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When does reinventing the wheel make perfect sense?
Electrification of road transport promises environmental and commercial gains.
In brief
- The environmental and commercial benefits of the electrification of transport are huge. So too are the financial upsides for the earliest and fastest movers.
- Fleet should electrify fastest given its disproportionate effect on the environment. Lessons learned will inform the transition in other vehicle segments.
- The US is taking inspiration from European experiences in electric mobility to shape its own agenda and reap the rewards of transition.
We are at the threshold of an evolution in road transport that will benefit the environment, business, finance and the way we live our lives, for a long time to come. Right now, road transport accounts for almost one-quarter of Europe’s total greenhouse gas (GHG) emissions. It is the main cause of pollution in cities and accounts for more than 400,000 premature deaths in Europe every year.
The European Commission hopes to redress some of the damage by putting at least 30 million zero-emission vehicles on Europe’s roads by 2030, along with three million charge points. It aims for 100 climate-neutral European cities and large-scale deployment of automated mobility. If it manages to drive down emissions from transport by 90% by 2050, it will be well on its way to carbon neutrality.
It is a similar story in the US, where road transport makes up 23% of total GHG emissions. Though the US is further behind in the electrification of transport, the new Biden Administration is showing its intent by announcing plans for a 50%–52% reduction in GHG emissions by 2030 against 2005 levels.
From the policymakers right down to the individuals who choose electric vehicles (EVs) over internal combustion engine (ICE) vehicles, there is enthusiasm for, and commitment to, the difference that electrification will make. While climate responsibilities rank highly, the economic drivers of switching from fossil fuels to electric have to be figured out in order to balance the books and deliver value from transition. And for that, the world has to tackle the hurdles, put in place enablers and make the switch to electric mobility as seamless as possible.
The world has to tackle the hurdles, put in place enablers and make the switch to electric mobility as seamless as possible.
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Chapter 1
EV uptake nears inflection point
Surge of support takes EVs beyond the point of no return.
Through 2020 and into 2021, we had a glimpse of what a clean transport future might look like. Fewer polluting vehicles on the roads, cleaner air and a healthier natural environment came courtesy of the national lockdowns that accompanied the COVID-19 pandemic. In some cities, nitrogen oxide levels from traffic fell by as much as 70%. The US reported a 10% year-on-year decline in emissions in 2020.
In Europe, as consumers were being won over to the concept of cleaner transport, new carbon dioxide (CO2) emission standards for automakers came into effect. They were accompanied by COVID-19 economic recovery packages focused on carbon-neutral and renewable energy solutions. Together, they gave EVs and the emerging eMobility ecosystem that goes with the transition to electric, a very decisive push.
In fact, in the first nine months of 2020, European EV sales outstripped those in China for the first time in at least five years. In the UK, in September 2020, EV sales eclipsed diesel sales for the first time, though only just. And, in 2020, a landmark 1.4 million vehicle sales (pdf) in Europe were either pure electric or hybrid models – accounting for 1 in every 10 passenger cars sold.
Admittedly, Europe is starting from a low base. Of the 308 million motor vehicles on the road today, just 3 million – including cars, buses and trucks – are electric (pdf). But, by 2030, according to EY analysis, the estimated number of EVs in Europe will top 40 million. The US, meanwhile, is building on the early European experiences in eMobility to shape its own transition. US EV sales grew just 3.7% in 2020 to 328,000 units (pdf), while the EV market share grew from 1.9% in 2019 to 2.3%. However, boosted by the Biden Administration’s announcement to electrify the entire federal fleet, there could be as many as 73 million EVs on US roads by 2035 (pdf).
The potential, therefore, is huge. EY analysts predict that the market for eMobility, which includes revenues from the burgeoning ancillary market in batteries, vehicles, charging infrastructure, etc., will be worth US$210b in Europe and US$72b in the US by 2030. In addition, the US can expect an estimated US$113b in environmental impact savings, and avoidance of US$72b in health-related costs, by 2050. Furthermore, between 2015 and 2040, around 1.4 million new jobs will be created in the US as a result of the transition.
EY analysts predict that the market for eMobility, which includes revenues from the burgeoning ancillary market in batteries, vehicles, charging infrastructure, etc., will be worth US$210b in Europe and US$72b in the US by 2030.
