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The Electric Vehicle Revolution: The Race to Paris
By Chris Searle, October 2021
Electric vehicles are here to stay. There is no doubt about it. A perfect storm of price, performance and environmental standards is set to drive massive fleet shifts around the world.
As countries scrabble for ways to meet their Nationally Determined Contributions (NDCs), bans on the sale of Internal Combustion Engine Vehicles (ICEs) are becoming increasingly favoured. The figure above shows the stated or predicted dates for such bans across 21 leading economies, as modelled by the UNPRI IPR team. On top of this impending regulation, electric vehicle (EV) prices continue to fall, driven by battery technology improvements and economies of scale.
The first half of this article discusses some key points surrounding EV adoption before analysing two case studies which offer a blueprint for widespread uptake. The second half of the article accompanies our recent infographic and charts the progress of incumbent automakers on electric vehicles. We choose to keep our analysis simple, and the conclusions are fascinating. From a market perspective, a huge shift is coming. Despite this, from a climate perspective, it is coming too late. By their own predictions, three quarters of the studied companies will be falling short of the goals of the Paris Agreement.
According to the IEA, there were 6.8 million battery electric vehicles (BEVs) sold in 2020, with the largest share in China (3.5 million) and the EU (1.8 million). While the wider car market saw registrations drop 16% year-on-year in response to the Covid-19 pandemic, sales of electrified cars rose 70%. As will be seen, incumbent automakers are dipping their toes in the technology but are yet to materially commit. Tesla leads a charge of disruptive innovators aiming to take advantage of this inertia.
Electric upstarts like NIO and BYD see a future where a car is not just a mode of transport, but a supercomputer. Powertrain electrification brings all manner of possibilities for data gathering, feedback, personalisation, usability, and seamless updating. A recent article suggests that they are leading a ‘shift in how we conceptualise how a car should be built’. Their work has not gone unnoticed. Three of the top five car companies by market cap as of early 2021 are EV based innovators (Tesla, $766 Billion; BYD, 93 billion; and NIO, $90 billion). They have been designing and making cars for a combined total of 43 years.
There is much misleading information within the sector and the media storm that surrounds it. ‘Electric’ vehicles can mean either plug in hybrid (PHEV) or battery electric vehicles (BEV). PHEV vehicles can be a useful transitioning tool but play a very limited role in Paris aligned scenarios as their emissions reduction potential is entirely dependent on user behaviour, and they facilitate the existence of fossil fuel-based supply chains. Careless (or calculated) use of the terms electric or electrified can thus give false impressions of decarbonisation activity. In this report we focus solely on BEVs and any use of the term ‘EV’ refers to them.
There are valid questions over the scope 1 and 2 emissions produced from manufacturing EVs and their dependence on electricity sources for decarbonisation. Regarding the former critique, the complexity of the battery manufacturing process can mean that EVs have higher emissions during production than an equivalent ICE. However, Carbon Brief amongst others demonstrate that this so called ‘carbon debt’ is paid back after a brief period on the road (Carbon Brief estimate two years). After this time the cumulative lifecycle emissions of an ICE rise above an EV. Secondly, and all importantly, the decarbonisation potential of EVs is reliant on the electricity mix. This is an unavoidable fact, but the problem it creates is eminently surmountable; switching the grid to renewables is a core part of the same climate commitments that are driving EV uptake and is already a policy priority around the world. It is not certain when grids will be fully renewable based, but some estimates are as early as 2030. See our recent piece here for a deeper look at this trend.
Two instructive blueprints are available for the rollout of electric vehicles: the last-mile delivery light commercial vehicle market and Norway’s policy landscape.
