Car battery synergies
Our analysis of the Chinese battery-electric-vehicle market revealed important clues for OEMs that want to thrive in this sector.
Many automotive OEMs and suppliers in Europe, Japan, and the United States are starting large-scale launches of battery electric vehicles (BEVs) in their core markets. But in China, a rapidly growing BEV market and ecosystem have already emerged.
To help global automotive OEMs and suppliers truly understand the major challenges and opportunities of the Chinese BEV market, we analyzed ten BEVs that are popular in China using McKinsey’s electric-vehicle index. We covered a large portion of the market, looking at vehicles from both incumbent OEMs and new players. The benchmarking consisted of a detailed technical analysis, as well as a cost estimate down to the level of individual components. We summarized our findings in our report, How to drive winning battery-electric-vehicle design: Lessons from benchmarking ten Chinese models (PDF–501KB).
China—the world’s largest automotive profit pool—is quickly moving toward e-mobility
The Chinese automotive market is the world’s largest automotive profit pool, accounting for one-third (about 40 billion 1 This figure is derived from McKinsey’s proprietary automotive-profit-pool model. ) of the global total. The market is now shifting toward e-mobility. From 2014 to 2019, BEV unit sales in China increased by 80 percent a year. With more than 900,000 units in 2019, 57 percent of the BEVs sold throughout the world were sold in China, making it the world’s largest BEV market. A look at OEM market shares reveals that Chinese OEMs dominate the market almost completely. International OEMs had a mere 15 percent of annual BEV sales in 2019 (Exhibit 1).
The outlook for the market is promising: BEV penetration in China is expected to grow from 3.9 percent in 2019 to 14 to 20 percent in 2025—a sales volume of roughly 3.8 to 5.0 million vehicles. With the COVID-19 crisis affecting global BEV markets, China’s central government decided in March 2020 to extend purchase subsidies by two more years to fuel BEV sales. Therefore, we expect that after stagnation in 2020—compared with the double-digit growth before COVID-19—the BEV market will pick up again, both absolutely and relatively, in 2021.
Chinese BEV producers are on the verge of becoming profitable, given sufficient volumes
Several BEVs have the potential to be profitable, as their product cost structures benefit from several unique characteristics of the Chinese market. The reuse of existing internal-combustion-engine (ICE) platforms decreases time to market, and off-the-shelf components and a high level of modularization keep down capital expenditures. These design principles and their effects are supported by an ecosystem of local suppliers with long-established expertise across electronics and batteries.
Our bottom-up estimate of materials and production costs, based on more than 250,000 data points, reveals that nine out of ten vehicles may achieve a moderate to solid contribution margin of up to 50 percent. However, we estimate that a lower share may actually achieve a positive operating margin when we take into account warranties; selling, general, and administrative costs; RD; and capital expenditures (Exhibit 2). The high variance in fixed costs can stem from a range of factors, such as the depth of integration and differences in sourcing strategies or the overall volume of OEMs.
New market entrants in particular need to deal with structural challenges and low overall vehicle volumes. Together with further efforts to excel in RD, the optimization of capital expenditures through flexible manufacturing and strategic value-chain positioning could help more OEMs turn a profit with their BEV models.
Global electric car stock, 2010-2019
After entering commercial markets in the first half of the decade, electric car sales have soared. Only about 17 000 electric cars were on the world’s roads in 2010. By 2019, that number had swelled to 7.2 million, 47% of which were in The People’s Republic of China (“China”). Nine countries had more than 100 000 electric cars on the road. At least 20 countries reached market shares above 1%.2
The 2.1 million electric car sales in 2019 represent a 6% growth from the previous year, down from year-on-year sales growth at least above 30% since 2016. Three underlying reasons explain this trend:
- Car markets contracted. Total passenger car sales volumes were depressed in 2019 in many key countries. In the 2010s, fast-growing markets such as China and India for all types of vehicles had lower sales in 2019 than in 2018. Against this backdrop of sluggish sales in 2019, the 2.6% market share of electric cars in worldwide car sales constitutes a record. In particular, China (at 4.9%) and Europe (at 3.5%) achieved new records in electric vehicle market share in 2019.
