardisation and normalisation of both technology and behaviour emerge.
- The rate of mass adoption is still uncertain, but many see that it will accelerate as vehicle model breadth and availability grows and key enabling infrastructure rolls out. It is expected that consumers will switch quickly from ICE based norms (e.g. gas stations) and that, for all but long-haul drivers, as EV range increases and TCO improves today’s Range Anxietywill soon fade: Value opportunities vary widely and include business model optimisation, integrated energy and convenience.
- The competitor landscape is also very much in flux and partnerships and coalitions are critical to success. The number of participants in the space will increase in the short-term, before material consolidation occurs as winners and winning coalitions emerge. So, who materializes in the lead is still debated.
- Finally, there is still some technology uncertainty. For example, how and where charging occurs and in what mix is unclear and this is, in turn, driving alternative views on options such as self-charging autonomous vehicles; improving battery technology / range; and wireless charging.
OPTIONS AND POSSIBILITIES
Within the EV transition there are several pivotal options to consider:
Location: Today’s pace-setting geographies are China and the US which dominate much activity. Countries with highest penetration levels include Norway (where every other car sold is already electric – albeit with significant government subsidy), the Netherlands, Spain, France, UK, and China.
Cities: Fleets in cities will be among the first to electrify based on characteristics of speed and distance as well as economic (TCO) and high-utilisation considerations. Hence operational challenges need to be overcome (e.g. availability to charge at home, appropriation of charging costs). Moreover, consumers in cities may adapt their behaviour, utilising multiple options available through Mobility as a Service (MaaS) providers (e.g. Uber, DiDi, Grab, Lyft) and embrace shared ownership models, so we need to better understand the needs of consumer ‘segments’ of cities, urban fringes and rural users.
Public Transport: In many locations other transport options may progress ahead of cars: Significant EV adoption is, for example, expected for public transport as well as for two wheels – with obvious health and social benefits. Driven by regulation in many regions, public transport fleet electrification will start early, but may take time to mature as fleet assets are gradually replaced over time. Critically, the power infrastructure for public transport fleets is different to that for consumers as the charging infrastructure is more node based (e.g. depots) and, in markets such as the UK, may outlast the operator route license. In addition, as more autonomous vehicles emerge in the next decade the very notion of routes and the market for public transport operators will be challenged.
Charging Options: Significant operational challenges will need to be solved for many. While more predictable for buses and trucks, for passenger vehicles there is still some ambiguity. This includes the balance of high speed vs. overnight charging options and addressing charging at home for many of those living in cities without off-street parking. Moreover, there are operational challenges on issues such as billing complexity for business vs. personal use for fleet vehicles.
IMPLICATIONS FOR ORGANISATIONS
Electrification of transport represents a significant opportunity for many organisations including those involved transport, technology, automotive, energy as well as mass-consumer brands / big-tech – especially Amazon and Google. Given the complexity and highly competitive intensity of the evolving market, several companies are now seeking to place some intelligent bets. In doing the more informed are:
- Focusing on the customers who are seeking solutions today
- Maintaining patience so as not to run ahead of the market
- Working within broader urban and renewable agendas
- Investing in a range of areas to mitigate risk, and
- Paying heed to the broader mobility agenda: Connected, Autonomous, Shared and Electrified (CASE)
The EV transition is one of many major changes underway but, perhaps more than most, it is more extensive in the multiple areas it is impacting. This is not just about swapping the power-train but includes a fundamental rethink about mobility, the deployment of new infrastructure, changing demands on power supply and storage as well as improving the health of citizens, especially in urban environments. As we continue to explore future options and help other organisations with key decisions, we will share summary insights. If you would like to know more do please get in touch