Accelerating EV adoption: a look under the bonnet

While climate change awareness has been pushing hard on the auto industry’s EV pedal, more recently COVID-19 has spurred demand for safer, more efficient and environmentally friendly modes of travel. Experts recently interviewed by Third Bridge Forum say government incentives to bring down EV prices boosted adoption rates across Europe in early 2020. Indeed, political and regulatory forces play a significant role in EV development across the world — driving a mixed adoption picture.

We’ve spoken to a large number of industry experts this year to understand the challenges and opportunities facing auto OEMs as industry competition intensifies and technology developments continue apace. 

Perhaps surprisingly, EV R&D has remained strong in the face of COVID-19, with many of the largest auto companies making “profound announcements” this year, a C-level executive at the Center for Automotive Research told us. For example, Volkswagen Group last month said it is pressing ahead with its transformation into a “digital mobility company”, earmarking EUR 35bn for electrification, EUR 11bn for hybridisation and EUR 27bn for digital technology over the next five years.¹https://www.volkswagen-newsroom.com/en/press-releases/volkswagen-group-raises-investments-in-future-technologies-to-eur-73-billion-6607

Global EV momentum is being fuelled by several trends. In terms of government policies, prime examples include the UK recently publishing a plan to ban the sale of new vehicles powered by petrol and diesel from 2030. In the US, California aims to ban new internal combustion engine (ICE) vehicle sales by 2035 and President-Elect Joe Biden has pledged to re-enter the country into the Paris Agreement when he steps into office.  

At the same time, investors are increasingly sensitive to sustainability issues, and this has major knock-on effects. Logistics companies are turning to EVs to reduce their downtime, total cost of ownership and carbon footprint. These needs have been amplified this year by COVID-19 pushing supply chains and delivery networks to their limits. It is expected that EVs will soon proliferate in first- and last-mile delivery services, which could highlight postal services as ripe for EV innovation. Vehicle electrification also goes hand in hand with autonomous driving, making logistics companies “one of the best places” to introduce EVs, one specialist we interviewed said.

Echoing this, a former general manager at Renault Nissan-Mitsubishi Alliance anticipated that fleet customers would account for 70-80% of EV sales over the next two years. “It’s not going to be the individual customer buying one electric car,” they told Forum. “It’s going to be a fleet operator buying 10, 20, 30, 40, hundreds of electric cars at one time.” Stringent CO2 regulations and associated taxes, particularly in Europe, make this trend “inevitable”, they added. “Costs may or may not work for fleet operators… but if you add the disincentive price for running a petrol or diesel vehicle, it becomes very expensive to run ICE cars.”

Of course, the global EV revolution won’t be simple. It will upend the auto industry’s current dynamics and manufacturing processes, which were designed for ICE production. “We have a lot of powertrain, propulsion plants in the US today, a lot of engine transmission plants that won’t be needed, a lot of ancillary dress parts on an engine that won’t be needed, so the number of parts goes down and the complexity goes down,” the Center for Automotive Research executive noted. 

Batteries are another big consideration, with a former Volkswagen director disclosing that there are few transferable skills from the ICE model. “First of all, you’re suddenly dealing with chemistry, which is not something you’ve been dealing with very much on the automotive side, and… the production process of batteries is fundamentally different from the production process of vehicles.” Indeed, we’re told that “unless your battery is 10 times better than somebody else’s, it’s likely to become a commodity.” 

As the traditional strengths of legacy OEMs diminish, battery capabilities will be key to securing competitive advantage. Specifically, battery management systems – the electronics and the software that control all battery parts – will be a vital differentiator. “You can have two batteries of exactly the same chemistries with different battery management systems, and those batteries will behave very differently,” the former Renault Nissan-Mitsubishi Alliance general manager said. Rapid developments in battery and charging technology are also likely to present numerous forks in the road, with implications for vehicle design and charging. 

With a lack of EV infrastructure being one of the tallest obstacles to adoption, charging companies will also play a fundamental role. How they understand consumer needs and behaviours, including how to charge for power usage, could have a defining effect on which technologies succeed. Right now, approximately 80% of EV customers charge at home, one expert noted — but this is by no means an option for everyone. 

Our Interviews confirm that consumers are fast warming to EVs, with a growing appreciation of how this technology can fit into — and enhance — their lives. But with cost the biggest determinant of buying behaviour, and overall confidence yet to reach the level required for mainstream adoption, navigating the road ahead will not be straightforward. With a lot on their hands, manufacturers will have tough choices to make — but what is certain is that within just 10 years the landscape is set to look significantly different to the way it looks now.