- Purchase subsidies were reduced in key markets. China cut electric car purchase subsidies by about half in 2019 (as part of a gradual phase out of direct incentives set out in 2016). The US federal tax credit programme ran out for key electric vehicle automakers such as General Motors and Tesla (the tax credit is applicable up to a 200 000 sales cap per automaker). These actions contributed to a significant drop in electric car sales in China in the second half of 2019, and a 10% drop in the United States over the year. With 90% of global electric car sales concentrated in China, Europe and the United States, this affected global sales and overshadowed the notable 50% sales increase in Europe in 2019, thus slowing the growth trend.
- Consumer expectations of further technology improvements and new models. Today’s consumer profile in the electric car market is evolving from early adopters and technophile purchasers to mass adoption. Significant improvements in technology and a wider variety of electric car models on offer have stimulated consumer purchase decisions. The 2018-19 versions of some common electric car models display a battery energy density that is 20-100% higher than were their counterparts in 2012. Further, battery costs have decreased by more than 85% since 2010. The delivery of new mass-market models such as the Tesla Model 3 caused a spike in sales in 2018 in key markets such as the United States. Automakers have announced a diversified menu of electric cars, many of which are expected in 2020 or 2021. For the next five years, automakers have announced plans to release another 200 new electric car models, many of which are in the popular sport utility vehicle market segment. As improvements in technical performance and cost reductions continue, consumers are placed in the position of being attracted to a product but wondering if it would be wise to wait for the “latest and greatest model”.
The Covid-19 pandemic will affect global electric vehicle markets, although to a lesser extent than it will the overall passenger car market. Based on car sales data during January to April 2020, our current estimate is that the passenger car market will contract by 15% over the year relative to 2019, while electric sales for passenger and commercial light-duty vehicles will remain broadly at 2019 levels. Second waves of the pandemic and slower-than-expected economic recovery could lead to different outcomes, as well as to strategies for automakers to cope with regulatory standards. Overall, we estimate that electric car sales will account for about 3% of global car sales in 2020. This outlook is underpinned by supporting policies, particularly in China and Europe. Both markets have national and local subsidy schemes in place – China recently extended its subsidy scheme until 2022. China and Europe also recently strengthened and extended their New Energy Vehicle mandate and CO2 emissions standards, respectively. Finally, there are signals that recovery measures to tackle the Covid-19 crisis will continue to FOCUS on vehicle efficiency in general and electrification in particular.
The infrastructure for electric-vehicle charging continues to expand. In 2019, there were about 7.3 million chargers worldwide, of which about 6.5 million were private, light-duty vehicle slow chargers in homes, multi-dwelling buildings and workplaces. Convenience, cost-effectiveness and a variety of support policies (such as preferential rates, equipment purchase incentives, and rebates) are the main drivers for the prevalence of private charging.
Private electric vehicle slow chargers by country, 2019
Publicly accessible chargers accounted for 12% of global light-duty vehicle chargers in 2019, most of which are slow chargers. Globally, the number of publicly accessible chargers (slow and fast) increased by 60% in 2019 compared with the previous year, higher than the electric light-duty vehicle stock growth. China continues to lead in the rollout of publicly accessible chargers, particularly fast chargers, which are suited to its dense urban areas with less opportunity for private charging at home.
Transport modes other than cars are also electrifying. Electric micromobility options have expanded rapidly since their emergence in 2017, with shared electric scooters (e-scooters), electric-assist bicycles (e-bikes) and electric mopeds now available in over 600 cities across more than 50 countries worldwide. An estimated stock of 350 million electric two/three-wheelers, the majority of which are in China, make up 25% of all two/three-wheelers in circulation worldwide, driven by bans in many Chinese cities on two-wheelers with internal combustion engines. About 380 000 light commercial electric vehicles are in circulation, often as part of a company or public authority vehicle fleet.
