'Game Over' for Combustion Engine Vehicles by 2029 - Bernstein

The cost of manufacturing electric vehicles (EV) will reach parity with that of combustion engine vehicles by 2021 and, by the end of the next decade, EVs will actually be cheaper to produce – prompting a “game over” moment for conventional vehicles, according to analysts at Bernstein Research.

The implications for the chemicals industry would be major, as this tipping point in 2021 when the cost will reach parity with conventional vehicles should bring an acceleration in EV sales, concurrently causing a fall in demand for conventional vehicles.

EVs require quite a different mix of chemicals and polymers compared to conventional ones, so there may be some structural changes in end-use demand from this most important consumer of chemicals.

The analysts at Bernstein argued there are four hurdles to mass adoption of a disruptive innovation: immature technology, weak demand, response of existing manufacturers and bottlenecks to reaching scale.

The first three hurdles have been overcome, they added, while potential bottlenecks are not insurmountable.

Advances in battery technology and manufacturing scale are bringing manufacturing costs down more rapidly than the market predicted.

As battery pack costs fall by more than 10%/year, the “$100/kilowatt hour (kWh) panacea” of parity with conventional engines should be achievable by 2021.

Improved chemistry, higher voltages, cell design and scale are all helping to push costs down.

In fact, by 2029, it will be “game over” for the internal combustion engine as EVs become cheaper to manufacture.

Costs are currently around $20,000 for a 500km range 60kWh battery which, when adding $2,000 for the motor and inverter, does not compare favourably with $5,000 for a gasoline engine.

However, the long-term economics look better for EVs than for conventional vehicles so mass adoption is likely, the analysts added.

Costs are declining, lithium-ion batteries are improving their energy density (energy/kg in weight), lifetime and efficiency.

Demand growth is accelerating even faster than Bernstein’s “rapid adoption” scenario, which it forecast in 2016.

Consumer behaviour and government targets around the world to eliminate conventional vehicles are fuelling a steep rise in EV sales.

In China, sales soared by 79% to reach 605,000 in 2017, making it the world’s largest EV market.

Volkswagen is targeting 400,000 EV sales in the country by 2020 while General Motors has a more modest 150,000 target.

US EV major Tesla is planning to build a plant in China to avoid high tariffs.

In Europe, EV sales grew by 29% in 2017 to reach 288,000 units, or 25% of global EV sales, while in North America there was a 27% increase to 213,000 or 18% of the global total.

This still represents just a tiny fraction of total light vehicle sales which, for example in the US, were 17.1m in 2017.

Vehicle manufacturers are finally accepting this disruptive technology, said the analysts.

After years of resistance, in the last 12 months conventional manufacturers have started introducing EV strategies and production targets.

Raw materials such as nickel and cobalt could present short-term bottlenecks but new battery formulations to be introduced after 2020 will significantly reduce the amount of these products required.

Longer-term they may be eliminated completely in new battery technologies. Charging infrastructure is not seen as a major obstacle.

CHEMICALS WINNERS AND LOSERS
For the chemical sector there will be winners and losers as EVs take over.

Electric motors operate at much lower temperatures than internal combustion engines.

According to ICIS, demand for some high temperature-resistant polymers in the polyamide (nylon and nylon 6,6) sector may lose out from the switch to electric.

An earlier 2017 Bernstein report also suggested that, apart from the battery pack, considerably less plastics (160.6kg, or 11% less) and chemicals (26.5kg, minus 14%) will be required in the rest of the average electric vehicle.