Is it too early to go ‘EV-only’?

26 February 2021

Autovista Group Daily Brief editor Phil Curry explores timing and strategies for electrification.

Jaguar and Ford have stated they will sell only electrically-chargeable vehicles (EVs) in the coming years. Jaguar aims to concentrate on battery-electric vehicles (BEVs) by 2025, while Ford will go EV-only from 2026 and BEV-only from 2030.

All major brands have provided ‘roadmaps’ for electrification, with targets for how many sales will come from EVs, but they remain vague as to when they will end internal combustion engine (ICE) production. And this strategy may serve them well: while the buying public is coming around to the more climate-friendly technology, it is still very much in its infancy in terms of European market share. So, what is the best route for carmakers?

Reasons not go ‘all-in’ too soon

Carmakers need to rely on ICE models for income, especially as they work to improve battery technology. While in 2020, EU BEV sales increased 117.4%, according to figures from the European Automotive Manufacturers’ Association (ACEA), this only represents 538,772 vehicles. Petrol passenger car sales achieved a total of 4,713,778. ‘For many OEMs, internal combustion engines (ICE) will still be needed to fund the further development of electrified mobility,’ comments Sonja Nehls, managing director of Car to Market and consulting at Autovista Group. ‘This will benefit manufacturer groups. For example, in the case of Jaguar, they still have Land Rover.’

Like Volvo and Honda, Ford is becoming a single-marque manufacturer committing to the sale of electric-only vehicles. Jaguar is in the same situation as Bentley - able to rely on ICE sales across a larger manufacturing group to bring in money. Parent groups can finesse EV technology with one marque, while offering a broader powertrain portfolio across the rest of its fleet. ‘I guess we will see more and more brands within a group go EV-only, while other brands in the group still do ICE,’ adds Nehls. ‘Also, I can imagine that OEMs will switch to EV-only for small urban segments first..’

Without government subsidies and the political will to bring this technology over the finish lines, BEVs would be too expensive an option for consumers. High production costs, especially around the battery, mean carmakers need to charge more to insure a profit.

Market ready?

The automotive industry is currently more reactive than proactive. It is pushing forward with a technology that may still not have the best market conditions for wide-scale adoption.

’The boost in EV adoption is fuelled by a political agenda, rather than the disruptive power of the technology,’ adds Autovista Group chief economist Christof Engelskirchen. ‘Government-funded incentives are the driving force. This masks some of the challenges that will resurface post subsidies: list prices must come down, range go up and more charging infrastructure is needed.’

In February, industry lobby groups came together to challenge the EU Commission. They called for one million charging points across the continent by 2024, and three million by 2029. This number appears viable, considering that the numbers of EVs per charging point is increasing in Europe.This is a sign that infrastructure build-up is not fast enough to cope with the high demand for electrically-chargeable EVs.

Individual countries are also aiming to grow EV infrastructure, while carmakers and oil companies invest in their own networks.

Nevertheless, with the increase in electricity usage, are we facing other challenges?

‘The rising number of wall boxes for EVs is a challenge for European grids, and the risk of running into a blackout rises,’ notes Roland Strilka, director of valuations at Autovista Group. ‘There are discussions around limiting the loading capacity, so while a wall box could deliver 22kw, it will be limited to only delivering 5kw. That would be like driving to the next fuel station with the intention to fill up completely, but only getting five litres instead of 40 litres.’

Right technology?

The concept of ‘EV-only’ conjures up one of BEVs as the only option for every model. However, there are other technologies in development.

‘Not all of those who have announced, or are thinking about a deadline, mean the same regarding “EV-only”’, comments Andreas Geilenbruegge, head of valuations and insights, content at Schwake. ‘Is it just BEV, or also plug-in hybrid (PHEV)?  What about hydrogen? Is it just new launches and models, or halting the development of new engines?’

This leads to a question for all carmakers. Do we rebrand or sub-brand? While Ford turns itself into purely zero-carbon business, Volkswagen (VW) Group, for example, is experimenting across all its brands. The VW marque has launched ID. as a sub-brand for its BEV offerings, differentiating between its battery-powered and ICE models. The group also has plans to go EV-only with its small-volume brand Bentley, while Porsche is exploring e-fuels. These would allow ICE units to run with zero-carbon emissions.

There is inherent risk in focusing on one single technology when alternatives are in development. For example, Jaguar is trialling hydrogen fuel-cells on UK roads this year. The key is not to put all your eggs in one basket.

For Ford, the biggest carmaker so far to announce an EV-only strategy, there is a more significant risk. It could lose sales from those not ready to adopt BEV by its self-imposed 2030 deadline. Yet the target may help mitigate these potential losses. It is worth noting 2030 is the year the UK government will ban the sale of new ICE models in the country. The UK is Ford’s biggest market, so it would seem that the company is working towards this deadline. The risk remains in Europe, where there is no firm date for the blanket enforcement of BEV-only sales.

Timings

For some companies, is it already too late?

The EU Commission has introduced strict CO2 targets for carmakers to reach by 2025 and 2030. By announcing their plans now, Ford, Jaguar, Bentley, Honda and Volvo are preparing for these targets. They are also managing the expectations of their customers.

Carmakers not committed to EV-only could find themselves struggling with plans to reduce their CO2 levels. Any plans to introduce more BEVs to their fleets may, therefore, be rushed and the technology not up to the level of competitors.

There are lessons from other industries that have undergone transformation. ‘Just think about analogies like Kodak in the imaging business or Nokia in the smartphone industry,’ states Robert Madas, valuations insight manager. ‘If the Euro 7 industry standards being discussed are introduced, there will be a strong push to EV-only by regulation. Therefore, a clear EV-only strategy is relevant now.’

The automotive industry is being pushed by regulation and the need to offer greener transport. For OEMs to announce the end of ICE sales while the EV sector is still in its infancy is risky. From a marketing perspective, brands can push their climate-friendly image. Putting their strategy in place now also builds in time to prepare for any government-enforced changes. However, with alternative fuels, minimal infrastructure and aneconomies impacted by COVID-19, it may be too soon to predict what the future of mobility will look like.