The global car manufacturing and fuels convenience industry faces new strategic realities that combine powerful regulatory push and consumer-demand pull effects toward an energy shift, creating a perfect storm of change.
The popularity of electric vehicles is growing exponentially, and it’s not expected to slow anytime soon. The latest Bloomberg Electric Vehicle Outlook Report predicts that EV sales will shoot from a record 1.1 million worldwide in 2017 to 11 million in 2025 and 30 million in 2030.
European governments are queuing up to set out visions, backed by tough regulation, to eradicate the sale of new petroleum and diesel cars as early as 2025 in Norway and the Netherlands, starting in 2035 in the United Kingdom—five years earlier than previously targeted—and by 2040 in France. The U.K.’s plan, announced in February, also would ban hybrid vehicles.
As a consequence, European car manufacturers find themselves with little choice but to plan for an electric future. Within this wider context of mandated change, decisive regulatory policy measures at a national level in Norway have made the country an outlier within Europe.
Norway: EV Test Lab
Norway is now a global test lab for electric cars and for the new consumer behaviors the transition to electric creates. It has been clear for some time that for car producers, moving to EV is not just about regulatory pressure. In Norway, it’s increasingly apparent that consumers may in fact prefer electric vehicles once price parity has been achieved, which could contribute a considerable “pull” effect to the situation.
Recent years have certainly seen considerable growth in EV/hybrid market share. So far this year, 26% of all new car sales in Norway are fully electric vehicles, and if you add plug-in hybrids, the total is 45%.
Challenges do remain, however. One being that the European automotive and fuels convenience industries may need to be given more time to adapt, and there remain significant uncertainties and broader strategic questions for governments. Of particular concern: European carmakers may have waited too long versus their counterparts in China to make the switch. There are long waiting lists for new EVs in Norway, and many consumers are buying secondhand and importing cars.
At the heart of the debate is the CO2 emissions challenge. European carmakers are obliged to meet the European Commission’s mandatory regulation to reduce the CO2 emissions of their new cars to an average 95 grams CO2/pr km by 2020. If these targets aren’t met, carmakers face hundreds of millions of euros in potential fines for noncompliance.
According to a recent PA Consulting Group report, just four of the 11 big carmakers—Volvo, Jaguar Land Rover, Toyota, Renault, Nissan and Mitsubishi—are expected to meet their individual CO2 requirements. Fines in 2021 could range from €1.36 billion ($1.52 billion) for Volkswagen to €307 million for Ford and €126 million for Daimler. This could potentially put certain car producers out of business. It seems the only way to solve the new standard is to sell a lot of zero emission cars.
Norway has always taxed petroleum and diesel cars heavily. Import taxes currently equate to as much as 20% to 30% of a car’s value, and this has allowed the Norwegian government to create incentives for EV buyers simply by not levying the tax and by making electric vehicles VAT free. This is one of several measures that create the sense of two classes of drivers in the country: EV versus the rest. Drivers of conventional internal combustion engine (ICE) vehicles find themselves road-toll taxed for entering Oslo, leaving Oslo and soon even for being in Oslo. EV drivers find they can park for free in municipal spaces and drive in bus lanes.
One of the key questions requiring further exploration is what will consumers prefer once price parity has been reached? More research needs to be done, but early indications are that—at least at current levels of EV use in Norway—consumers prefer electric cars.
Peer pressure may also be a factor. Despite depending on oil for its wealth, Norway is an environmentally conscious and focused society. Thanks to considerable hydroelectric capacity, 100% of electricity produced in Norway is sustainable. This consciousness, together with widespread and genuine concerns about air pollution on cold, still winter days, means that peer group pressure allegedly makes it increasingly problematic to turn up in a diesel car.
Most automakers are planning for price parity between conventional diesel and electric cars this year and between petroleum and electric by 2027.
Cost Parity
Predictions seem to indicate that cost parity for electric vehicles over ICE cars is coming fast. According to PA Consulting, most automakers are planning for price parity between conventional diesel and electric cars this year and between petroleum and electric by 2027. If this is true, given the popularity of high-tech electric vehicles among customers who love the user and maintenance experience, rapid market growth outside of Norway may come sooner than anticipated.
China is certainly committed to making the most of this energy revolution. The world’s largest car market is fast-tracking vehicle electrification. One of the country’s most successful carmakers, Hangzhou-based Geely Automotive owns Volvo—and it is noteworthy that this trusted European-based brand expects EVs to make up half of its worldwide sales by the middle of the next decade, with the remaining models hybrids supplied by a new unit combining Volvo and Geely’s next-generation ICE and hybrid powertrains.
But are European carmakers ready for a mass market? After all, although EV ownership has grown rapidly in Norway, it could well have grown even faster if it were not for significant waiting lists for all types of electric vehicles (a painful reality). As Peugeot maker PSA Group’s Chief Executive Carlos Tavares has pointed out, Chinese buyers could step in with their own EV technology if European companies are crippled by fines.
Geopolitical Bumps in the Road
European governments may re-assess some of the geopolitical realities of their decisions going forward. Some appear to have signed up to a rapid shift to EVs without considering the impact, not only on the forecourt and oil industries, which have provided the basis of transport infrastructure for the past 100 years, but also on manufacturers. After all, the auto industry employs 12.6 million workers in Europe. Jaguar Land Rover’s recent move to a three-day week was in part a consequence of government mishandling of diesel regulation.
One other reflection might be whether government reconsiders the possible geopolitical implications of its decisions. Europe won’t want to lose high-value manufacturing jobs. And, just as the shift to oil caused a geographical shift of focus to resource-rich geographies like the Middle East, European governments also will consider the power politics of sources of supply for lithium and cobalt for lithium-ion battery production.
Congo is home to nearly half of the world’s cobalt reserves and produces 50% to 60% of the global supply of cobalt currently. China saw it early and made a massive $6 billion “minerals for infrastructure” deal in 2007 in the Congo. But investing in one of Africa’s most chaotic countries is a messy and frustrating business, no matter who you are.
It seems clear that some governments have considered the question more so than others. Hydrogen fuel cell technologies are being taken more seriously in markets like Japan and South Korea that have a history of concerns around access to rare raw materials. Hydrogen certainly still figures in the mosaic of fuels that leading suppliers plan to offer in the long term.
What is clear, however, is that certain countries are moving much faster than others. The Japanese government has made massive investments and is aiming to have 40,000 fuel cell cars on the road by 2020. South Korea also recently announced substantial government intervention, planning 18,000 hydrogen power vehicles soon. These decisions can probably only be understood in the context of wider geopolitical concerns.
This article was reprinted with permission by Insight Research and appeared in the Global C-Store Focus newsletter.