Electric vehicles: the revolution is finally here

Audi

After years of talk from carmakers, the industry is rapidly being transformed as companies stake their future on EVs

At the start of the year, executives at electric carmaker Polestar drew up ambitious sales plans for the UK. Within weeks, they had to tear them up.

Demand was rising so quickly that the new targets were a third higher. Today the Volvo-backed company runs around 1,000 test drives a month in the UK alone. Each week, new spaces are booked up within an hour of becoming available.

Until four years ago, Polestar specialised in tuning high performance combustion engines: now it has been transformed into one of the companies trying to tap the booming demand for battery cars. “This isn’t the niche market it was two or three years ago,” says Polestar’s UK boss Jonathan Goodman.

This extraordinary surge in demand is being felt right across the world, from Shanghai to Stuttgart, Tokyo to Toronto, and from new brands to the established giants of the industry.



It is particularly acute in Europe. One in 12 cars sold across the continent between April and June this year ran on batteries alone. If hybrid models that use both an engine and a battery are counted, this rises to one in three. Sales of electric cars in Europe have jumped from 198,000 in 2018 to an expected 1.17m this year.

Electric vehicles still only make up about 1 per cent of the global fleet of passenger cars, but sales are taking off rapidly. Within four years, one quarter of new cars bought in China and nearly 40 per cent of those purchased in Germany are expected to be electric, according to BloombergNEF. Global sales of EVs are forecast to reach 10.7m by 2025 and then 28.2m by 2030.

Until recently for many drivers, electric vehicles seemed a subject for the future: but now it is commonplace to imagine their next car being electric.

Every now and then, a slow-burning shift in the way the world works suddenly starts to gather pace at a rapid rate. That is what is happening with electric vehicles. In a relatively short space of time, the transformation in the auto industry has gone from first gear to fifth.

Given the importance of auto manufacturing to many economies, the shake-up that is starting to convulse the industry has enormous implications for jobs, urban development and even geopolitics.

The assembly line for the Volkswagen (VW) ID3 electric car of German carmaker Volkswagen, at the ‘Glassy Manufactory’ (Glaeserne Manufaktur) production site in Dresden, eastern Germany © Jens Schlueter/AFP via Getty Images

Andy Palmer, the former Nissan executive who helped launch the industry’s first mass produced electric car the Nissan Leaf in 2010, believes the shift is “like moving from the horse to the car”.

“It’s that seismic, it changes everything, and to such an extent that any players that don’t pivot fast enough, that don’t invest, are unlikely to survive into the future,” says Palmer, who is now CEO of electric bus company Switch Mobility.




Much of the attention on electric vehicles has focused on the striking success of Tesla or the aggressive ambitions of a group of Chinese companies. But the other important shift over the past year or two has been the response of the established automakers.

Many of the world’s biggest global brands, ranging from Ford with its F150 Lightning truck to VW and its ID range, are now staking their future on EVs. At September’s Munich Motor Show, the first major European exhibition in two years because of the pandemic, there were almost no new petrol models debuted.

The electric and connected car industry has attracted more than $100bn in investment since the beginning of 2020, according to McKinsey. That is just the beginning. Carmakers have announced a total of $330bn of investment into electric and battery technology over the next five years, according to calculations from consultancy AlixPartners, a sum that has risen 40 per cent over the past 12 months.

“Is this an inflection point?” asks Andrew Bergbaum, a managing director at AlixPartners. “I think the answer has to be yes.”

Several manufacturers have taken previously unthinkable action: preparing to phase out the internal combustion engine altogether.

Earlier this year the German company credited with inventing the motor car set out one of the industry’s most ambitious timetables. From the middle of this decade the systems used to build all Mercedes-Benz cars will switch over to producing electric models.

“We are on a very accelerated path compared to what we thought even a few years ago,” says Ola Källenius, chief executive of Mercedes owner Daimler.

source: Sentieo

Push for cleaner air

Why is this happening now? Part of the explanation lies in politics. While carmakers have talked for years about launching electric models, political pressure has spurred them to make the first real concerted effort to sell them in any significant numbers.

Emissions rules across Europe led to the first big wave of electric car sales last year. Some 734,000 battery models were sold across the continent in 2020 despite pandemic lockdowns, according to LMC Automotive, double 2019’s level and more than the previous three years combined.




