'Game over' time for conventional vehicles approaches

23 February 2018 01:14 Source:ICIS Chemical Business

Just three years from now electric vehicle (EV) manufacturing costs will fall to reach parity with internal combustion engines while they will be cheaper by 2029 – the “game over” moment for conventional vehicles – according to a major new piece of research from analysts Bernstein.

The implications for the chemicals industry are huge as this tipping point – in 2021 – should see a rapid acceleration in EV sales and concurrent fall in demand for conventional vehicles. Electric vehicles require quite a different mix of chemicals and polymers compared to conventional so there may be some structural changes in end-use demand from this most important consumer of chemicals.

Bernstein analysts argue there are four hurdles to mass adoption of a disruptive innovation: immature technology, weak demand, response of existing manufacturers and bottlenecks to reaching scale. The first three hurdles have been overcome, they say, while potential bottlenecks are not insurmountable.

Advances in battery technology and manufacturing scale are bringing manufacturing costs down more rapidly than the market predicted.

As battery pack costs fall by more than 10%/year, the “$100/kWh panacea” of parity with conventional engines should be achievable by 2021.

Improved chemistry, higher voltages, cell design and scale are all helping to push costs down. In fact, by 2029, it will be “game over” for the internal combustion engine as EVs become cheaper to manufacture.

Costs are currently around $20,000 for a 500km range 60kWh battery which – when you add $2,000 for the motor and inverter – does not compare favourably with $5,000 for a gasoline engine.

But, say the analysts, the long-term economics look better for EVs than for conventional vehicles so mass adoption is likely.

Costs are declining, lithium-ion batteries are improving their energy density (energy/kg in weight), lifetime and efficiency.

Demand growth is accelerating even faster than Bernstein’s “rapid adoption” scenario, which it forecast in 2016. Consumer behaviour and government targets around the world to eliminate conventional vehicles are fuelling a steep rise in EV sales.

In China sales soared by a massive 79% to reach 605,000 in 2017, making it the world’s largest EV market. Volkswagen is targeting 400,000 EV sales there by 2020 whilst General Motors has a more modest 150,000 target. Tesla is planning to build a plant in the country to avoid high tariffs.

In Europe sales grew by 29% in 2017 to reach 288,000 units or 25% of global EV sales, while in North America there was a 27% increase to 213,000 or 18% of the global total.

This still represents just a tiny fraction of total light vehicle sales which, for example in the US, were 17.1m in 2017.

Vehicle manufacturers are finally accepting this disruptive technology, say the analysts. After years of resistance, in the last 12 months conventional manufacturers have started introducing EV strategies and production targets.

Raw materials such as nickel and cobalt could present short-term bottlenecks but new battery formulations to be introduced after 2020 will significantly reduce the amount of these products required. Longer-term they may be eliminated completely in new battery technologies. Charging infrastructure is not seen as a major obstacle.

CHEMICALS WINNERS AND LOSERS

For the chemical sector there will be winners and losers as EVs take over.

Electric motors operate at much lower temperatures than internal combustion engines. According to ICIS, demand for some high temperature-resistant polymers in the polyamide (nylon and nylon 6,6) sector may lose out from the switch to electric.

An earlier 2017 Berstein report also suggests that apart from the battery pack, considerably less plastics (160.6kg, -11%) and chemicals (26.5kg, -14%) will be required in the rest of the average electric vehicle.

By Will Beacham