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Chapter 2
The need for speed in the electrification of transport
Can we go fast enough to stave off the irreversible effects of pollution from transport?
How soon we decarbonize will determine climate, health and environmental outcomes for decades to come. But are we going fast enough?
Europe is moving but needs to speed up. Figure 1 illustrates projected transport emissions for the 27 EU member states, plus the UK, to 2030. An 18% reduction, shown by the yellow line, is needed to bring emissions down to 1990 levels (equivalent to a 2% year-on-year reduction). This compares with the 4% year-on-year reduction (dashed line) expected by meeting the current post-2020 CO2 emission standards. However, a 64% reduction, or 10% year-on-year saving, shown by the black line, is actually needed to achieve Europe’s targeted 55% reduction, compared with 1990 levels.
Assuming that the US achieves its 50%–52% GHG emission reduction target in the transportation sector too, we estimate that a 5% year-on-year cut in US emissions from 2018 levels is needed by 2030, as illustrated in figure 2¹.
European regulators clamp down; the US can make ground
The US sold around 328,000 EVs in 2020, equivalent to 2.3% of its total vehicle sales, while European sales, at around 1.4 million EVs, represent 10.5%.
Paving the way in Europe are new CO2 emission standards. They are, according to many observers, the single biggest accelerant of the eMobility transition. These standards have forced automakers down a decarbonized pathway and will be the fundamental drivers of change.
Taking 2021 as a baseline, cars and commercial light-duty vehicles (LDVs) must emit 15% less CO2 from 2025. From 2030, cars must emit 37.5% less CO2, and LDVs 31% less. For every gram that each vehicle exceeds the emissions targets, a €95 (US$115) fine applies. However, there are still concerns that these measures might not be stringent enough to get 30 million zero-emission vehicles on Europe’s roads by 2030, so the European Commission will review the CO2 standards (pdf) for cars and LDVs by June 2021, and heavy-duty vehicles the year after.
The regulations are also designed to accelerate European EV sales. They stipulate that new EV car and LDV sales must make up 10% of automakers’ total sales in 2021, rising to 15% in 2025. From 2030, it becomes 35% for cars and 30% for LDVs. The reward is the relaxation of the emissions cap, but there is no penalty, erroneously we think, for noncompliance.
For automakers in Europe, the regulations mean a complete overhaul of powertrains, massive investment in research and development, and disruption to long-standing supply chains in order to deliver cleaner vehicles with lower lifetime emissions. As a result, they will bring more than 200 new electric and plug-in hybrid models to market this year, giving private and fleet customers greater choice and accelerating, in turn, the pace of electrification.
The US is making significant strides too. EY analysis finds that automakers plan to bring more than 171 new EV models, including light vehicles registered for personal use, to market by 2025. This is part of Biden’s US$2t infrastructure plan. US$174b will boost the markets for EVs and include tax credits and incentives, the rollout of charging infrastructure (500,000 units by 2030) and support for automakers to build home-grown EVs and batteries.
The US is, of course, looking at the strategies employed by its European counterparts as a means to accelerate its own EV adoption. It could, for instance, define a “North Star” objective to inspire manufacturers, businesses and consumers to embrace electric, along with a target date for achieving carbon neutrality. Similarly, emission standards, and penalties for automakers that do not comply, may have a place, along with stimulus packages, modeled on the European Green Deal strategy, to advance cheaper, cleaner and healthier forms of private and public transport.
National and local initiatives favor electric
Already, national initiatives across Europe are securing EV success, while inroads are being made by various US stakeholders pushing for electrification too. Lessons are transferrable across geographies.
We are seeing many governments, the UK included, planning to banish the sale of new diesel and petrol ICE vehicles by 2030. Norway, one of the most progressive economies for EVs, is aiming for a 2025 target date. Meanwhile, several US states have announced a ban on ICE vehicles – Washington from 2027, California and Massachusetts by 2035, New Jersey by 2040, and Colorado by 2050. The District of Columbia is banning private and government ICE fleets by 2040. And 11 US states have committed to deploy 3.3 million zero-emission vehicles by 2025.
France, which aims for a five-fold increase in EV sales by 2022 compared with 2017, operates an effective bonus-malus scheme, which may resonate internationally. The “bonus” is an environmental reward of up to €6,000 (US$7,000) for vehicles costing less than €45,000 (US$55,000) that emit less than 20 grams of CO2 per kilometer. The “malus” is a tax of up to €20,000 (US$24,000) on the biggest polluting vehicles at the point of registration, which funds the bonus pay-outs.
