What does the post-subsidy China EV market look like?

What does the post-subsidy China EV market look like?

Nov 1, 2019

We recently wrote an article for the Benchmark Mineral Intelligence Magazine, outlining our thoughts EV market in China in light of the recent subsidy changes. The original article is here, https://www.benchmarkminerals.com/membership/what-does-the-post-subsidy-china-ev-market-look-like/. To discuss get in touch on info@rhomotion.com or +44 (0) 

China has dominated the electric vehicle market for the majority of the period that there has been a market to speak of, the rate of market development there outstrips any other region both in terms of penetration and volumes, and this trend has not abated in 2019. The first chart shows Battery Electric and Plug-in Hybrid Electric Vehicle (BEV & PHEV) penetration by regional market and the total volume of sales for the first 9 months of 2019, and highlights the extent of this dominance, with sales in China alone greater than the rest of the world combined.

Consequently the market in China is monitored closely as any loss of momentum in the market would have implications for the entire EV & battery supply chain, from raw materials to charging infrastructure. As such the recent reduction is the size and scope of the government subsidy which has undoubtedly had an impact on the market since its came into effect in July, was always going to generate headlines in a market that has hitherto only seen growth. In this article we provide our analysis of the medium and long-term impact of this change in the subsidy regime, drawing on research from our EV & Battery Quarterly Outlook, the Q4 2019 iteration of which is released at the end of October.

 What happened when the subsidy was reduced, and what has happened since?

Earlier this year the government announced an incremental phase-down and eventual elimination of EV subsidies in order to reduce market dependence on fiscal support. From July 2019, BEV’s with a range of 400 km or more had their subsidies halved from RMB50,000 to RMB25,000, BEV’s with a range less than 250 km will receive no subsidy.

The second chart shows passenger car and light duty vehicle (PC &LDV) BEV & PHEV sales in China on a monthly basis for the period 2017-2019 ytd. Tracking for 2019, it can be seen that there was a marked increase in June sales ahead of the subsidies removal. There was then a subsequent 50% month-on-month fall in the market in July, and a 16% rise in sales in August, but fell back again in September.

Probably the most interesting thing to note about the sales figures since the subsidy has been curtailed, is the fact that monthly sales in July, August and September were lower than their respective months in 2018. In a market that has known nothing but exponential growth for several years this is quite a turnaround, but is it part of an ongoing trend? And if the market can be moved by the lack of subsides, does it signal a shift in technological focus to fuel cell vehicles where subsidies are, for now, being preserved?

Our view is that this is unlikely on both counts. The first reason for this relates to short-term vehicle market dynamics. On a year-to-date basis for the 9 months to August, sales of BEV & PHEVs are up 26% on the same period in 2018, for PC & LDVs, so the relative slowdown since July should be viewed in the perspective of a very strong first half of the year. Further, there was clearly a strong pre-buy effect in June, which was always likely to hit sales in subsequent months. In addition, sales of all vehicles in China typically increase into the final quarter as well, as can be seen in the chart, so it is likely that the market will continue to recover as the year draws to a close.

The second reason why do not see this as part of major shift in the market is one of longer-term government and OEM strategy. In all markets EV adoption is essentially driven by the interaction between government intervention, in the form of either emissions legislation or subsidies and incentives, and OEMs response in terms of their model line-ups and choice of battery pack size and chemistry.

In the first instance, despite the reduction in the subsidy, the government continues to support EV adoption through more stringent emissions legislation and other incentives. At a national level on the legislation side, the introduction of China 6 (Euro 6 equivalent) legislation puts pressure on OEMs to resolve issues around an inefficient gasoline fleet in terms of fuel consumption and NOx emissions. These measures will only become more stringent over time, and pressure on OEMs to reduce fleet average emissions will become more intense, especially with the introduction of more rigorous WLTP test cycles.

In addition incentives remain in place, the Ministry of Finance announced that New Energy Vehicles (NEVs) purchased from 1 January 2018 to 31 December 2020 shall remain exempt from vehicle purchase tax. At a local level, significant restrictions on the purchase of new ICE vehicles in major cities such as Beijing and Shanghai, continue to push EV adoption.

The government has policy targets for OEMs as well. The NEV mandate specifies credit targets for two years, replacing subsidies with a credit-trading system, which among other targets, specifies that a carmaker must have bought or earned NEV credits equal to 10% of its ICE sales in 2019 and 12% in 2020.

All of which means that both local and international OEMs looking to operate in China will continue to develop zero emissions vehicles as part of their overall strategy in the coming years. As it stands, Chinese OEMs are well ahead of their peers in other markets in this regard, as illustrated in the third chart, which plots EV sales volumes and penetration by OEM for the first six months of 2019. Chinese OEMs as a whole are pushing ahead more quickly towards electrification than automakers anywhere else in the world, and this shows no sign of this slowing down.

