Lower Prices, Better Range Should Sell Electric, But Beware Government Edict.
“We think the transition towards a 100% EV world could happen as soon as potentially limiting factors like availability of batteries, and charging infrastructure allow for it”
The electric car band-wagon is gathering speed with Volkswagen now saying 70% of sedan and SUV sales from its namesake VW brand in Europe will be battery electric by 2030 and investment bank UBS raising its global electric predictions to unprecedented heights; but this exuberance isn’t shared by mainstream forecasters.
The bottom line here though is really a one-way bet. Electric cars are bound to succeed because governments will make it impossible for consumers to buy traditional ones.
Last week Volkswagen doubled its plans for its VW brand, saying by 2030, 70% of its total European vehicle sales will be battery electric. This week UBS predicted the end of the ICE (internal combustion engine) age, saying that global new cars would be 20% (minus a few plug-in hybrids) electric in 2025 and 50% by 2030 (4% plug-in hybrids). “100% by 2040?” it said.
That’s a massive increase compared with the expectations of the leading data provider IHS Markit, which says only 18.1% of the world’s car sales will be battery electric (BEV) in 2030, up from 12.1% in 2025. For the European Union (EU), IHS Markit reckons BEV sales will hit 19.1% in 2025, and 30% in 2030, so the idea that 70% of VW’s sales could be all electric would be a massive change from the conventional wisdom. Most mainstream forecasters are much closer to IHS Markit than VW or UBS, and for their optimistic predictions to become reality some massive hurdles have to be jumped.
BEV prices must drop drastically. Currently in Europe the price of the cheapest electric car is about twice that of its ICE equivalent. Range anxiety is still a bugbear for would-be BEV purchases, who find that as soon as they turn on to high-speed intercity link, available mileage drops off a cliff. Currently the cheapest little ICE city car could do a 3-hour motorway journey cruising at legal maximum speeds in one go. Expensive electric cars like the Polestar 2 would probably need three stops and take three times as long. If they do need to recharge urgently the network is too thin and methods of payment frustratingly clunky.
Many experts also believe that the supply of batteries might not be able to keep pace with a robust BEV expansion. They foresee a shortage of electronic components too along the lines of the current semiconductor supply crisis. The price of crucial raw materials like lithium, graphite cobalt, copper, could zoom and undermine battery economics.
So why do the likes of VW and UBS see such ambitious scenarios?
If you can’t beat them ban them
They believe all these obstructions can be beaten, as battery prices fall, range anxiety is defeated by more powerful new solid-state technology, while the recharging network becomes ubiquitous. And there are some more muscular methods of persuasion being marshalled to make electric cars more attractive. Some countries like Britain are planning on banning ICE cars by 2030, Norway will accomplish this by 2025, while many countries will offer massive financial incentives to buy BEVs. Germany currently offers an $11,000 subsidy.
Volkswagen brand chief Ralf Brandstaetter, unveiling VW’s “Accelerate” strategy, said China and the U.S. would have BEV market shares of 50% by 2030. VW allocated about $19 billion to an investment plan to exploit e-mobility, hybridization and digitalization up to 2025.
“With “Accelerate” we are increasing the speed of our path to a digital future. In the coming years, we will change Volkswagen as never before,” Brandstaetter said.
According to IHS Market China’s BEV market share in 2030 will be 24.2% and the U.S. 15%.
UBS, in a report “EVs Shifting into Overdrive: How will electric cars re-shape the auto industry?”, said an in-depth evaluation of VW’s new ID.3 showed electric cars were already close to the price of ICE cars, and are competitive or even superior in total cost of ownership.
“With the prospect of sticker price parity even without subsidies by 2025, we take a strong positive view on EV penetration. We raise our global EV sales forecasts again, this time mainly driven by higher estimates for the U.S. market. We expect the Biden administration to increase direct support for EV purchases,” the UBS report said.
The Biden plan for 500,000 charging stations would more than double the current count, while it could impose tougher fuel economy standards to curb ICE car sales. The ban on ICE sales by governments like Britain’s will also give a powerful signal to buyers to embrace electric.
UBS’s positive scenario went like this –
“In a world of EVs that are cheaper than conventional cars, with regulation that increasingly penalizes the ownership of combustion engines, we think the transition towards a 100% EV world could happen as soon as potentially limiting factors like availability of batteries, and charging infrastructure allow for it. Breakthroughs in new battery technologies like solid-state that help ease potential raw material bottlenecks and further drive down EV costs could enable this scenario,” the report said.
It did concede some negatives.
“The biggest threat to our bullish EV thesis is the upstream part of the battery chain. The ultimate bottleneck is not cell (battery) supply, it takes 2-3 years to build a large greenfield cell plant), but commodities. Our commodity teams highlight the risk of potential bottlenecks in lithium, nickel and even copper. The supply would have to come from new projects that are not known yet, and commodity prices would have to reflect new entrant costs to attract investment. This would lead to higher battery prices for longer, so delaying the sticker price parity of BEVs,” according to the report.
Frank Schwope, analyst with Norddeutsche Landesbank Girozentrale, is a believer too.
“I think the IHS estimates are outdated. VW is just adapting to reality. While Norway is already banning new internal combustion vehicles from 2025, Sweden, Denmark, the U.K., Ireland and the Netherlands, for example, are planning this step for 2030. I wouldn’t be surprised if Germany and France follow suit in the next few years. It is possible that no new combustion vehicles will be allowed to be sold in Europe in 2030. Then a 70% BEV quota would still be conservative,“ Schwope said.