Almost 300 low-emission zones within European towns and cities now ban polluting vehicles. Aside from accelerating EV uptake among zone residents, logistics and last-mile delivery businesses could be forced to either switch to EVs or pay a penalty to reach their urban customers. There are, therefore, environmental, social and commercial consequences of the electrification of transport.
As well as taking cues from Europe on ways in which to accelerate EV rollout, the US will pay heed, undoubtedly, to vulnerabilities too. Among them is the risk of polarization across federal lines. Despite inducements to electrify, EV take-up is disjointed across Europe. Economies that offer the best incentives and have the wealthiest populations account for the biggest take-up of EVs. But poorer nations are being squeezed out, with contingent implications for air quality and health.
The split is evident. Slightly more than 75% of all EV charging stations (pdf) are located in Germany, France, the Netherlands and the UK, and more than three-quarters of all EVs are sold (pdf) in those same countries, plus Norway. In the US, 38% of all EV sales in 2020 were in California. Work needs to be done globally to harmonize EV adoption and reverse polarization in poorer economies.
Work needs to be done globally to harmonize EV adoption and reverse polarization in poorer economies.
Infrastructure lags behind EV rollout
Most EV drivers will charge at home or at the workplace. In Europe, that will be in the region of 80% (pdf). But they need confidence in their ability to travel further afield. And for that, they need a robust and reliable charging infrastructure.
The European Commission is calling for three million public charge points by 2030, a 13-fold increase within the next 10 years. That demands investment of around €20b (US$24b), based on an assumed uptake of between 33 million and 44 million EVs on Europe’s roads. An additional €25b (US$30b) is also needed to reinforce power distribution grids so that they can support charging infrastructure rollout, according to industry body Eurelectric. The US aims for 500,000 charging stations across its vast terrains by 2030, roughly a five-fold increase in the nation’s EV infrastructure. This target would be sufficient to cover only 57% of US charging requirements, yet it could spark the sale of 25 million electric cars and trucks.
Standing in the way of rollout is the perception that charging infrastructure is a high-risk and low-return investment. The business case, built around revenue enhancement and cost reduction, needs to improve if it is to attract mainstream investors to meet infrastructure deployment targets.
State aid funding is available in Europe. And, interestingly, the European Commission is waiving its position on technology neutrality where the benefits of charging infrastructure initiatives are proven to exceed potential distortion of competition. For instance, Romania won approval from European competition regulators in early 2020 for a €53m (US$64m) public support scheme for charging stations.
Also needed are new and innovative ways to raise private capital for infrastructure investment. The profit margins are often deemed too small, while the lack of unified charging standards adds uncertainty.
Certainly, common protocols for communications between the EV, the charger and the central management system are a top priority. And not just from an investment perspective. The current lack of interoperability means that the experience at the charging station is far removed from the ease of filling up at a petrol or diesel pump. And that puts off drivers.
Energy and transport sectors connect on eMobility
Acceleration in eMobility, and demand for slow- and fast-charging capabilities, will bring about greater cohesion between the power and transport sectors. Together, they will accommodate a surge in drivers charging their EVs at the end of the working day, without destabilizing the grid.
Distribution utilities will work alongside charge point operators to:
- Connect charging points to the grid
- Identify projected load from EVs and the need for charging infrastructure in service territories
- Consider load management and smart-charging strategies to optimize network investment and, potentially, reduce the need for grid reinforcement
- Identify the best locations for charging infrastructure, in cooperation with other players
Distribution utilities will provide guidance on charging infrastructure allocation at both existing and new-build developments to avoid costly retro-fitting and other capacity-related issues. And they will consider possibilities for future vehicle-to-grid (V2G) energy exchange to leverage flexibility and keep power flows in balance.
Once there are enough EVs on the roads, they will become part of a virtuous energy circle. Smart charging will shift power demand to times of the day when renewable supply is high and power prices low. V2G goes further. It pushes charged power back to the grid to balance variations in energy production and consumption. Essentially, it turns the EV into an independent renewable energy management system on wheels.
V2G pushes charged power back to the grid to balance variations in energy production and consumption. Essentially, it turns the EV into an independent renewable energy management system on wheels.