New electric bus registrations by country/region, 2015-2019
About half a million electric buses are in circulation, most of which are in China. Although the number of new registrations in 2019 was lower than in previous years due to a gradual subsidy phase-out from 2016 and a decline in the overall bus market, the bus fleets in a number of city centres in China are near-fully or fully electrified and contribute to improve the air quality. Driven by similar air quality concerns, bus electrification is also gaining ground in many other regions: the City of Santiago de Chile is home to the largest electric urban bus fleet outside of China.
Case studies of electric bus deployment in Helsinki (Finland), Shenzhen (China), Kolkata (India) and Santiago de Chile (Chile) highlight the unique nature of each public transit system, the roll-out of electric buses facing context-specific challenges related to network size, ridership, degree of sector privatisation and the availability of funding streams other than fare revenues.
With Covid-19, urban public transit, including buses, will face challenges of providing high-capacity and affordable services while ensuring health security. There is a risk that commuters may opt temporarily or definitively for personal vehicle options. However, in dense cities of the developing and developed world alike, urban buses provide a key means of transport that is not easily substitutable by cars without exacerbating already severe congestion. Hence, the future of public transit in general and electric buses in particular will be balanced between the impacts of the pandemic, the overall capacity of the urban transport system, and continued government support.
Opportunities for electrification can be seized over the coming decade even in modes where emissions are hard to abate such as heavy-duty trucks, aviation and shipping. Global sales of electric trucks hit a record in 2019 with over 6 000 units, while the number of models continue to expand. High-power chargers are being developed and standardised globally. Research on dynamic charging concepts, as well as demonstrations of catenary line solutions, may enable expansion of the range of operations for heavy-duty and long-distance operations for regional buses and long-haul trucking. Electrification of shipping operations at ports is increasingly common and is gradually being mandated by legislation in Europe, China, and, in the United States, California. In aviation, electric taxiing (i.e. the electrification of ground operations in aircraft) offers immediate potential for pollutant and CO2 emissions reductions and operational cost savings for airlines.
Electrifying heavy-duty trucks and air- and seaport operations offer opportunities for cost and emission savings
Policies continue to support electric vehicle deployment and are evolving to a more holistic policy portfolio
Electric vehicles are a key technology to reduce air pollution in densely populated areas and a promising option to contribute to energy diversification and greenhouse gas emissions reduction objectives. Electric vehicle benefits include zero tailpipe emissions, better efficiency than internal combustion engine vehicles and large potential for greenhouse gas emissions reductions when coupled with a low-carbon electricity sector. These objectives are major drivers behind countries’ policy support in the development and deployment of electric powertrains for transport. To date, 17 countries have announced 100% zero-emission vehicle targets or the phase-out of internal combustion engine vehicles through 2050. France, in December 2019, was the first country to put this intention into law, with a 2040 timeframe.
Policy actions for electric vehicles depend on the status of the electric vehicle market or technology. Setting vehicle and charger standards are prerequisites for wide electric vehicle adoption. In the early stages of deployment, public procurement schemes (e.g. for buses and municipal vehicles) have the double benefit of demonstrating the technology to the public and providing the opportunity for public authorities to lead by example. Importantly, they also allow the industry to produce and deliver bulk orders to foster economies of scale. Emerging economies can scale up their policy efforts for both new vehicles and second-hand imports.
Tax rates that reflect tailpipe CO2 emissions can be conducive to increased electric vehicle uptake. Fiscal incentives at the vehicle purchase, as well as complementary measures (e.g. road toll rebates and low-emission zones) are pivotal to attract consumers and businesses to choose the electric option. Local governments are key in proposing and implementing measures to enhance the value proposition of electric vehicles. The use of local low- and zero-emission zones can steer car purchase decisions far beyond just those zones and may influence the relative resale value of internal combustion engines and electric powertrains.