Last-Mile Delivery
The last-mile delivery market was booming even before the pandemic hit, and it will be no surprise to many that the trend continued through the various lockdowns of 2020; the market rising from £31bn in 2018 to £39bn in 2020 by one estimate. BEVs are increasingly part of this mix, as becomes obvious with a cursory glance through the balance sheets of major online delivery players. In 2020, Amazon ordered one million BEV Light Commercial Vehicles (LCVs) from EV start-up Rivian. The year before UPS made a first order of ten thousand similar vehicles, and two thousand Tesla Semi trucks were pre-ordered by similar companies around the world. At iClima, we’re keeping a particular eye on the Workhorse group who are pioneering delivery drones alongside their cutting-edge electric delivery vans. There are two key reasons for the rapid electrification of this segment:
Increasing climate commitments – As part of national and international efforts to limit temperature rise to 1.5°C above pre-industrial levels, Amazon are aiming to reach Net-Zero emissions by 2040, FedEx want to achieve carbon neutral operations by 2040 and Japan Post claim net zero emissions by 2050. Embedded in these targets is the probability of increasingly stringent vehicle emissions regulations, as demonstrated in the world map above. The emissions reduction potential of electric vehicles is clear, particularly as the electricity mix becomes increasingly renewable. Indeed, research published in 2020 suggests that high EV penetration scenarios could reduce global CO2e emissions by over 3%. On top of emissions reductions, BEVs slash levels of air pollution, particularly potent carbon monoxide; an increasingly important task for governments around the world.
Cost efficiency – The main driver of this shift, and the reason that the last mile delivery segment is leading the charge on EVs, is hard economics. While EVs still have higher up front costs than their ICE counterparts in most global jurisdictions, their running costs can be as much as five times lower. Compared to passenger vehicles which can sit idle for 95% of their lifetime, LCVs spend a large proportion of their operating life on the road, meaning maintenance costs make up a higher proportion of their total operating costs (TOCs).
Other benefits of EVs include better safety features, feedback on routes and system health, and smoother operating. In this segment, all roads lead to the BEV, and with the projected growth in the market, it represents a great opportunity for progress towards Net Zero.
Norway offers a blueprint, with a caveat
According to figures from the Norwegian Road Federation, Norway last year became the first country to sell more BEVs than all other powertrains combined (54% market share). This is a hugely important moment. The switch has been driven by an assault of policy measures and thus provides a blueprint for governments around the world. Before going deeper, however, an important caveat must be noted. These policy measures weren’t cheap, and they were funded by one thing: oil. It has been estimated that for an EV to enable the avoidance of one tonne of CO2, it costs Norway the equivalent of 40 tonnes of CO2 in oil production. The switch therefore carries a certain irony, and legitimate questions can be asked of the government’s priorities while aiming for Net Zero. Nonetheless, it provides a perfect laboratory for what is needed to induce a transition away from ICEs, an achievement that the Norwegian government hopes to have reached as early as 2025. The main policy levers driving this transition are as follows:
• Tax Breaks – Norway has high levels of taxation. The combination of VAT and registration tax can amount to as much as the pre-tax price of the vehicle. Electric Vehicles, however, have been exempt from these taxes since 2001 and 1990 respectively. They have also been free from annual road tax since 1996 and have been able to gain reductions in company car tax since 2000. While other countries have focused on grants and subsidies to individuals, focusing on tax has worked for Norway.
• Charging Infrastructure – Charging infrastructure is a barrier to adoption in many jurisdictions. In 2017 the Norwegian government began to install fast charging units around the country, and there is now one every 50km along main roads. There are also substantial grants available to housing associations.
• Other Incentives – In most regions EVs have access to bus and taxi lanes. A 50% rule applies to parking and tolls, whereby EV drivers cannot be charged more than half of what ICE drivers can be charged.
This infographic represents our attempt to quantify and display the landscape of electric vehicle sales over the next twenty years amongst twelve major incumbent automakers. This helps us understand both the need and the space for disruptive innovators such as Tesla and NIO. Today, finding data is both easier and harder than ever, with the internet awash with reports, papers, and media speculation. Many of this is inconsistent and can be obscuring. This is a particular issue in the climate change space. We are particularly wary of ‘black box’ methodologies where reams of data are condensed into simple scores. We chose, therefore, to keep this simple. Whilst our research team is small and our modelling capacities finite, our commitment to the reader is transparency, a theme that we hope is evident throughout our work at iClima
Method
Having spent hours picking apart ESG ratings and grappling with Paris Alignment tools, we realised that their condensing of reams of data into overall scores can create more questions than answers. Additionally, we try to use tangible metrics of impact wherever possible, such as sales. We opted then to focus on four key data sets: the current breakdown of automaker fleets by powertrain, how this is predicted to change at key intervals, where in the world the automaker operates and how this is predicted to affect the above breakdown.
