The Automotive Industry Now Committing to an All Electric Future
July 2021
An increasing number of OEMs have now committed to switching to fully electric vehicle line-ups globally. A good example is Volvo who is targeting 2030 for this major milestone while aiming for battery EVs (BEV) to represent 50% of their global sales by 2025. Others have either set a regional deadline for going 100% BEV or projected high EV penetrations by 2025 or 2030.
This recent set of commitments is great news as the global fleet of vehicles must shift away from CO2 at an accelerated pace. In its recent report, the International Energy Agency concluded that emission-free powertrains should reach 86% of the global passenger vehicle fleet by 2040 for mobility to play its role in achieving Net Zero by 2050 — about 2x what Bloomberg NEF predicts.
Demand Quickly Building Momentum — Even if Still Heavily Subsidized
It is clear that the shift from internal combustion engines (ICE) to electric propulsion has now entered the “vertical” portion of its growth curve, at least in Europe and China. In last year’s shrinking market, Europe saw its plug-in EV sales grow by ≈140% to reach 11% of all light vehicle sales — and ≈15% in Q1 2021. BEVs represented respectively 6% and 7% shares.
China is experiencing high growth this year after plateauing with New Energy Vehicles at around a 6% last year, of which 5% for BEVs. NEV sales YTD through May are up 120%, representing 9% of all passenger vehicles. The laggard, i.e. the USA, is now seeing rapid increase in electrification after reaching 1.8% plug-ins, whereas the share of BEVs hit 1.4% but grew to 2.3% in Q1 2021.
For reference, Bloomberg NEF predicts that plug-in EVs will represent 16% of global passenger vehicle sales by 2025, 28% by 2030 (of which 25% BEV) and 70% by 2040. It is interesting to note that BNEF’s 2040 projection stood at 57% just 2 years ago and 58% last year. That’s quite a jump to 70%!
A recent report by EY sees the share of plug-in EVs reach 50% of the powertrain mix in 2028 in Europe, 2033 in China and 2036 in the USA, which is 5 years earlier than in their previous forecast. For Bloomberg NEF, the 50% mark will be reached in 2035 for global passenger vehicle sales.
We must remember that the demand for EVs is not yet 100% natural. Heavy sales-side subsidies exist in all 3 regions. In Europe, BEV buyers can receive up to 11,000€ ($13,200) in the case of France. In California, subsidies can reach $12,000 ($7,500 federal + up to $4,500 state). This assistance will eventually recede as BEVs reach price parity with their ICE equivalents.
Increasing Pressure on the Industry
Regulations put significant pressure on OEMs to reduce green house emissions. In Europe, OEM average CO2 emissions must drop from the current 95 gram/km to 81 g in 2025 and 60 g in 2030 (it was 130 g until 2019) — the European Commission just proposed 43 g in 2030, i.e. -55% vs. today's level.
In the US, the Biden administration intends to restore aggressive targets similar to those established during the Obama era (≈105 gram CO2 by 2026). Concurrently, OEMs have become widely supportive of California’s more ambitious target, a likely reference for revised federal objectives.
In addition, The European Commission just announced a proposal to ban the sale of CO2-emitting cars after 2035 under its “Green Deal”. Over 20 countries — mainly in Europe — had previously announced future bans on selling such vehicles between 2025 and 2040. The most aggressive is Norway which will no longer permit the sale of light vehicles with ICE after 2025. Likewise, a few cities such as Paris and London have decided to ban the circulation of CO2-emitting vehicles in the coming years.
Growing List of OEMs Plan to Go Full Electric
OEMs have no choice but to remove ICE from their product plans. There are three reasons to do so. Announced sales and circulation bans will simply close markets. Financial penalty for not meeting CO2 objectives will keep creeping up (95€/veh for each gram of CO2 about 95g in Europe today). Last, OEMs must behave like good corporate citizens and respect their pledge to environmental, societal and governance (ESG) objectives for the sake of our planet.
Some OEMs have been bold enough to announce a clean cut-off from ICE and plug-in to fully electric for their global product range. This is for instance the case for Daimler’s Smart (all electric since 2020), Volvo (100% BEV in all showroom starting in 2030), Cadillac (no new ICE models as of 2021) or Jaguar (no new ICE models after 2025). It makes sense for these OEMs to limit the powertrain mix given their volumes.
Others have committed to region-specific electrification, Europe being clearly where they are the most aggressive. In this category, we find for example Opel (100% BEV by 2028), Ford (100% BEV by 2030) or the Volkswagen and Audi brands (100% BEV by 2033), all four for their European showrooms. Similar timing has not been communicated specifically for the USA or China, though Audi has indicated that all their product introduction post-2028 will be BEVs.
Others yet, either less committed or less out-spoken, have so far only communicated about future shares of plug-in vehicles or BEVs. For instance, Stellantis forecasts its share of plug-ins at 70% in Europe and 35% in the USA by 2030 (⅘ as BEVs) with a robust electrification roadmap aimed at providing flexibility with regards to the powertrain mix (image above). Renault is more ambitious, targeting BEVs to reach 30% of its global mix by 2025 and 90% by 2030. Daimler announced 6 months ago that plug-in vehicles will represent 50% of their global sales in 2030 and while reportedly dropping plug-in hybrids that year. Skoda (VW Group) projects 50-70% for its BEV mix by 2030 while BMW aims for 50% BEVs by 2030.
Japanese OEMs have been among the least willing to remove ICE from their product ranges. Honda has talked about plug-in vehicles (including fuel cell EVs) representing 40% of its sales in 2030 and 80% in 2035 (in major markets) and phasing out ICE for all new vehicles after 2040. But Toyota has so far been the most reluctant of all major OEMs, maintaining that ICE have a future.
OEMs Boosting Financial Commitment to Electrification
OEMs have committed massive R&D budget to expanding their EV product range. According to consulting firm AlixPartners, investments in EVs over the 2021-2025 period could total $330B, a 41% increase from the firm's comparable five-year outlook a year ago. For instance, GM increased their budget by ≈30% vs. the Nov ’20 projection and 75% vs. pre-pandemic levels. It is understandable that OEMs are now working with regulators to ensure demand will raise massively so as to generate a reasonable ROI on these efforts.
Such commitments are also increasingly accompanied by matching commitments to lift two major constraints: battery production and the charging network. Tens of billions of dollars will be spent in the coming years build capacity on both fronts. It is interesting to note that OEMs increasingly engage in battery manufacturing and to a lesser extent, in the charging network. Efforts for the former are aimed at mastering a core technology (and a significant cost center), whereas the latter is about ensuring that people will actually buy their new models.
Marc Amblard
Managing Director, Orsay Consulting
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