Sabic profit slumps 85% as recovery slows
- Drop in and sales blamed on global economic slowdown
- Revenue down 29% as profit falls to 480m
- Saudi Aramco bought a 70% stake in firm in 2020
Saudi Basic Industries Corp (Sabic), one of the world’s largest petrochemical companies, has reported an 85 percent slump in net profit to SAR 1.8 billion (480 million) during the first half of this year.
Sabic’s shares have fallen 4.6 percent since January, and remained mostly flat after the results were released.
Experts said a recovery in the second half of the year and beyond will be slow.
The company attributed the profit slump to the fact the average sale price of its products decreased 47 percent.
The global economic slowdown also saw a decrease in the volume of products sold in the first six months of the year. As a result, the company’s revenue fell 29 percent to SAR 76.86 billion.
Sabic’s earnings are closely linked to oil and global economic growth given the reach and breadth of its products, which span plastics, fertilisers and metals.
The company said it remains disciplined in managing its capital expenditures, estimating spending of up to 3.8 billion this year.
“Sabic has stated that it expects margins to be under pressure in the third quarter,” said Sashank Lanka, research analyst at BofA in a research note published by the bank.
“We maintain our Neutral rating as we expect a gradual (and potentially slow) recovery in the cycle over the next six months from the trough levels witnessed over the last two quarters.”
Oliver Connor, vice president of energy equity research at Citi in London, believes a recession in the US and Europe is possible into 2024. He warned in May that this will weigh on petrochemical demand going forward.
Pritish Devassy, head of sell-side research at GIB Capital in Riyadh, is more bullish for the outlook in the second half of the year. He described demand as “recovering well,” thanks to China’s reopening.
are unlikely to increase significantly in the near term though, he added.
“The supply-demand situation should start improving next year, although not by much,” Husseini said.
“It will be 2025 or 2026 before things start returning to normal given the imbalance currently – we’ve not seen anything like this for at least 15 years.”
Saudi oil giant Aramco acquired a 70 percent stake in Sabic from the Public Investment Fund (PIF) in June 2020.
Sabic realised synergies of 130 million in the second quarter of this year and 450.51 billion since the date of acquisition.
“The company has highlighted achieving the minimum synergies target of 450.5 billion to 450.8 billion, two years ahead of time,” BofA said.
Opec’s Joint Ministerial Monitoring Committee (JMMC) meeting is scheduled to meet today to assess the state of the oil markets.
Saudi Arabia is expected to extend its voluntary production cut of 1 million barrels per day into September.
Related content:
The UAE is forecast to encounter a 32 percent increase in sales of passenger electric vehicles this year as the government launches a national policy to support the sector’s growth. Sales are expected to reach almost 22,000, up from an estimated 16,442 in 2022. Longer-term calculations suggest the total number of EVs will exceed 370,000 […]
Foxconn EV venture targets India and Thailand
Foxconn’s venture attempting to build a standardised electric vehicle (EV) platform is targeting India or Thailand for the production of a small battery-powered car under development, the unit’s chief executive said. The Taiwanese company’s EV platform unit Mobility in Harmony (MIH) would be willing to work with its parent or another company to build the […]
Jamjoom Pharmaceuticals Factory Company has increased capital in its joint venture in Algeria to help finance the acquisition of a manufacturing facility. In a filing to the Saudi Stock Exchange, the company, which raised 336 million in an initial public offering in May, announced the additional funding in Jamjoom Algeria Lil Dawa, in which it […]
Japan factory output rises on strong demand
Japanese factory output improved in June for the first time in two months, government data showed on Monday, highlighting growing confidence among manufacturers buoyed by strong demand. Many countries, including Japan, are relying on domestic consumption to underpin growth while the risk of global recession persists. Factory output rose two percent in June from a […]
Petrochemicals company Borouge saw its net profit slide 53 percent year on year to 231 million in the second quarter, attributed to a decline in average sales for its products. The business said in a filing to Abu Dhabi Securities Exchange, where its shares are traded, that total revenues fell by 25 percent to […]
Share
It is no longer only visionaries like Tony Seba who are mapping the contours of an integrated emissions-free electricity and transportation system, with rooftop solar and other forms of renewables powering not only grids but also electric vehicles (EVs). Instead, this is becoming more and more the mainstream expectation of what the future will look like.
