Regulation, customer climatic consciousness and technology will drive the acceleration of electric mobility globally, but the way is not free of huge challenges. The pace of electrification will depend on factors such as the deployment of charging infrastructure, the workforce skilling and relocation, and the adaptation of manufacturers and their supply chains.
Three drivers will accelerate the transition from the current automotive industry (and, therefore, mobility) to its electric future: regulation, consumer behaviour and technology, according to a recent paper by the McKinsey Center for Future Mobility.
As part of the Fit for 55 climate package for meeting the new EU’s goal of a 55% reduction in greenhouse gases by 2030, the European Commission proposed that emissions from new cars should be 55% less than 2021 levels, compared to the 37.5% target set in 2018. In the meantime, the US president Joe Biden administration introduced a 50% electric vehicle (EV) target penetration by 2030. At a local level, over 150 cities in Europe have created access regulations for low emissions. For example, the climate change bill passed in Spain in May 2021 binds cities with a population over 50,000 people to set low emissions areas.
Consumer’s willingness to use more sustainable mobility modes is also increasing. Bicycle use, shared mobility, and ride-pooling rose at high rates in the last 18 months. Sales of EV (battery electric, plug-in hybrids, hybrid electric and fuel cell cars) almost two-folded last year in the UE, while petrol and diesel car registrations fell by 35,3%, according to the European Automobile Manufacturers’ Association (ACEA by its French acronym), which unites Europe’s 15 major car, truck, van, and bus makers. Despite the 97% increase, EV accounted for ‘only’ 22,4% car registrations last year.
Technology is also a reason for optimism about the future of electric mobility. According to McKinsey’s report, the industry has attracted more than $400 billion in investment over the last decade, with about $100 billion of that coming since the beginning of 2020 to September 2021. New technologies will help to reduce EV costs and prices (one of the main barriers EV are facing today).
Price gap between EV and conventional cars is already narrow in many countries, as the higher list price for EV is offset by the fact that the vast majority of vehicles (i.e., over 90% in the UK and 64% in Spain) are acquired using finance and the lower depreciation of EV. According to an analysis by Financial Times, the difference between the monthly leasing costs of most popular EV and petrol cars (around £50) is offset by the cheaper cost of charging it, rather than filling it with petrol over a four-year lease. Of course, it is difficult to predict how electricity and petrol prices will move in the future, but today the maths is clear. Tax incentives make the EV even more attractive from an economic perspective.
But the path towards electric mobility faces important challenges, such as the pace of deployment of the necessary infrastructure of charging points along the road networks; the need of adaptation of manufacturers (OEMs), and the huge changes and workers reskilling necessities that the shift from internal combustion cars to EV will force.
A recent report by ACEA, shows a serious lack of electric charging points in most EU member states. Ten of the 27 member states of the EU do not even have one charger for every 100 kilometre of key roads and 18 EU member have under 5 points per 100 kms.
To reach the targets of the Fit for 55 EU package, automakers “will have to bring millions of electrically-chargeable cars to the market over the next years”, says the ACEA report. “Consumers will not be able to make the switch to zero-emission vehicles if there are not enough charging and refuelling stations along the roads where they drive” cautions ACEA director general, Eric-Mark Huitema.
“Massive progress on infrastructure deployment will have to be made across the EU in a very short time”, states Huitema. “The advances made in a few Western European countries are encouraging but should not distract us from the dire state of the charging network in other EU members”. ACEA warns that the proposal for an Alternative Fuel Infrastructure Regulation, a component of the Fit for 55 package is out of sync with the European Commission’s ambitions for the CO2 targets.
The shift to EV will also force huge changes in the auto industry and will require workers reskilling across the sector.
European auto industry employment will drop by less than 1% by 2030, from 5.7 people today, according to a report by the Boston Consulting Group, “facilitated” by the Platform for Electromobility, a multi-stakeholder group membered by EV and batteries manufacturers, utilities, shared mobility platforms, and railway companies, among others. “But jobs at manufacturers and traditional suppliers focused on combustion engines will drop 20% and 42% respectively, shows the report. That means a cumulative loss of 500,000 jobs, which will be only partially offset by the expected rise by 300,000 positions at suppliers focused on zero-emission technology.
The Platform for Electromobility asks the EU governments and companies to focus on investing in “education, training, upskilling, and reskilling of workers to ensure that no one is left behind” in the transition to electric mobility.
This transition is putting “significant pressure” on OEMs and their supply chains, shows the abovementioned report by McKinsey. Some OEMs have announced their intentions to stop investing in new internal combustion engines (ICE) platforms and models and many of them have already set a date to end ICE cars manufacturing.
McKinsey believes that Europe will remain as the global leader in terms of EV market share. Seven OEM brands have committed to 100% EV sales by 2030 in the EU. In China, the, the largest EV market in absolute terms, the governments dual-credit policy has also led to an increase of EV in OEMs portfolios. In the United States, OEMs support electrification and have stated ICE bans by 2050.
Europe will have to build an estimated 24 new battery giga-factories to supply local passenger EV battery demand, according to McKinsey, and renewable electricity production needs to increase by 5% to meet EV demand. There are also decarbonization challenges for EV manufacturing, which have up to 80% higher emissions than ICE cars.
The electrification of mobility will also disrupt the automotive components industry. Critical components of EV such as batteries and for autonomous driving will account for more than the half of total components market size by 2030. Market for components only used for ICE vehicles, as conventional transmissions, engines, and fuel injection systems, will be about half the size of 2019 levels.
According to the Institute for Economic Research in Munich, quoted by McKinsey, more than 100,000 jobs will change in German automotive industry, roughly five to ten times the jobs impacted by the phaseout of coal power in the country.