Coalition on charging
Recognizing that the charging conundrum is too big for single players to handle, companies on both sides of the Atlantic are pooling resources and ideas to deliver wide-scale charging solutions.
In the US, the West Coast Clean Transit Corridor initiative (pdf) brings together nine utilities to assess the possibility of installing electric charging facilities for freight and delivery trucks at 50-mile intervals. Now, the first Electric Island charging site, which is a partnership between Portland General Electric and Daimler Trucks North America, is up and running in Oregon.
The Electric Highway Coalition, meanwhile, will see eight utilities link up a network of DC fast chargers to serve the major highways from the Atlantic Coast, through the Midwest and South and into the Gulf and Central Plains regions. Similarly, the Midwestern coalition involves 10 utilities in a project to build an EV charging station network, covering 1,200 miles from Detroit to Colorado, by the end of 2022.
The power of cumulative innovation is further evidenced in Germany. The eCharge project, which will allow electric cars to charge as they drive, involves partners from multiple industries. It is led by Volkswagen, backed by Israeli wireless road charging company Electreon, transport infrastructure company Eurovia, and subsidiaries of the global VINCI construction group. The aim is to extend the range of EVs with an economical and functional solution for wireless road charging.
What the energy transition needs to make it go faster
Five enablers of eMobility
- Cohesive regulation: Engages every participant in the value chain in joined-up planning and investment. It aligns the vision for EV rollout and infrastructure with grid plans and enables the consistent application of financial and tax incentives across countries.
- Funding models: In the US, new funding models support grid reinforcement and grid connections, and are also available to fleet depots. Meanwhile, in Europe, new funding models must deliver €80b investment in public and private charging infrastructure by 2030 to accommodate 40 million EVs.
- Supply chain: Must meet battery and vehicle demand, including use-case-specific vehicles. It makes use of local battery manufacturing capabilities and enables end-of-life battery recycling. And it ensures skills and resources can transfer from ICE vehicles to EVs.
- Physical infrastructure: Ensures optimally sited public charging points (a mix of fast and slow chargers) aligned with EV take-up and grid capabilities to engage customer confidence. It also provides faster permissions and connection processes for charger installation, and standard interoperability protocols.
- Digital interface: Sits between the vehicle, charge point and grid to enable smart charging and grid optimization. It facilitates the open exchange of data from vehicle to charge point, along with simplified authentication protocols for seamless, fair and transparent payments.
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Chapter 3
Why fleet must electrify first
Fleet is the low-hanging fruit able to deliver the biggest and fastest environmental rewards.
Fleet will make the biggest and fastest contribution to the decarbonization of road transport. The fleet sector in Europe, though relatively small at 63 million vehicles (20% of Europe’s total vehicle parc), is disproportionately damaging to the environment (pdf). It accounts for more than 40% of total kilometers traveled and for half of total emissions from road transport.2 It makes, therefore, the biggest and most impactful electrification test case.
European CO2 emission standards are accelerating fleet conversion. They restrict non-EV sales and oblige fleets to switch to alternative vehicle types over time. That, coupled with low-emission zones, makes EVs the only viable option for some European businesses. In fact, EY analysts calculate that the number of fleet vehicles in Europe – both EVs and ICE – will grow by around 15% by 2030, to 73 million vehicles. And a 24-fold increase in total electrified fleet will bring actual numbers to 10.5 million by 2030, up from 420,000 fleet EVs today.
In the US, fleet represents a smaller part of the EV parc compared with Europe and, as a result, the environmental case for electrification might seem less compelling, but the lower total cost of ownership (TCO) of electric fleets is a big motivator. TCO takes into account capital costs, depreciation, fuel and electricity costs, and maintenance, and the TCO of EVs is fast reaching par with ICE vehicles. Incentives and grants bridge the upfront cost gap, while reduced servicing and maintenance, as well as significant fuel savings, make the economic case for fleet electrification. Over time, EVs will secure an economic advantage as illustrated in figure 3.
The US Federal Government, along with utilities, ride-hailing taxis and logistics companies, has taken a lead in transitioning its fleets to electric:
- President Biden has set out his stall on decarbonization of transport. He plans to spend US$174b to boost the production and sale of zero-emission buses and cars, including US$100m on consumer rebates. More than 2,790 EV transit fleet buses (pdf) are already deployed in the US, and Biden has vowed to replace 645,000 federal fleet vehicles with electric models that are made in the US.