 

 

Looking at some of the larger Chinese OEMs in turn. At BYD, BEV & PHEV sales already account for well over half of its vehicles sales for the first half of this year, and as a major battery manufacturer its strategic interest is a further push towards electrification over the coming years, across its all of its vehicle classes, including buses and coaches where it is by far the world’s leading manufacturer. BAIC is looking towards 100% EV penetration by 2025, when it will end production of ICEs, Chery is aiming to produce 200,000 vehicles per year by 2020, and Geely plans to electrify 90% of its range by 2020, targeting 30 electric and hybrid models. It is also looking to develop a fuel cell vehicle by 2025.

SAIC Motor, China’s largest carmaker and the local partner for Volkswagen and General Motors, has a strategy focussed on NEVs and intelligent connected cars as well as overseas expansion. SAIC Volkswagen is moving forward with new EV plant Shanghai, and is scheduled to start operation in October 2020, with an annual production capacity of 300,000 vehicles. SAIC announced it plans to install 50,000 public charging points with an investment of $3 billion by 2020.

So how will a change in the subsidy regime affect OEM strategy?

To deal with the issue of whether OEMs will now pivot towards fuel cell vehicles (FCV) owing to a continued subsidy structure for those vehicles, we make the following points. Firstly, the only reason the subsidy for FCV remains in place is because uptake, and therefore fiscal outlay, has been minimal, and it may still be removed shortly anyway. Second, it would seem imprudent for the OEMs and the government to move away from a lithium-ion battery and EV industry where they have a strategic advantage, and where significant investments have already been made, to one where neither of those things is true.

Given that subsidies have to date been range based, their removal is more likely to have an impact on both the type of vehicles coming onto the market and their battery chemistry. As there is no longer an overriding incentive to produce longer range vehicles to qualify for subsidies, we expect that there will be a move towards an increased proliferation of lower range urban focused vehicles, which will be targeted at a market where durability and cost are key, which suggests that an uptick in LFP market share in the battery mix is likely over the coming years.

As such, the curtailment of subsidies both this year, and into the future, is more a sign of EV market maturity and health over the longer-term, and a transition to an industry to one that will need to sustain itself through scale, efficiency and ongoing innovation, in this regard China is likely setting a template for other markets to follow.

 

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The Electric Vehicle market in 2019 and beyond

The Electric Vehicle market in 2019 and beyond

Aug 12, 2019

This month we wrote an article for the Benchmark Mineral Intelligence Magazine, outlining our thoughts on the EV market so far in 2019, and the opportunities and risks that lay ahead. The original article is here, https://www.benchmarkminerals.com/membership/ev-market-in-2019-and-beyond/. To discuss get in touch on info@rhomotion.com or +44 (0) 

Since the start of the year we’ve been on the road speaking at various events about the outlook for Electric Vehicle (EV) adoption, and what this means for the lithium-ion battery industry. We’ve also had the opportunity to listen to the thoughts of numerous industry participants along the entire EV supply chain, enabling us to draw a rounded perspective on the opportunities and challenges faced by the market.

In this article we will summarise our main thinking on the factors driving the EV market both at present and into the future, utilising the research from our EV and Battery Quarterly Outlook, the Q3 2019 iteration of which is published this month.

As an update of where we are now, in the year to June 2019 passenger car and light duty vehicle Battery Electric Vehicle (BEV) and Plug-in Hybrid Electric Vehicle (PHEV) sales were up 40% on the same period in 2018, at just over 1m units, with a little over half of the sales in China (see chart 1). In 2018, full year sales stood at roughly 2 million units, again half of which were in China.

One big unknown, however, is the impact of the reduction of Chinese subsidies on the market there when they hit in the second half of this year. Chinese sales for the year to June are up 60% on the same period in 2018, and while the reduction in the subsidy will undoubtedly impact on vehicle sales in the short-run, we expect that this will be mitigated somewhat by lower VAT rates.

It is important to note also that the EV market is heavily concentrated in a few key countries, with the top five markets for BEV & PHEV accounting for over 80% of total sales, suggesting that adoption still has a long way to go in most markets.

Looking forward it is reasonable to expect that subsidies will be reduced further as the market gains scale, and it becomes fiscally untenable for governments to support an ever increasing levels of sales. However we do expect that incentives will persist in the form of tax rebates, and as a corollary of penalties for owning and operating ICE vehicles. Emissions legislation, particularly at a local level, is set to tighten further in an effort to ameliorate the immediate impact on public health from NOx and particulate matter emissions. In addition, upcoming OEM fleet average COtargets in most major markets are not possible to meet without some form of electrification of  model offerings.