Before we go into the detail of each, we need to touch on company reported data. As a growing start-up we do not have the capability to collect or model independent asset level data, so we used solely company reports and media coverage to obtain our figures. This, as well as being particularly time consuming, carries inherent issues, with data vulnerable to various manipulations and optimistic extrapolations.
In this case, reconfiguring property, plant and equipment (PPE) to produce EVs requires much planning and early investment, and thus potential for things to go wrong. Cars must be redesigned to account for a different centre of gravity, workers and robots must be retrained (or reprogrammed) to deal with the different technologies, and engineers must acquire a completely different skillset. Manufacturers must try to build flexibility into their production lines to ensure that they can respond to changes in technology, demand or legislation. As capital is hurriedly sunk to keep pace with the market shift, poor planning could have severe consequences down the line. The complexity of the battery production process makes this even more likely; the ten stage procedure being likely to change as technology develops and raw material supplies shift. There is thus significant potential for companies to renege on their targets.
Once we had collected our data, however, it became clear that we didn’t need any complex methods of verifying company statements because, by their own predictions, most of the studied companies will be falling short of the goals of the Paris Agreement.
Assumptions
As ever, comprehensive and standardisable data is difficult to find, so a number of assumptions are made. We want these to be as transparent as possible. Company specific assumptions are covered within the company deep-dive.
• We assume the same sales breakdown by region over time – this helped model company progress where targets were subject to market forces.
• We assume the same market sales breakdown between companies over time.
• We assume that electrification will occur at a linear pace. This is of course an oversimplification. In reality, it is likely to be some form of S-curve, as technology advancements drive prices down and rates increase, before hard to abate markets and segments slow the rate of electrification down again. There are no accessible and transparent estimates available for this rate, so we have used linear where necessary. Companies affected by this are those who provide least data.
Results
Company projections were placed against BloombergNEF’s Net Zero scenario for EVs. This is the only part of our work where the metaphorical black box cannot be blown open, but it was necessary to have something to compare targets against. BloombergNEF produced an up-to-date report with perfect data points for our work and scenarios in line with those we have seen elsewhere. Even with our commitment to transparency, needs sometimes must. BloombergNEF project that for the sector to reach Net Zero by 2050, 60% of annual new vehicle sales must be battery electric vehicles (BEVs) by 2030, rising to 100% by 2035. This gives the economy the best chance of keeping global warming to 1.5°C in line with the goals of the Paris Agreement.
The Race to Paris - Charting the progress of incumbent automakers on their commitments toward 100% of new vehicle sales being electric.
Company Deep Dive
We found that 9 out of 12 companies were not on track to meet the quotas set by BloombergNEF. Below is a discussion of each company alongside some methodological comments to aid transparency. The ambition and frequency of targets is summarised above each discussion.
BMW (Total sales in 2020 = 2,325,200) – No date for all-electric
BMW are taking a similar approach to Mercedes below, offering ‘flexible’ powertrains which allow each model to be equipped as an ICE, PHEV, or BEV. They claim they will ensure that 50% of vehicles sold in 2030 will be BEVs. They don’t offer a number of BEVs sold in 2020, stating just that 7.9% of sales were ‘electrified’. Our simple extrapolation is therefore based on 0-50% from 2020-2030. Looking at their regional sales breakdown, this pathway seems consistent with the market forces created by looming ICE bans.
Ford (Total sales in 2020 = 4,187,000) – No date for all-electric
Ford provides no data on its current fleet breakdown. With 44% of its sales in the USA, many of them in the harder to electrify light truck segment, the company is perhaps under less pressure than some of its European counterparts. It does set targets for the future; 40% of the global fleet to be BEV by 2030, with its small European offering fully electric. Our extrapolation here is perhaps the most tenuous of this project. We assume they are at 0% now and use a rise to 40% of sales to calculate 60% by 2035 and 80% by 2040.