The regulatory screws are tightening. In less than a month governments from across the world will congregate in Glasgow for the COP26 climate summit, many expected to be armed with eye-catching pledges to reduce their emissions. Ambitious plans to expand the use of electric vehicles are one of the most obvious ways to meet those targets.

Climate activist Greta Thunberg (C) at a gathering of climate activists outside the Milan Conference Centre last week © Miguel Medina/AFP via Getty Images

The UK has already announced plans to end the sale of petrol and diesel cars altogether by 2035, with Norway pursuing a more aggressive phaseout date of 2025. The EU is proposing its own 2035 de facto ban.

These commitments are expected to come alongside spending pledges to help drive, among other things, installation of the charging points needed to convince consumers to switch to electric en masse.

“Governments are putting their money where their mouth is,” says Källenius. “The biggest task where government and industry can work hand in hand is infrastructure investment.”

It isn’t only national governments that are squeezing down on emissions.

Several city authorities are pricing older cars off the roads with clean air zones, pushing motorists on the urban fringes to shift to cleaner vehicles, many of them turning to electric models.




London’s own “Ultra Low Emission Zone”, which penalises motorists with older cars, expands this month to include the area inside its circular ring-roads, an area that affects 2.6m cars. Paris, Brussels and Amsterdam are among cities with similar schemes, while restrictions on older diesel models are in place in scores of German city centres.

The NIO eve concept car displayed during the Shanghai Auto Show in April © Ng Han Guan/AP

Enticing models

The biggest reason for the EV revolution in the market is the supply of vehicles. The cars are now ready to appeal to all types of buyer.

Until recently, the lack of viable “product” was the main barrier to consumers jumping into an electric car. But automakers have been working flat-out to produce attractive battery models.

After years of hyping concept models at motor shows, carmakers now offer a suite of electric cars for customers to buy, from small city cars to larger family wagons, with dozens more planned in the next few years.

While many are still more expensive than petrol vehicles, they boast substantially lower running costs — even more so as global petrol prices rise — while most governments still offer generous purchase incentives.

There are around 330 pure electric or hybrid models that combine a battery and traditional engine on sale today, according to calculations from AlixPartners, compared with just 86 five years ago. That number will balloon further to more than 500 by 2025, amid a flurry of new releases.

source: LMC

When the pandemic hit last year, most carmakers reined in spending on all but the most essential projects. Combustion engine developments were halted, but spending on electric technology actually increased.




“Covid was actually one of the best helps the industry has had in years, because it forced them to be disciplined,” says Philippe Houchois, an automotive analyst at Jefferies.

Even for experienced executives, the speed of the uptake has been surprising. When former Renault chief Thierry Bolloré took the helm at Jaguar Land Rover last September, he began drawing up electrification plans that at the time barely existed. In the six months it took to finalise the strategy, the industry witnessed such an “acceleration” that the early goals were scrapped for more ambitious targets.

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“My team came back to me and said could we go faster,” Bolloré says.

Yet despite the excitement, there are pockets of prudence amid the largest carmakers. Moving too fast risks alienating current customers who are unable or unwilling to shift over, some warn.

“If you say that 50 per cent of the market in Europe will be pure electric in 2030, there is still the other 50 per cent, and if you say you will not serve [this 50 per cent] you are setting yourself on a course to shrink,” says BMW’s chief executive Oliver Zipse.

The German carmaker has vowed to release a battery model in every vehicle class by 2023, but has also placed huge stock in hybrid models that can drive for part of the journey on battery power, before engaging their traditional engines when outside of city limits.

And while sales of EVs are booming in both Europe and China, both markets still rely heavily on subsidies.

“We’re still bribing customers heavily to buy EVs in Europe, and the bribing is more moderate in China,” says Houchois.

‘We are on a very accelerated path compared to what we thought even a few years ago,’ says Ola Källenius, chief executive of Mercedes owner Daimler © Alex Kraus/Bloomberg

Pancake production

Such a rapid transformation is an invitation for disruption. Electric cars, which are simpler to design and manufacture than models based on the internal combustion engine, have lowered the barriers to entry into a once-impregnable industry.




