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Increased public transport electrification and social sustainability demands create a goal conflict in the green transition.
In brief
- The need for electric buses grows with the green transition, while the production of electric buses and batteries often involves risks of human rights violations.
- Stricter procurement requirements mean that bus companies may effectively be forced to exclude vehicles that are wholly or partially produced in higher-risk countries, where China currently dominates large parts of the value chain for electric buses and batteries.
- European production have a 30-40% higher cost, and are not estimated to meet the demand for electric buses until 2028
- Despite expansion, European production of LFP batteries, primarily used for electric buses, is estimated to meet only 3% of the demand by 2030.
As a part of the green transition, the bus fleets of the public transportation systems in Europe have initiated a gradual electrification which is expected to intensify in the years to come. At the same time, ambitions are rising regarding social responsibility in public procurements, and is further fueled by EU legislation such as CSDDD and regulation 2023/1542 concerning batteries and waste batteries.
As a frontrunner in electrification, Sweden has started to experience the conflicts between these two objectives as the current supply chain for electrical busses and their batteries rely heavily on non-European countries, some of which are considered higher-risk according to the Global Rights Index. Unless these human rights risks can be mitigated in procurement processes and controls and audits implemented in the supply chain, non-European buses may effectively be excluded from public transport. This would lead to a significant delay in the electrification.
This report aims to evaluate Europe’s ability to meet domestic demand of electrical busses and batteries. This is to evaluate, in a simplified scenario, the consequences that an import ban would entail for Europe in terms of supply and price levels for vehicles and batteries. The report was commissioned and developed in collaboration with the Swedish Bus and Coach Federation.
Europe/China
European electric buses are estimated to be 30-40% more expensive than Chinese ones.
The report's commissioners assess that control cannot be guaranteed according to the strict requirements seen in the procurements from some Public Transport Authorities today. To ensure that electric buses in Swedish public transport are produced without human rights violations, several regions have started to set requirements in their procurements. The requirements can vary, which in turn affects the bidders. The strictest requirements places considerable responsibility on bus companies and mean that vehicles produced in higher-risk countries cannot be used unless the bus companies can guarantee that the production is done correctly in all supply chains. Due to the high number of components and the complex value chain, it is currently very difficult to trace components through the supply chains. For requirements that demand full transparency in the value chain, the report's commissioners assess that they cannot ensure control to the extent that the Public Transport Authorities require.
In practice, bus companies may be forced to exclude vehicles that are wholly or partially produced in higher-risk countries. The consequence of the regions' requirements may therefore be that there are no vehicles on the market that meet the procurers' requirements since the buses are wholly or partially produced in higher-risk countries. Even by excluding vehicles with known production in a higher-risk country, the problem of ensuring the origin of batteries and components remains, due to the complex value chains.
The report evaluates Europe's ability to meet domestic demand. This is to simulate the consequences that an import ban would entail for Europe, regarding the availability and price levels of vehicles and batteries. The report analyzes the possibilities of meeting the European need through domestic production. Due to China's dominant position, the report particularly highlights the country's role in the value chain.
China accounts for the majority of world production. EY's analysis shows that China accounts for the majority of world production through large parts of the value chain with a particular focus on the production of electric buses, batteries, and battery components, but also for the processing of battery materials and the extraction of graphite. For electric buses and batteries, China accounted for 77% and 82% of global production in 2023, respectively.
European buses are 30-40% more expensive than Chinese ones, and the difference is expected to increase. Today, the demand for electric buses is greater than the production in Europe, but after 2027, the production of electric buses is expected to catch up. Meeting the need for buses for public transport from Europe comes at a cost. Electric buses from Europe have a cost that is 30% higher for regional buses and 40% higher for city buses compared to Chinese buses. This corresponds to 1.6 and 1.7 million SEK (€140.000-150.000) per bus, which would lead to an increased cost of 9.9 billion SEK (€860 million) if the 6,000 electric buses expected to be procured by 2035 were bought from Europe compared to China.
European production of LFP batteries does not meet demand, and dependence on China remains. The batteries mainly used for electric buses, LFP (Lithium iron phosphate), are expected to become more common in the future and account for 30-40% of the battery need in Europe by 2030, corresponding to 320-420 GWh. Despite expansion, European production of LFP is estimated to meet only 3% of the demand by 2030. Europe will therefore continue to be dependent on China, which today accounts for the majority of LFP battery production with 70% of the global market.
LFP batteries from Europe cost 20-30% more than Chinese ones. It is estimated that LFP batteries produced in Europe will cost 20-30% more compared to Chinese ones, which may increase further due to overproduction in China. For a medium-sized bus battery for a regional bus, this corresponds to between 100.000-150.000 SEK (€9.000-13.000) per battery.
The consequences depend on how the European countries act. How the majority of countries choose to handle risks in the value chain for electric buses and batteries plays a crucial role in the market effects. If only Sweden sets procurement requirements in such a way that production in higher-risk countries is effectively excluded, the consequences would likely be cost increases but a supply that can meet the need. If larger parts or all of Europe impose similar requirements, the supply of European buses and batteries will significantly fall short of the need and, in the foreseeable future, lead to long delivery times and ultimately a significant delay in the electrification of public transport.
A special thanks to our co-authors, Johannes Bedoire Fivel & Karin Malmgren
Summary
European production of electric buses is expected to meet demand within a few years, but at a 30-40% higher cost. The European production of suitable batteries, mainly LFP, is expected to continue to fall short of the European need until 2030 or longer. This creates a continued dependence on China, which today accounts for the majority of LFP battery production with 70% of the global market. The electrification of public transport thus risks becoming more expensive and delayed if procurement requirements are set that effectively exclude the manufacture of buses and batteries in higher-risk countries.