General Motors (Total sales in 2020 = 6,829,000) – All-electric in line with Paris
GM, based primarily in North America and Asia have taken an impressive stance on electrification, announcing at the start of 2021 that they would end ICE production by 2035. This places them in a similar bracket to Fiat and Renault; flattering given the latter companies’ European base and smaller sales volumes. Additionally, the company aims to be carbon neutral across its activities by 2040. GM will be a very interesting player to watch over the coming decade as a yardstick for what is possible.
Honda (Total sales in 2020 = 4,790,000) – Regular targets towards an all-electric date but reached too late
Honda do not publish sales breakdowns by powertrain, perhaps because their solitary model, the ‘e’, fell well short of sales targets in 2020. One source suggested that less than 1000 units were sold, and Honda has resorted to joining Tesla’s Net Zero credit pool to avoid strict EU emissions intensity regulations. The company are relying on an upturn in fortunes to meet predictions of 40% electric by 2030 and 80% electric by 2035. They claim they will be 100% electric by 2040 in ‘key markets. Their market breakdown as of 2020 is 41% Asia, 33% North America and 14% Japan, the latter two of which will have emissions bans in place by 2040. Given their projected rate of growth, 100% is possible and it is likely this caveat is covering themselves for small markets in Asia where demand for zero emissions vehicles remains low.
Hyundai (Total sales in 2020 = 3,744,737) – Irregular targets towards an all-electric date and reached too late
Hyundai have set a target of 30% BEVs by 2030, reaching an end to ICE sales in 2040. 2035 BEV levels are calculated based on a linear extrapolation between 2030 and 2040. There are of course limitations to this assumption, but possible variations are highly unlikely to tip the Korean giant onto a course suitable for supporting Net Zero by 2050.
Mercedes (Total sales in 2020 = 2,087,200) – No date for all-electric
Mercedes presents a very interesting case. Operating primarily in the luxury vehicle segment without the financial constraints of other companies, they have pledged that they will be ‘fully electric’ by 2025. What this in fact means is that all newly released vehicle architectures will be electric, and there will be electric alternatives to all ICE models, which will continue to be produced. This strategy allows them to claim that they will be 100% electric ‘where market conditions allow’ by 2030. Our analysis was therefore based on market conditions, for which we have used ICE bans as a proxy. This inevitably creates a conservative estimate which undervalues organic EV adoption.
Nissan (Total sales in 2020 = 4,052,000) – No date for all-electric and irregular targets
At first sight Nissan’s targets seem ambitious, and their qualitative assault on sustainable governance through their annual sustainability report is impressive. However, their target of 100% ‘electrified’ vehicles from 2030 in ‘key markets’ could really mean anything. At present, BEVs make up just 1.8% of their fleet. As a secondary target they aim for one million BEVs sold every year from 2024, which is, perhaps harshly, the figure we have used for the infographic. Their poor performance in 2040 is therefore a large extrapolation and should be used carefully.
Renault (Total sales in 2020 = 2,949,849) – All-electric in line with Paris but missing final target
Renault are leading this race. They have the highest proportion of BEV sales currently (3.9% in 2020) and aim for 90% by 2030. We feel that 100% by 2035 (well within a linear rate of extrapolation) is a reasonable prediction. The French giant is clearly helped by its large European sales base. It is unclear how their ambition fits within the wider Renault-Nissan-Mitsubishi Alliance framework, given the different progress of the other two players. Mitsubishi, not covered here due to their small sales base, do not offer data on current fleet breakdown, and their main commitments refer to PHEV rather than BEV technology.
Stellantis (Total sales in 2020 = 3,742,000) – No date for all-electric
Stellantis posed a problem for our commitment to a simple methodology, and we ended up discounting them from our infographic. Whilst clearly making progress - their total of 3.7% BEV in 2020 is high within the industry – too many of their constituent brands have unclear or no targets in place to make holistic judgements. Of their three biggest brands, only Fiat (1,135,000) offered sufficient data to be included in the infographic. The Italian company will be fully electric by 2030, thus leading our substantial studied portion of the market over the next decade. It is worth noting that Stellantis have the highest proportion of sales in South America, a market that will be particularly hard to electrify.
