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瑞联银行新闻报道 12.05.2021

The end of ICE age?

The end of ICE age?

Option Finance (21.03.2021) - In the last six months there have been strategy roll-outs from three car makers which are very important for different reasons and jointly may signal an even brighter outlook for Battery Electric Vehicles (BEVs) than the current consensus, and possibly mark the beginning of the end for Internal Combustion Engine (ICE) vehicles.

The first of these came from Tesla during their “Battery Day” in September last year. Tesla targets a 56% reduction in battery cost per kWh, a 54% improvement in range, and a near 70% reduction in investment per GWh, to begin within the next 18 months and to be fully achieved in the next three years. The battery cost reduction will come mainly through improvements in existing processes, packaging and chemistry.

The company will add 100 GWh of capacity in a new factory in 2022 and a whopping 3,000 GWh by 2030 globally.

The second announcement came from Volkswagen (VW) on its “Power Day” in March, in a clear challenge to Tesla’s leadership in the BEV space.VW announced it plans to build six European battery factories totalling 240 GWh and reiterated its target of BEV sales reaching 60% of units sold in Europe and 50% globally by 2030.

Furthermore, it will continue to expand its cooperation with the battery maker Northvolt and invest € 400 million in charging infrastructure together with bp to extend and speed up the deployment of ultra-fast charging facilities across the UK, Germany and the rest of Europe.

While both announcements were very important in their ambition and scale to cut battery costs and increase BEV adoption, they were not really unexpected given Tesla’s leadership in BEVs and VW’s well-known aspirations to become a leader too. The real bombshell, and what may be the strongest indication that the path towards BEVs is irreversible, came from General Motors (GM): the ultimate all-American car maker with some of the most iconic brands in trucks, pick-ups and SUVs.

Up until the last weeks of the Trump Administration, GM was lobbying forcefully for revoking California’s waiver in setting its own more stringent carbon emission rules as well as laxer emission regulations at a Federal level. This is why it came as a total surprise when GM’s CEO recently outlined plans to transition the company’s entire portfolio of light vehicles to become 100% battery electric by 2035 and completely carbon-neutral by 2040. As far as we know, no other car company has yet set a 100% BEV target by a specific date. Furthermore, the company will keep investing in BrightDrop (which provides electric light commercial vehicles and innovative delivery solutions) and Hydrotec (a producer of hydrogen fuel cells for commercial trucks and other end-markets).

It will invest USD 27 billion in electric and autonomous vehicles through 2025 with a goal of selling 1 million BEVs in North America and China by 2025 and only BEVs globally by 2035. Committing to such a spend puts GM on an irreversible path towards full electrification, no matter what happens in the next US elections.

These announcements mean that the industry will spend tens of billions of dollars over the next few years to remove the last remaining obstacles on the way to full BEV adoption: cost, driving distance, charging infrastructure and charging time.

In fact, the expected cost reductions in existing battery technology will make the cost of BEVs equal to those of ICE vehicles in the next 3–4 years.

This does not even consider some of the more disruptive technologies like solid state batteries (SSB) which could increase driving distance to 1,200km at a single charge. SSB is being developed by new companies like QuantumScape and ProLogium as well as existing lithium ion cell makers such as Samsung SDI, SK Innovation and LG Chem. The Panasonic–Toyota alliance is reported to have a working prototype with a target to start limited production by 2025.

Forecasting the peak in anything is risky, as many premature peak oil forecasters can attest. However, when it comes to ICE vehicles, we may have seen the peak in sales in 2018. Since then total vehicle sales have declined, first due to a cyclical downturn in 2019 and then due to the impact of Covid-19 in 2020. Sales are rebounding strongly in 2021 but the strong increase in the market share of BEVs means that ICE vehicle sales may remain below their 2018 level and never exceed it again as they keep losing market share to BEVs with increasingly stringent emission regulations globally. This may mark the end of the ICE age. Combined with the decarbonisation of the grids that fuel the BEVs, this gets us one step closer to a green mobility future.

Through its environmental focus, impact investing is at the forefront of the clean mobility revolution and could guide investors towards attractive financial returns by selecting the companies that are more likely to be the winners over the long run.

Eli Koen
Portfolio Manager Emerging
Market Impact Equities 
View his Linkedin profile


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