- Among other utilities, Duke Energy vows to fully electrify its LDV fleet by 2030, reducing its carbon emissions by 60,000 tons and petrol usage by 10 million gallons.
- Uber pledges an all-electric fleet in the US by 2030 and globally by 2040. Lyft is aiming for 2030, focusing on high-mileage drivers who can realize the early benefits of electrification from reduced fuel and maintenance costs.
- FedEx is on course for the electrification of its parcel fleet by 2040; UPS has taken a minority stake in an EV maker and has ordered 10,000 custom LDVs.
On both sides of the Atlantic, fleet owners can leverage their bulk-buying capabilities with automakers to secure good deals on EV purchases and, given their typically high mileages, also secure operational cost savings on fuel.
Other deciding factors for the electrification of fleet first, irrespective of geography, are the regular routes and fairly consistent daily mileages that vehicles clock up. Fixed destinations and stopovers charging much easier for fleet vehicles.
In both Europe and the US, EY believes that company cars, last-mile delivery vehicles, pool cars and work-related light commercial vehicles will electrify fastest. Within the same time frame, around 2% of heavy goods vehicles, including refuse-collection trucks, will go electric in Europe3.
In time, the lessons learned from electrifying fleet first will cascade across the transport sector. Meanwhile, turnover in company cars, which are a major component of the fleet sector, will see a second-hand market develop, extending EV ownership to a new audience.
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Chapter 4
An emerging eMobility ecosystem
Electrification of transport opens up a new landscape of commercial opportunity.
As with other sectors in transition, a supporting ecosystem has begun to develop. It includes innovative customer solutions and value-added propositions to propel eMobility into mainstream adoption.
In 2021, an EY report, Accelerating fleet electrification in Europe (pdf), produced in collaboration with energy industry body Eurelectric, reveals businesses both within and at the fringes of Europe’s energy and transport sectors are finding commercial opportunity in electrification. Among them:
- An ambitious battery manufacturer is bringing low-carbon, lithium-ion battery production to Europe.
- Power system operators are pursuing value in the mass electrification of transport using smart-charging and vehicle-to-grid technologies.
No company can single-handedly provide every service that is needed to facilitate the transition to electric mobility. Energy providers are forming partnerships with charge point operators and leasing companies. Automakers are teaming up with utilities and setting up their own captive leasing businesses. And combinations of new and established players are looking to the future and working collaboratively to earn customers’ trust and enhance their overall experience of eMobility.
As a consequence, an eMobility ecosystem is emerging, with the fleet customer at the center.
Industry players that move the fastest will reap the biggest commercial rewards from increased sales, growth in market share and enhanced customer satisfaction.
Commercial opportunity exists in:
- Fleet management: A one-stop-shop or platform-provider model allows customers to purchase EVs, select a charge point operator, and pick an electricity supplier and tariff as a bundled package.
- Vehicle and battery management: As EV prices come down and reach TCO parity with ICE vehicles, and as lease vehicles rotate, a second-hand EV market will emerge that will require management of used batteries.
- End-of-life solutions: A market for repurposing used EV batteries, up to three or four times, will optimize costs and salvage scarce raw materials.
- Financing: Cumulative investment in public and private charging infrastructure in Europe is estimated to reach €80b by 2030. Several private players have committed substantial investment, but public-private partnerships continue to be an important route to market. Given uncertain EV residual values and the influx of new models, lease vehicle finance will remain in demand.
- Data and platforms: Ecosystem players will find ways to share data within secure architectures that maintain the trust of all stakeholders.
For now, the electrification journey has led us to a tipping point that is redefining the future direction of transport.
Looking ahead, the transition will not only deliver environmental, societal and health benefits from reduced emissions and improved air quality, but realize significant commercial value too. Only those that move fastest and take a customer experience-driven, future-back approach to tailoring their EV services will reap the biggest commercial rewards.
The upheaval that comes with reinventing the wheel and moving the world to a completely new transport state will be surely worth it.
Summary
There is massive momentum, at a country, city, business and individual level, behind the electrification of transport. Environmental benefits are, of course, the biggest prize. But there are also significant commercial rewards for the first and fastest movers in the ecosystem that underpins eMobility.
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