Battery electric vehicles and climate change
And yet, with regulation forcing automotive manufacturers to look to a future where internal combustion engines are banned within the next 15 years ( ‘ Petrol and diesel car sales ban brought forward to 2035 ’ , 2020), and subsidies and tax exemptions reduce the gap between necessary profitable pricing and consumer willingness to pay, normal market forces are no longer relevant. Unless individual OEMs are willing to cannibalize their own internal combustion engine sales, and start to force a shift in their production lines and sales towards electric vehicles’ revenues at lower, or at least subsidized, margins, each risks being left behind relative to competitors by the time a tipping point shift in sales takes effect. Game theory is now forcing each manufacturer to develop battery electric vehicles that, without regulatory intervention, they might not have otherwise been incentivized to put research and development investment dollars behind. As a result, automotive manufacturer focus and investment in reducing production costs for BEVs is now starting to be pursued with some zeal. McKinsey identify possibilities for saving 70%of the current cost difference between electric vehicles and internal combustion counterparts, through the simplification of underlying components and assembly production processes that pure electric-only vehicle platforms offer, and through a reduction of battery costs by better tailoring battery capacities towards average vehicle miles travelled (VMT) patterns (Baik, Y. et al., 2019). Future profitability can also be increased by better explanation of the benefits of BEV economics to customers (thereby justifying premiumprices), and exploration of new business models, such as low cost direct sales to fleet customers (who have most to gain from electric vehicle economics), or battery leasing (reselling expensive BEV batteries for stationary storage purposes, post vehicle lifetime). With such opportunities available, many researchers claim that forward thinking OEMs will be able to achieve cost parity with internal combustion engine equivalents by 2025 (exhibit 3.2). Increasingly, however, such investment will only pay dividends if fixed development costs can be spread across increasingly large production runs. A path to profitability, coupled with regulatory intervention to support adoption, and an OEM-driven consumer education programme, provides a possibility for future market share gains, and the incentives for OEMs to begin to drive adoption of this new technology to enable climate change impact.
Rule 4: New technology must have a supportive ecosystem and infrastructure
Ensuring new technologies canmeet customer needs, and that manu facturers’ incentives can be driven in such a way as to encourage them to find a path to profitability in doing so, can regularly require solutions that go beyond the realm of just one set of industry players, and instead require alignment across a broader ecosystem. The story of BEVs take-up has depended on, and will depend on, at least two ecosystem considerations that go beyond automotive OEMs: first, the need for technological investment in battery development, to enable increases in power and capacity combined with reductions in cost and charge time; and second, and perhaps more challenging, the need for an established charging infrastructure to sit alongside current fuel retailing.
With the exception of Tesla, nearly all automotive OEMs depend on third-party battery cell suppliers, all based in South Korea, Japan or China (Eddy, Pfieffer, & van de Staaij, 2019), with more than half the
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