Who will control the electric car market?

URL:

Keywords:

Abstract:

The internal combustion engine and the overall architecture of the car, based initially on a chassis and then a platform, have established for more than a century the dominance of carmakers on the automobile industry. The surge of the electric car, whose sales hit two million worldwide in 2018, may be the opportunity to reshuffle the cards between the different stakeholders of the automobile industry. Carmakers may lose the control over the production of the engine and their dominance will be fragilised. The reason lies in the production of the battery pack which involves a different set of actors who want the largest possible share of the market value.
Batteries need metals and alloys, mainly lithium, cobalt, manganese, aluminium, nickel and copper. These natural resources are located in a few countries and dominated by large mining companies. They are in a strong bargaining position because some of the metals like cobalt and nickel, are relatively scarce and their price is very volatile which may contradict the necessity to reduce the price of electric cars.
Oil and gas majors, do not intend to stay passive and simply observe the energy transition and the decline of oil demand. They are now making deals along the electricity supply chain. They invest in power generation with gas; they penetrate the market for household energy supply, which has previously been controled by utilities; they acquire electric charge points for electric cars. Repsol has set up a joint venture called Wible in Madrid with South Korea’s Kia Motors for a fleet of 500 hybrid vehicles; Shell has acquired New Motion, one of Europe’s largest electric vehicle charging companies and 100 per cent of Sonnen, a German rival to Tesla and Samsung in providing homeowners with lithium-ion battery packs powered by solar energy. BP has bought the UK’s largest electric vehicle charging network Chargemaster; and battery start-up StoreDot. Total has bought SAFT, a battery producer. This also increases their bargaining power with carmakers.
Battery manufacturers are a third set of key players for the future of the electric car. The battery industry is divided in three main segments that drive technological innovation: batteries for portable electronics, traction batteries for EV, and stationary battery energy storage systems for grids and renewables. Batteries for portable electronics have long dominated the market in terms of volume thanks to the massive sales of smart phones, but the traction batteries have caught up since 2017 in terms of battery capacity, which can be from 1000 to 5000 times higher, so that the two markets are now comparable. The stationary storage market is also growing rapidly. To meet the growing demand, battery manufacturers will have to increase manufacturing capacity by somewhere between 7 and 10 times what it is today. This involves huge investments that only big companies can realise and not all car producers are ready to do it. In fact, they are adopting a variety of different strategies, from complete outsourcing of battery packs to in-house production. Some also engage in energy storage system. This reveals very different approaches to the importance of controlling battery packs manufacturing to maintain the control over the industry.
The uncertainty among the industry regarding the relative role and share of the various stakeholders is compounded by a geopolitical factor. China has become the main market for electric cars and other vehicles and the main battery pack producer. It has secured the largest resources of key metals like cobalt and nickel across the world which are shipped and refined in China. This makes many South Korean and Japanese battery producers, like Samsung and Panasonic, worried about their dependence from China. In 2010, China, which produces 85% of rare earths, had restricted rare-earth metals exports vital to Japanese tech firms after a maritime squabble.
Our contribution will embrace these various aspects of the electric car market to assess the future restructuring of the automobile industry and the potential changing role of the major stakeholders.

Full Text:

Conference Paper presented at the 27th International GERPISA Conference, Paradigm shift? The Automotive Industry in Transition, 12-14 June 2019, Paris, France.

Later published in:

Citation: B. Jetin (2020). “Who will control the electric vehicle market?” International Journal of Automobile Technology and Management, 20 (2), p 156-177. DOI: https://doi.org/10.1504/IJATM.2020.108584

Who will control the electric vehicle market?

Abstract.

The second automobile revolution, the age of electrification and digitalisation, is on its way. It is a gradual transition and not a sudden break. However, millions of electric vehicles (EVs) are now being sold, and the EV market is becoming a mass market propelled by economies of scale. It is reflected in the drop in the cost of batteries which will bring the price of EVs on a par with the price of conventional vehicles in the coming decade. Nonetheless, two interrelated issues have been underestimated and will now decide who will play a dominant role and benefit the most from the EV market. The first is the relative scarcity of raw materials from which batteries are made. The second is that the primary EV market is China which gives its companies a strategic advantage for the supply of critical metals and the large-scale production of batteries. Our research analyses the fundamental role of natural resources for the control of the EV market and the response of governments to ensure access to them. We show the importance of industrial and diplomatic policies in a context of geostrategic rivalries of large powers.

Keywords: electric vehicle, battery electric vehicle, lithium-ion battery, materials, battery makers, carmakers