An important component of this vision is the potential synergies between EVs and solar. EVs have the ability to serve as a mobile fleet of batteries, and EV charging will supply additional flexible demand which could soak up a much higher degree of solar production than could otherwise be utilized.
The first part of this vision is already coming. EV sales are increasing and are falling in a virtuous cycle, and we may be approaching a tipping point where change happens much more rapidly. But while EVs are technically able to complement solar and wind, this will not happen automatically. Instead, like other aspects of the energy transition, it will take careful planning and supportive policies to develop the synergies between these two technologies. And if such work is not done, EVs could end up as a problem for the entire power system, and could even make renewable energy integration more difficult.
The coming EV boom
As was the case with solar 15 years ago, EV deployment is still in its infancy. According to Bloomberg New Energy Finance (BNEF) EVs represented slightly less than 2% of global automobile sales in the third quarter of 2017, and are a much smaller portion of overall vehicles on the road.
Certain geographies are much further ahead. As of Q3 2017, EVs had captured 40% of automobile sales in Norway and 20% in Iceland. EV sales also represent 4–10% of the automobile market in the cities of Los Angeles, San Francisco, and San Jose, California, as well as 6–8% in Shanghai and Beijing.
Given current growth rates, BNEF is forecasting that 40% of new car sales will be electric in 2030. And while BNEF’s predictions are much more optimistic than those of the International Energy Agency and the U.S. Department of Energy’s Energy Information Administration, they may still be conservative. It is notable that BNEF has changed its long-term forecasts for EVs several times in the past few years – each time predicting more EVs on the road sooner.
The dynamics of demand are relevant here. As has been the case with solar, falling costs and increasing competitiveness with fossil fuel technologies are driving a growing market. With the exception of nations like Norway that provide heavy subsidies, EV ticket are still typically much higher. However, because EVs typically have much lower fuel costs, are vastly simpler than internal combustion engines (ICEs), and require far less maintenance, sticker price does not tell the whole story.
A 2017 study by the University of Central Florida’s Electric Vehicle Transportation Center shows that even over a five year time frame the cost of owning an EV is already lower than a comparable ICE vehicle, and this differential gets greater the longer one owns the vehicle.
With EV continually falling year after year, the logic of market transformation is beginning to take place. At this point automakers are seeing that the future lies with EVs, not ICE, and an increasing number are setting timetables to shift entirely away from ICE in the future. This is further reinforced by France, the United Kingdom, and China preparing to ban ICE, as well as California Governor Jerry Brown’s goal to have 5 million EVs on the road in 2030.
All of this can lead to much faster market growth. And while these changes are usually incremental and driven by the aggregate of many personal decisions, fleets of vehicles can move more rapidly. This has been demonstrated in the city of Shenzhen, China, which recently switched its fleet of more than 16,000 busses from diesel to electric.
Technical dimensions
EVs are essentially mobile lithium-ion battery systems that also carry people and goods. As such, they can provide the same ancillary services as stationary battery storage systems. This includes grid support functions such as voltage regulation and frequency response, and the capacity of the EV batteries that is expected to be deployed over the next decade is far greater than the market for these services.
Stay informed
pv magazine is the leading trade media platform covering the global solar photovoltaics industry. Purchase a digital or print version of this issue to read this article in full.
Christian Roselund
Christian Roselund served as US editor at pv magazine from 2014 to 2019. Prior to this he covered global solar policy, markets and technology for Solar Server, and has written about renewable energy for CleanTechnica, German Energy Transition, Truthout, The Guardian (UK), and IEEE Spectrum.