The big question for the established carmakers is whether they can successfully carve out a future against the twin threats of start-ups — that range from Tesla to much more recent newcomers — and the large number of Chinese competitors which are desperate to grab market share.

Although Tesla has gone from strength to strength over the past two years, the recent signs for the carmakers have been positive.

For a start, they have made rapid technological advances. Early electric cars from the established stables had limited ranges, and poor charging speeds. The launch of the Tesla Model S in 2012, with a claimed range of 260 miles between charges, set the industry standard, and has only recently been matched by the latest releases from Jaguar and Audi.

FT

But the newer models from large players are much more competitive on pricing, range and performance.

“The reality is a modern day electric car is a bloody good car to drive,” says Polestar’s Goodman. “When [former Renault and Nissan boss] Carlos Ghosn said electric cars were the future 10 years ago he was wrong. But they are today.

” Early teething problems, such as heavy delays to the VW ID3 — its first dedicated electric car — because of software faults are likely to be ironed out in future models as carmakers become more used to producing the new systems.

“There is a joke in the industry that EVs are like pancakes; the first one is not good, the second is better and the third is right,” says Houchois.

An interior view of the new Mercedes-Benz All-Electric EQS Sedan. From the middle of this decade the systems used to build all Mercedes autos will switch over to producing electric models © Dimitrios Kambouris/Getty Images for Mercedes-Benz

Nevertheless, some carmakers feel they are entering this competition with one hand tied behind their backs. Pure-play electric companies have been able to raise money or float at enormous valuations, while established manufacturers trade at dismally depressed earnings multiples.

Just one example: China’s NIO, a start-up still deeply in the red, is valued at almost twice the value of Ferrari, the industry’s totemic profit-generator.




This year has seen a flurry of listings. Britain’s Arrival, a van group yet to build a single vehicle, floated at $13.6bn through a reverse merger, while untested US electric pick-up truckmaker Rivian is seeking a roughly $80bn valuation when it lists later this year.

But the old empire has begun to strike back. Polestar, the new electric brand spun out of Volvo, will be valued at $20bn when it floats through a reverse merger, showing there is hope for legacy auto groups to tap into market excitement by carving out new brands.

source: Europen Automobile

This presents an opportunity for businesses such as JLR, which plans to make the Jaguar brand fully electric by 2025.

Herbert Diess, chief executive of VW Group, says he is less concerned about new entrants, which still have to grapple with the complexities of mass manufacturing and keeping their newly won customers happy with functioning service centres.

“It’s easy to show a study of an electric car in a [motor] show, but to build up a plant most of them will be slower than us,” he says.

The first plant from Chinese start-up NIO was so beset by delays that the company filed IPO documents having shipped just 400 vehicles.

Even Tesla, which Diess has praised in the past, has taken 15 years to reach its current position occupying around 1 per cent of global car sales, he adds.

For the established carmakers, the largest threat might come not from start-ups, but from China.

While China’s homegrown players such as SAIC and First Auto Works failed to compete with international rivals in the engine era, the shift to electric vehicles provide a chance to dominate a field traditionally held by Germany, Japan and the US.

A plethora of electric businesses, well funded by local governments or major carmakers and often staffed by former European engineers, have entered the market.

Polestar 2

The first Chinese-made electric cars have already crept into European showrooms, from the SAIC-owned MG brand and new groups such as NIO and Aiways.




But before long these newcomers will have to compete with brands that are already familiar to customers as established carmakers roll out their new models. Last year, nine out of 10 cars leaving Volvo’s Reading dealership west of London were entirely petrol or diesel driven. Today, almost half have either hybrid or full electric technology.

“The planets are aligning,” says John O’Hanlon, boss of Waylands Automotive, which runs the Berkshire site. “What we’ve noticed in the last six months is the increasing awareness of customers. People are genuinely coming in and asking whether this can work for me. And many of them are driving away, thinking they could live with one.”

Down the road in the village of Little Chalfont, the VW dealership has been flooded with orders for ID3 cars by local motorists whose mileage is limited and who can charge their new models in their driveways.

“The uptake is huge, people have embraced it,” says Jonathan Smith, boss of dealergroup Citygate, which owns the site. “The pace is phenomenal, once there’s the infrastructure to support it there will be no stopping it.”

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