21 Jul 2022
In the last few years, there have been disruptive changes in mobility. Congestion and public transportation challenges reached a tipping point in metropolises. Headwinds of stricter emission regulations and higher expenses triggered an alarm for original equipment manufacturers (OEMs). Change was inevitable. And it is here in transformation towards connected, autonomous, shared and electric (CASE) mobility.
The continued rise in investments in technologies is metamorphosing the automotive industry into a mobility ecosystem. A broader ecosystem is emerging followed by new partnerships formed by OEMs, tier-one and tier-two suppliers. Traditionally, OEMs have invested in core areas like production and engine development. To gain a strong position in CASE technologies, collaboration with other players in the automotive industry is the next step for OEMs.
Electrification has gained momentum in the last few years. It is driven by two trends, tightening regulations and rising customer awareness. In 2021, there was a 109% increase in Electric Vehicles (EVs) sold worldwide. Public chatter about environmental concerns has become more prominent, leading to a surge in global EV growth.
The road ahead is long as EVs are a fraction of the total light vehicle market with a penetration rate of 2.2%. Ramping up the EV sales is a big goal to meet carbon emission targets, not only for the automotive industry, but other industries as well. To power a large pool of vehicles, we would also need an enormous battery supply, charging infrastructure and raw materials. OEMs are scaling up their Battery Electric Vehicle (BEV) portfolios. Globally, manufacturers are making progress in developing EVS with more range and power.
The most valuable part of an electric car is the battery. Players across the value chain must scale up battery production, and ensure that the cell chemistry is correct and meets safety standards. OEMS are following different sourcing strategies in e-power-train components as the entire power-train value chain recalibrates. The breakeven is still distant in this competitive environment. There are many challenges to sustainably scale EVs.
OEMs make fewer profits on EV sales compared to Internal Combustion Engine (ICE) vehicles. However, from a product and business model perspective, many options can turn the industry towards profitability. These include redesigning EVs, reducing cost through decontenting, battery technology advancements, economies of scale, optimising range, exploring battery leasing, increasing partnerships for platform development and research.
OEM strategies to develop EVs are not integrated with the e-mobility ecosystem. For example, a shortage in battery cell production leads to long waiting periods for EVs. There is a need to synchronise the EV value chain.
An integrated approach with the industry and Government will enable planning investments in new mining production for raw materials. It would also push localised battery-cell production and help OEMs plan volumes. Renewable sources can also be leveraged to meet electricity demand avoiding strains on the grid. Unlocking the energy storage value pool, second-life EV batteries can also be paired.
In India, the EV market is driven by mass and low-cost mobility segments, mainly two and three-wheelers. The recent Government policies like differentiated tax policy and localised incentives to promote start-ups will further push electrification in these segments. Product innovations using longer-range lithium-ion batteries and new business models, such as battery swapping are the add-on tailwinds.
When it comes to the four-wheelers segment, the sales have not been remarkable. Lack of consumer-focused incentive schemes, limited models, price sensitivity and a lack of investment in charging infrastructure are some of the immediate challenges. Increased EV imports along with the Government policies can help the industry overcome these challenges. The Government plans to order ride-hailing companies to convert 40% of their fleets to electric by 2026.
The EV models that have been launched are majorly higher-priced premium vehicles. In price-sensitive markets like India, availability of small and affordable vehicles will be a critical adoption factor in the early-stage. Competitively priced with ICE vehicles, mass-market vehicles will also be significant for mobility services like ride-hailing drivers.
To understand the future of mobility, it is also important to recognise changing consumer attitudes, EV economics and regulatory initiatives. Consumer preferences are shifting as new models are being launched with better performance, features and value.
The price and driving range are the biggest consumer adoption challenges that are also linked to battery economics. Improvements in battery costs will reduce the payback period for EV consumers. Subsidies and tax exemptions minimize the gap between OEM prices and consumer price expectations.
Vehicle platform design has also evolved as OEMs have started to invest in native or purpose-built EV platforms. These platforms have lower material costs and better performance in terms of range, acceleration and interior space. However, they lead to higher fixed costs and investments. There is a dilemma of making pure EV platforms, as opposed to one that has both EV and ICE power trains.
In the long term, many solutions will arise for the industry. Achieving radical success in a relatively short time, the EV industry will continue its growth momentum. The future of mobility is charged with technology leaning into the electric, clean and smartway of life.
The article has been authored by Mr Sunjay J Kapur, Co-Chairman, CII Manufacturing Council & Chairman, Sona Comstar, and was first published in CII Northern Insights, May 2022.