Legislative changes are helping to set the pace of the switch to EV production. In particular, the Zero Emission Vehicle (ZEV) mandate requires that more than one in five cars manufactured in the UK in 2024 must be zero carbon emitting, and this proportion increases in the run-up to 2035. By default, these net-zero-carbon vehicles must be battery electric, as hydrogen fuel cell EVs and other powertrain technologies are not yet viable.
Despite the push to electrify production, there are significant risks attached. If carmakers and OEMs move too slowly, they could miss out on opportunities to secure a foothold in a growing market. If they move too quickly, a demand shortfall could catch them out and undermine their business model.
Many UK and European carmakers have already invested significantly in R&D activity and converting production lines. They are now looking for opportunities to share risk through collaboration. For example, where critical equipment, skills, components or raw materials are in short supply, or the flow of goods is likely to experience disruption, vertical integration can be an effective way of securing whatever’s needed. In some cases, rival brands are collaborating to realise mutual benefits and gain access to cutting edge technologies.
For example, Subaru and Toyota’s collaboration, which was established in the 2000s, has been described as a symbiotic partnership, with Subaru developing the all-wheel-drive-system for the two brands’ respective EV models, and Toyota producing the battery pack and electric powertrain. In other instances, vertical integration has been a driving force for OEMs to gain control and IP to help differentiate their EV offerings. Joint ventures and collaborations between western carmakers and Asian manufacturers of everything from semiconductors to inverter technology, e-motors and cathode active materials are becoming more commonplace.
The downside of so much supply chain integration is that price information is less visible and EV manufacturers may not be able to benchmark costs accurately. This is adding to the challenge of pricing new EV ranges. Many small and mid-range EVs have a higher price point than many consumers are prepared to pay, even though their running costs are likely to be significantly lower than an equivalent ICE vehicle. More consumer awareness of the total cost of ownership may encourage consumers to make the switch to EVs. With higher insurance costs for EVs and electricity prices remaining strong, the cost to consumers isn’t always clear. The recent launch of new V2G charging services for EV owners may help, as they can now benefit from even lower electricity costs in exchange for allowing their vehicles to be flexibly charged and discharged to meet energy grid needs.
EV makers in the UK and Europe can and will catch up with their Chinese counterparts, but more must be done to incentivise the switch for consumers and demonstrate the lifecycle costs associated with owning and running an EV. In addition, further collaboration will enable EV makers and their supply chains to spread the cost of pivoting to EV production while innovating solutions that could give their vehicles that all-important competitive edge.
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