The 2020s are poised to be a decade of disruption for the automotive industry, as trends around connected, autonomous, shared and electric technology gain pace. Capabilities in these areas will not come cheap, but industry players need to make investment decisions today to remain relevant in the future.
“With an economic downturn looming, OEMs must choose where to invest finite funding and they are choosing in favour of electrification,” writes Ron Lee, Executive in Residence at innovation management software specialist Sopheon, in the report The State of the Automotive Industry as it Turns to Electrification.
Towards 19 million EVs a year
Electric vehicles (EVs) have been around in one form or another for more than 100 years, but the move mainstream has only recently started to take off. In 2019, global plug-in electric car sales totalled 2.2 million units and accounted for 2.5% of the market. That percentage may seem minor, but it reflects a massive 400% increase from 2015 sales levels. The bulk of 2019’s plug-in sales were pure battery electric vehicles (BEVs), grabbing 74% of the total at 1.63 million units.
“Electrification is one of the big themes in the auto industry and with our white paper we aimed to assess how this could develop in the future, identify the driving factors and the implications for existing propulsion technology, and consider how the market could develop over the next decade,” Lee tells Automotive World.
As more EV models hit the market, volumes should further accelerate. By mid-decade, shoppers around the world are expected to have the choice of more than 400 EV models. Individual forecasts vary but Sopheon notes that these additional offerings could push EV sales to between six million and 11 million by 2025, rising to between 11 million and 19 million units a year by 2030.
These forecasts, though, could prove overly cautious. “While electrification sales projections are impressive, it’s possible they are significantly underestimating demand due to government policy and societal and corporate attitude changes,” observes Lee.
Governments take action
Companies and consumers are increasingly prioritising low-emission technologies. In some ways this has been reaffirmed by the COVID-19 pandemic, which drove home the benefits of clean air as road traffic plunged in the wake of lockdowns. The drive to ‘build back better’ in many instances has become a push to ‘build back greener’, and governments across Europe have outlined economic stimulus measures that also support uptake of low- and zero-emission vehicles. Sopheon suggests that steps like this “will likely accelerate the demise of technologies that are already in slow decline and accelerate the electric transport agenda.”
Many countries have also set fleet CO2 targets as part of wider efforts to decarbonise and meet commitments under the 2015 Paris Climate Agreement. Sopheon suggests that Europe has come forward with “the most comprehensive and severe legislation for transport CO2 emissions.” For instance, automakers must slash fleet CO2 emissions by 15% by 2025 and 37.5% by 2030, compared to a nominal 95g/km base set for 2021. Those that fall short face hefty fines.
The US has a massive transport market but one of the least developed decarbonisation plans. However, the January 2021 change in Administration is expected to result in a rapid about-face. “President Joe Biden has re-energised the push for CO2 reduction with multiple executive orders,” the report notes. “This and likely future policy shifts will move the goalposts for the US.”
Change is also coming in the way that vehicle emissions are assessed. EVs may produce no tailpipe emissions, but a lifecycle assessment would highlight additional emissions produced in vehicle and component manufacturing processes, as well as the source of the energy used to charge. There is a growing push for automakers and retailers to be clearer with consumers about the environmental impact of their products, and many are responding. Polestar, for instance, published the Life Cycle Assessment (LCA) of the Polestar 2 in late 2020. It could soon become mandatory. European legislators are currently looking into such a change in legislation, with an announcement on this front due within the next couple years.
Then there is the city-level action. Several major cities around the world want to ban older (or all) internal combustion engine vehicles as part of efforts to improve air quality. This growing list of cities includes Amsterdam, Bergen, Brussels Capital Region, London, Milan, Oslo, Paris and Strasbourg.
Development plans and market forecast
Automakers are expected to invest US$300bn over the next ten years in the effort to reduce the cost of cleaner powertrains so they are on par with conventional ones. Sopheon clarifies that the point at which parity is achieved will vary by market, and expects Europe, China and the US to achieve this ahead of low-cost markets such as India.
OEM efforts are being steered by a combination of government policy, emissions legislation and city-level decisions. Historically, such external factors have been shown to be closely entwined with the corporate technology agenda. “Meeting emissions standards in all markets is a cornerstone of all established automakers’ cycle planning processes,” explains Lee. “It represents a huge investment and added complexity to meet the many different requirements that exist in all major markets.”
External factors will also have a direct impact on sales of electrified vehicles. All types of hybrid setups are forecast to grow through 2030, though the types offered within individual markets will be linked to government incentives. Mild hybrids (MHEVs) will see rapid growth in the near term, jumping from 3% of the global market in 2020 to 15% in 2025 and 20% by 2030. However, their future may be limited, with Sopheon warning in the report that “it is unlikely that MHEVs will have sufficient capability to meet CO2 targets in the most stringent markets such as Europe and China by 2030.”
BEVs may see slower initial growth but could prove a more permanent feature of the market. Sopheon projects they will account for 7% of the new car market by 2025, grabbing 18-20% by 2030. “Our research has led us to believe the market could grow significantly faster than current projections,” concludes Lee.