A major pillar of the energy transition and in reaching a global net-zero state, electrical vehicles (EV) are posed as the fix to reducing, and eventually eliminating, the carbon dioxide vehicles emit each year.
In 2020 alone, personal cars produced approximately three billion metric tons of carbon dioxide emissions worldwide. Greenhouse gas (GHG) emissions from transportation account for about 27% of total US greenhouse gas emissions, making it the largest contributor to US GHG emissions.
As the landscape for EVs unfolds—with the US, EU, and China as market leaders and electrification being the primary propulsion method—industry experts weigh in on what to expect.
Below, we dive into the developments and headwinds facing the energy transition theme, how battery charging and recycling impact sales, where hydrogen fits into this landscape, and much more.
Related Reading: Top 6 Energy Transition Trends to Watch in 2023
Developing the EV Landscape
Since the earliest iterations of EVs dating back to the 1890s, nations around the world have raced to create a mode of transportation that relies on cleaner forms of fuel—an electrical outlet rather than oil. Today, the US, EU, and China have taken the lead, with auto manufacturers like Ford, Tesla, BYD, and Volkswagen being some of the first to offer products to the market.
Between 2011 and 2021, the number of electric vehicles jumped from about 22,000 to more than 2 million. This rate of adoption can be attributed to the “pre-existing” infrastructure for manufacturing EVs: distribution, generation, and, in terms of technology, electrons production, were departments that auto manufacturers already have in place. EVs gained traction because it was a relatively straightforward transition.
However, one of the biggest hurdles for widespread adoption has been consumer education or, more so, the lack of it. According to a study by Teads conducted in partnership with Kantar, “only a few brands are already strongly associated with electric vehicles,” and “almost 40% of all respondents aren’t aware of the full benefits of an EV car.”
Electric vehicles are shown to reduce fuel costs dramatically because of the high efficiency of electric-drive components. All-electric vehicles and PHEVs utilize electric power to some extent, so their fuel economy is measured differently than that of conventional vehicles. The US Department of Energy states that “depending on how they are driven, today’s light-duty all-electric vehicles (or PHEVs in electric mode) can exceed 130 MPGe and can drive 100 miles consuming only 25–40 kWh.
Additionally, costs to maintain an electric car, especially battery-powered vehicles, are generally lower than fossil fuel-powered vehicles due to fewer moving parts. EVs have single-speed transmissions and regenerative braking, which mitigates wear on brakes. The best part: EVs don’t require oil changes.
For US automakers, their EV batteries are required to have a warranty for a minimum of eight years or 100,000 miles. However, most EV battery packs have lasted more than 200,000 miles with less than 10% degradation in power capacity, meaning the only regular maintenance costs most consumers incur are new windshield wipers and tires.
China Ahead in the Race
China’s fast-growing electric vehicle market is driving global competition due to Chinese manufacturers like BYD, Chery, and SAIC-GM-Wuling (SGWM) ramping up production and expanding their product lines, with more than five million battery-powered electric vehicles forecasted to be sold this year.
As China’s EV market becomes better supplied and supply-chain bottlenecks ease, the communist country’s grip on being the world’s largest EV market gets tighter, thanks to a decade of accommodating government policies and incentives.
Consequently, independent startup companies sprouted while established auto manufacturers created EV manufacturing divisions and subsidiaries. Today, small low-cost cars make up a significant portion of sales for the Chinese EV market.
The COVID-19 restrictions over the past three years have changed Chinese consumer habits, with price-consciousness emerging as a prominent trend. As there’s less inclination from consumers to spend top dollar for premium models and brands, China’s high-profile startups like Nio, Xpeng, and Li Auto are struggling to pass on rising costs to consumers.
On the other hand, China’s BYD Auto is being touted as the country’s leading EV manufacturer, with deliveries of new energy vehicles (NEVs) surging threefold to 1.63 million units last year. The number represents a little less than 40,000 exports, despite production stoppages in the second quarter, with EV sales tripling to nearly 799,000 units.
BYD’s success is largely attributed to its inexpensive and broad range of EVs, with prices starting at around US $15,000 for a dolphin compact hatchback after subsidies—a significantly lower price than Tesla boasts. SGWM has seen similar success with its joint venture with its battery-electric Hongguang mini-car, with an estimated 400,000 sales in 2022.
But tension in the EV market seems to be building in the mid-sized and premium segments, where pricing power is the highest due to the higher potential margins, and foreign brands are now beginning to feel the heat. Cracking the code to make EVs less expensive will be critical in producing affordable products while seeing high returns.
Yet, experts believe comparing the pricing of the Chinese EV market to the US or EU is not possible for a few reasons. European manufacturers like Volkswagen aren’t reacting to this competitive pricing because they are still fulfilling demand, boasting full EV-order books that have delivery dates six months out. However, once supply and demand are matched, both the EU and the US will be forced to react.
Logistics of the Market
There are a lot of questions facing the global adoption of EVs, but potentially the biggest concern for consumers and manufacturers alike is the challenge of establishing charging networks. China’s impressive adoption rate can be attributed to rolling out charging networks and making charging points readily available, which is the number one obstacle to answering the question consumers pose: where am I going to charge my EV?
But the question is more complicated than that. For personal vehicles, electrification has been the path most manufacturers have explored, with most of today’s all-electric vehicles and PHEVs relying on lithium batteries. However, lithium batteries are not the best option for long-haul vehicles. The difference with long-haul versus passenger is the payload: if you need a big heavy battery to go a long distance, and if the weight of my vehicle limits you, that means you can carry less.
In these cases where weight limit hinders delivery results, experts see long-haul vehicles leveraging hydrogen as a net-zero fuel alternative. Long-haul vehicles commonly take established routes, which overcomes some issues hydrogen has about distribution. However, there will most likely be multiple fuel options for light and heavy trucks as opposed to passenger vehicles, which haven’t excluded hydrogen as an option, but manufacturers have certainly gone down the EV path.
Ultimately, the possibility of different carbon-neutral energy resources complicates deciding how and who will cater to them on the roads. Even when it comes to plugs and outlets for EVs, there’s no universal standard. It’s led investors, manufacturers, and legislators to question: should auto manufacturers be responsible for building these charging networks? Or should it be Integrated Oils or the generators of these cars, makers of the electrons?
Most likely, utility companies and integrated oils will take on that responsibility, as one side knows about generation and distribution, and the other knows where people stop for fuel. Ultimately, they understand what’s needed more than car makers do, and that there are different charging technologies like ACDC. Different plugs are needed for different networks, however, this is an issue that will eventually solve itself.
Navigating the Future of EVs with Equity Research
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Watch our Wall Street Insights® live on-demand webinar, The Energy Transition and the Fast-Evolving EV Landscape in 2023 and Beyond, with Michael Tyndall, HSBC’s Head of European Automotive Equity Research and Future Transport Lead Analyst, to learn his outlook on one of the most significant trends impacting the market.
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