Introduction: The second automobile revolution is underway

For several decades, the electric car has been the “eternally emerging” new technology (Fréry, 2000) as several earlier attempts in the 1990s and early 2000s failed to turn it into a mass market. The push and pull motives have always been the reduction of carbon emissions and bouts of soaring prices of gasoline. However, the intense lobbying of carmakers has usually succeeded to gut the bills aimed at reducing fossils fuel consumption, and the reversal of prices of gasoline have dampened consumers’ interest for clean and energy-efficient cars. Things have started to change after the great recession of 2009, and conditions are in place today for the electric car to be the vehicle of the “second automobile revolution” (Freyssenet, 2011, 2009). Freyssenet had listed four main conditions for a car revolution: (1) a systemic crisis of the previous transport system, (2) the emergence of various solutions thanks to innovations coming from other industrial sectors, (3) the formation of a coalition of economic, political and social forces to impose a solution, (4) the macro-economic decisions and the public policies for a broad diffusion of a chosen standard.
Events never exactly happen as predicted, but ten years after the publication of Freyssenet’s seminal book, the electric car is moving from the margins where it was previously confined.
(1) The petrol car transport industry is still confronted to a systemic crisis although the shale oil revolution in North America has refuted the peak oil theory and its prediction of a sharp increase of the prices of gasoline at the world level (Fessler, 2019). In a context of global economic recovery after the great recession of 2009, this has prompted one of the most prolonged expansion of the automobile market in contemporary history. At global level, new sales of all types of vehicles have grown at the average rate of 4.2% (OICA, 2019). American and Chinese drivers have enjoyed a decade (2010-19) of cheap gasoline, which has boosted the sales of SUV and premium cars. It is less the case in Europe where high prices of gasoline, in a context of economic hardship, have led to a crisis of affordability of car ownership (Jetin, 2015) and political tensions. In many developing countries, the low price of gasoline is the result of massive subsidies that governments can no longer sustain. More, the last cycle of expansion of automobile sales has magnified congestion, pollution and other negative externalities that existed previously. The shale oil revolution has delayed the moment of truth of the petrol car transport system but has not provided a solution to its crisis.
(2) Innovation has led to a convergence towards electricity, the Battery Electric Vehicle (BEV) and connectivity to replace oil and the Internal Combustion Engine (ICE). Alternative solutions such as agro-fuels cannot compete (Proff, 2011) (Amatucci & Spers, 2010). Agro-fuels are limited in volume and are adjuvants to oil. They will decline when oil demand starts to shrink, possibly after 2030 (British Petroleum, 2018). Hydrogen is not viable energy for the proximate future. Toyota, Honda and Hyundai’s progress in fuel-cell hydrogen technology is hampered by the present incapacity to produce clean and cheap hydrogen at a large scale. The majority of carmakers focus their efforts only on batteries. They are encouraged by innovations in renewable energy, battery storage, smart grids and connectivity, which strengthen its advantages.
(3) A heightened global concern for climate change has led to the emergence of a coalition of economic, politic and social forces which is conducive to the fast development of the electric vehicles. The signature of the 2015 global Paris agreement has eased the adoption in 2019 of the EU Car CO2 standards for 2025-30 (European Commission, 2019b) . In China, a similar policy of earned credit system is also introduced in 2019 (Sun, 2019) . These were inspired by a pioneered policy initiated by California in 1990, updated in 2012 and adopted by 9 other states in the USA (California Air Resources Board Board, 2019) . The “diesel gate” which erupted in 2015 (McGee, 2018), was an additional motive for many countries and cities to announce that sales of new conventional petrol and diesel cars and vans would be banned between 2025 and 2040. Most of the light-duty vehicles must be zero-emission by 2050 at the latest (House of Commons, 2019) . This political decision, plus the necessity to repair their tarnished image, is forcing many carmakers to change their strategy and to give priority to Electric Vehicles (EVs). For instance, in March 2019, Volkswagen, the top number one producer at world level, announced 70 EV model launches in the next ten years, up from 50 previously. By 2030, it expects 40 per cent of sales to be battery vehicles. As a result, 15 to 22 million EVs will be built on electric platforms to achieve CO2 neutral balance (VW, 2019). This decision, followed by BMW and Daimler, comes as a signal for part and component makers that time has come to invest massively in the battery value chain if they want to stay in business. This is a radical change compared to the situation observed by Freyssenet (2012, p. 310) ten years ago when only a minority of carmakers (Renault-Nissan, Chinese and Indian carmakers) were producing BEV. The environmental constraint has been finally more effective to speed up the transition to electromobility than a rising price of gasoline that so far has failed to materialise.
(4) Prolonged quantitative-easing monetary policies, massive government subsidies to the purchase of EVs, and public policies supportive to innovation have combined to kick-start the mass marketing of EVs. Low-interest rates have been a boon for the recovery of the automobile market after the great recession of 2008-09. They are still critical for the purchase of EVs, which are still more onerous than conventional cars. That is why public subsidies are initially trying to close the gap. They were decisive in China to both decide Chinese companies to invest in the EV value chain and to encourage potential customers to purchase them. Subsidies are also used as an industrial policy tool to channel R&D towards the improvement of batteries, to extend their range and reduce their cost.

The present paper builds on the theoretical approach developed by Freyssenet and Boyer and Freyssenet (Boyer & Freyssenet, 2002) although it does not look at the profit strategy of individual carmakers. While most of the literature look at the demand side, it takes stock of progress made toward the adoption of the electric vehicle and focus on the supply side and in particular on one condition that has been so far underestimated: the limited availability of some critical materials for the production of batteries. Resources shortages could increase battery costs at a time when the affordability of EVs will be essential for their success. Like Freyssenet (2012, p. 318), we consider that any scenario of transition to electromobility, whether a progressive or rupture scenario, must take seriously the geopolitical and not only the technical conditions into account. We believe that access to critical resources is one of the key issues of geopolitical and trade tensions between the great powers that happen to be the primary automobile producers. Our paper relies on a systematic review of the academic literature and secondary sources and our calculations of resources availability. Section 1 looks at the most recent growth forecasts of the EVs market. Based on these projections, section 2 estimates the potential constraints that resources availability will impose on the development of the EV market. Section 3 reviews the public policies that states have adopted to secure resources supply and promote a local battery industry. We conclude that only countries or regional groupings that have adopted comprehensive policies to ensure access to critical metals and develop local battery making have a chance to play a leading role in the electric vehicle market.