Avoiding FOMO

Avoiding FOMO

The fear of missing out may become a crucial impetus for keeping up with electrification of the world’s passenger fleet

nnovation is being driven by new customers and technologies, despite potential concern over program profitability, which is changing the way automotive suppliers conduct business, according to the latest survey of members of the Original Equipment Suppliers Association (OESA), published in March.

OESA members are typically Tier I though III suppliers to the automakers. OESA surveys its members quarterly about their expectations on a number of topics. For example, “Suppliers expect it will still take five to 10 years for battery electric vehicle (BEV) production to reach 10 percent of global vehicle output. Survey respondents expect a 10 percent share of BEV production to occur first in China, followed by Europe, with North America taking an estimated eight years to reach that threshold.”

Asked what their biggest challenges/opportunities are as the industry prepares for a BEV future, 78 respondents noted that new customers and new technologies are driving innovation. Forty-two respondents reported that BEV programs “are changing the way we do business”; 38 companies said they are capitalizing on such programs; but 37 companies said their products are not aligned with the technology.

Other suppliers worry that they lack a clear vision on how to prepare for the electrification of passenger vehicles, that it will be difficult to conform to relevant regulatory strictures or that they won’t be able to secure the talent needed to meet this electrified future.

The trend is gaining traction nonetheless. Regulations to develop a carbon-neutral planet will propel BEV shares above 50 percent in Europe by 2030, while China and the United States will reach 40 percent and 25 percent BEV market saturation, respectively, in the same period. This is according to research led by Reinhard Schorsch, director of OEM Planning Solutions at IHS Markit, a Boston-based consultancy.

Technology phaseout

To succeed in creating a carbon-neutral global economy, the transportation sector will need to turn many of the vehicles in operation into BEVs or zero-emission vehicles in the next 20 to 30 years.

Internal combustion engine and hybrid vehicle sales will need to be phased out at least 10 years before the target dates, “with many markets becoming pure BEV/ZEV sales markets by 2040 at the latest (with only a few exceptions),” according to IHS Markit estimates.

Europe is in the front wave of this transformation from a regulatory perspective. Although it has not been formally agreed upon yet, IHS Markit “expects an EU-wide ICE phaseout by 2040 or before.”

From a regulatory perspective, China is only a few years behind Europe. IHS Markit expects new energy vehicles (NEV) sales targets to be around 40 percent by 2030, greater than 50 percent by 2035 and up to 100 percent by 2050 at the latest.

The U.S. is tied to Safer Affordable Fuel-Efficient (SAFE) rules until 2026. From 2027 onward, the consultancy assumes, the Biden administration will revert to the improvement levels (measured in miles per gallon) that are at least as stringent as those developed and followed under the Obama administration. California will likely be the vanguard in adopting and conforming to regulatory guidance on emissions.

“The tipping point for decisions towards an accelerated BEV roadmap or even a full BEV switch has arrived in the boardrooms of major OEMs in regulated markets,” says Schorsch.

Consequently, Jaguar, Volvo, Mini, Bentley and Ford Europe have announced ambitions to become BEV brands by 2030. Other brands are striving to make BEVs their major propulsion system by then. These include Porsche, VW Europe, Land Rover, BMW and Kia Europe.

Schorsch stresses the importance of establishing and securing a supply chain for this major change as soon as possible.

“Broad consumer acceptance and readiness for BEVs will occur when price and total cost of ownership match with mobility budgets, when real driving ranges match with use cases, and when charging is no longer a concern in consumers’ minds,” according to Schorsch.

OEMs accelerate plans

In the past five months, automakers released news of substantial investments in electric vehicle capabilities, with new models, new platforms or redesigns arriving now and over the next five to 10 years. Here are some recent headlines.

Metal supply and pricing

According to an academic research paper published in Applied Energy magazine in December 2020, the lightweighting of vehicles is motivated by increasingly stringent emissions legislation. In the light vehicle segment, “most BEV models currently in production are more aluminum intensive than the comparable internal combustion engine–powered vehicles (ICEs) due to a more urgent desire for a lower weight to achieve a better range,” the authors, academics from the University of Birmingham and University College London, write.

Some manufacturers, however, “have recently begun to revert back to the use of steel. As a result, the powertrain weight reduction seen in some second-generation mass-market EVs have been nullified by the weight increase in the body and other parts.”

Considering the net effect of these mixed trends, they assume the aluminum intensity of BEVs will increase but at a slower pace compared with ICE powertrains.

EVs are more copper intensive compared with ICEs. Roughly 40 to 80 kilograms of copper per vehicle is required in the windings of the electric motors and cabling to transfer power from the battery to the motors, the researchers say. “The key driver behind the increasing copper content in EVs is increasing the average battery size.”

Incremental demand due to mass EV penetration could exacerbate an emerging deficit in critical metal markets. “Significantly higher long-term prices could be required to support the required investment in meeting the need for increased conductivity.

“Given extended lead times in bringing product to market—average greenfield copper projects take about 12 years to permit, finance and build—this could lead to considerable volatility during any adjustment phase,” the paper states.

“Nickel is another case in point. While aggregate demand from EVs is small relative to the market for steel alloys, the requirement for extreme high-purity inputs for cathode manufacture has the potential to generate bottlenecks within the supply chain,” the researchers warned.

The Chevrolet Bolt EV is assembled at the General Motors plant in Orion Township, Michigan. Its range is 259 miles on battery only. Photo by Jeffrey Sauger for Chevrolet

The key driver behind [higher] copper content in EVs is the [larger] average battery size.

applied energy

The road ahead

Comprehensively, there are a lot of moving parts to the future electrification of the world’s passenger cars—from regional standards for the decarburization of manufacturing processes to the pace of minerals extraction. It should be clear that metals suppliers should follow the developments closely if they want to be ready for a new set of demands from automakers and their consumers.

“The direction is obvious in regulated markets, but the road ahead is not straight. Will the OEMs’ accelerated electrification plans be supported by the supply chain, and will their BEVs match with customers’ expectations in the same timeframe?” IHS Markit’s Schorsch wonders. Risks are inherent in trying to match the requirements of the transformed automotive supply chain. However, he advises, “it is rather less risky to prepare for the BEV era, than to miss it.”