Suzuki (Total sales in 2020 = 2,447,971) – No date for all-electric
While Stellantis’ data is fragmented, Suzuki’s seems non-existent. Behind a mantra of ‘smaller, fewer, lighter, shorter, and neater’, the company half-heartedly tries to cover its lack of electric ambition. Ironically, their environmental report sums up their lagging position well: ‘While various regulations including those for exhaust gas and CO2/fuel consumption levels are becoming stricter, increase in burden of research expenses to comply with these regulations is a risk that may affect the performance of the company. On the other hand, small cars, which Suzuki excels in, require fewer materials and energy in production, and emit less CO2 while in use’. 50% of Suzuki’s 2020 sales were in India and less than 1% were in the Americas or Europe. Clearly there is no pressure on the company, making them a risk to the climate and to investors if and when regulations suddenly tighten.
Toyota (Total sales in 2020 = 8,692,168) – Irregular targets towards an all-electric date and reached too late
Toyota has produced the market leading hybrid car (the Prius), but has lagged on pure electric vehicles, selling only 3346 in 2020. In a bid to turn this around, it now aims to sell over a million EVs each year by 2030. This represents around 11.5% of sales (based on 2020 data), far short of BloombergNEF’s required 60%, particularly as total sales growth is accounted for. By 2040 it claims it will be fully electric; five years too late. This also represents a rapid development curve which it will be interesting to see if Toyota can meet.
Volkswagen (Total sales in 2020 = 9,156,000) – No date for all-electric
In 2020, 2.5% of vehicles sold were BEVs. The company has set a target of being 70% electric in Europe by 2030, and 50% electric in China and the USA. Based on the geographical breakdown of 2020, this accounts for 53.6% of total sales, just short of the required 60%. Using the same rate of growth, the company is forecast to be 79.15% electric by 2035 and 100% by 2040.
The ‘Race to Paris’ infographic clearly shows that change is coming. By 2040, three quarters of the studied companies will produce no ICE vehicles – a huge shift from the current situation. What it also shows, however, is that more ambition is needed if we are to keep warming to 1.5 in line with the Paris agreement, and that companies could be vulnerable to tightening regulation.
In total, our analysis covers 52 million of the 73 million vehicles sold in 2020. Having looked at various forecasts for sales in 2030, Deloitte’s estimate of 97 million seems most reliable. Using the assumption that all company sales accelerate at the same rate as the wider market, we have estimates for 70 of these 97 million units to be sold in 2030, or 72%. Now, Tesla has announced that it will sell a mammoth 20 million EV units on its own in 2030, so what will the remaining 77 million sales look like?
Taking the OEM’s predictions at face value, the twelve companies will together produce 29 million EVs, taking the total to 49 million before we even began to account for disruptors like Rivian, BYD and NIO. This is well beyond the predictions of much current research. Deloitte, for example, predict 31 million EVs, the IEA 25 million.
Two things are clear. First, there is not room in the market for all of these company forecasts; as with all periods of high innovation, some players are going to lose out. Second, large research firms are evidently sceptical of automaker commitments. As covered, there are a large number of variables at play and some of the targets require rapid shifts.
While Tesla’s forecast may seem optimistic - indeed they account for most of the IEA and Deloitte’s projected total sales – the momentum is with the Californian innovator and its compatriots who are free from the constraints of legacy supply chains. Incumbent automakers will have to act immediately to match them and avoid being left with large numbers of stranded ICE assets as forecast in a report by the 2DII. Even if Tesla doesn’t quite reach its 20 million sales target, the market will be squeezed such that there is serious potential for incumbent companies to lose, and lose big.
If companies are to survive this period of drastic transition, they must provide comprehensive early decarbonisation plans. In their absence, automobile companies present a risk to both the climate and to their shareholders as regulations tighten and disruptive technologies emerge. This is now a full-blown race, and it will not pay to lose.