As such there are a number of other developments that will start to play a larger role in the market in the coming years. Foremost among these are the investments being made by major auto-manufacturers for the introduction or expansion of electrification in their model offerings. The world’s largest automaker, the Volkswagen group, has been leading the field in its efforts to move towards electrification. Its strategy is focussed on the development of BEVs with the release of its Modular Electric Drive Construction Kit, from which it plans to produce 50 pure BEV models, beginning with the ID-Neo in 2020. GM has also looked towards the BEV route, with its BEV3 platform from which it plans to launch 20 BEV models.

At present the global split of BEV versus PHEV stands 76% (see chart 2), and has been rising over time. Enthusiasm for a wholesale shift to BEV is not universally shared, however. Ford, for example, is planning 40 electrified vehicles by 2022, of which only 16 will be full BEV, while BMW has designed a vehicle platform to accommodate both BEV and PHEV. Honda has stated that while its entire model line up with be electrified by 2025, most of these will be hybrids. This hybridisation strategy is being pursued in order to mitigate issues around battery cell and raw material supply, as well as consumer acceptance and charging infrastructure roll out.

 

In our view the longer term strategy will remain a transition to BEV, and ultimately we expect that full-electrification will offer a lower cost option to the both the OEM and the consumer. This also in part because battery costs are likely to continue to come down on a per kWh basis, as cell manufacturing scale grows, and production efficiency improves. As a result, according to our estimates we expect purchase price parity by 2024/25 for new BEV models, although this calculation accounts for losses at OEMs while they build scale in production of these vehicles, with profitability coming later as volumes grow. Equivalent purchase prices for EVs compared to ICEs will be the major driver of EV adoption, and we expect that this will prove a critical turning point in the evolution of the market.

Significant risks for EV adoption remain however, and these principally relate to the battery supply chain itself. The availability of key raw materials, and the chemical processing capacity to convert them into useful products, is a key area of concern. There will need to be sustained capital investment in the upstream areas of the supply chain, in order that the much larger investments being made in battery and vehicle manufacturing are not hindered by a paucity of raw material. This could hold-up the development of commercial scale manufacturing of vehicles, as well as inhibiting the reductions in costs that will be needed to make EVs competitive in the vehicle market.

 

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The road to mass market, what will drive EV adoption?

The road to mass market, what will drive EV adoption? 

Jun 16, 2019

Our overview of the key factors that will drive EV adoption over the coming decade; with lower vehicle and battery costs crucial to adoption, and risks along the entire supply chain, to discuss get in touch on info@rhomotion.com or +44 (0) 

 

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How increasing energy density will push EV Adoption

How increasing energy density will push EV Adoption

1st April, 2019

This article was originally written by Rho Motion for the Fast Markets Battery Materials blog ahead of the Battery Raw Materials event in Shangai, April 2019.

News of the electric vehicle (EV) revolution is everywhere, with government targets being set to reduce the number of new internal combustion engine (ICE) vehicles on the road over the coming decades, and pledged investment in electrification by major automakers amounting to US$300Bn to date.

As it stands, however, only 2% of new vehicles sold in 2018 were Battery Electric Vehicles (BEV) or Plug-in Hybrid Electric Vehicles (PHEV). This amounts to just over 2 million units, with China accounting for half the market, see first chart.

 

What are the obstacles to mass EV adoption that need to be addressed?

The two main obstacles to mass adoption of EVs to date have been concerns over vehicle range and cost. The primary solution to both is increasing effective energy density in the vehicle battery. EV batteries are composed of individual battery cells, housed in a battery module, which are combined and managed in a battery pack, and all of these components play a role in achieving this aim.  

In the second chart we show weighted average battery pack sizes and vehicle ranges for BEVs. Due to the proliferation of smaller EVs in China average pack sizes globally are lower than those in Europe and the US. As can be seen, there is a clear relationship between pack size expressed in kWh and KM range, with a ratio of 5-7 Km per kWh depending on the battery chemistry and pack management.


Increasing energy density is crucial to extending vehicle range, and by extension the growth of the EV market. Auto and battery manufacturers cannot simply add more battery cell and modules to the battery pack, due to constraints on space, weight and cost, it is vital to get more from these components.

The second, and more important, issue is vehicle cost. At present the purchase price for BEVs is typically around a third more than an equivalent ICE vehicle, and the battery is significant part of that additional cost. It is our view that in the consumer driven passenger car segment, purchase costs are a more important factor than total cost of ownership – which accounts for running costs -, and will be the main determinant of the technology’s success over time.   

How do we move to a world with 30% EV sales penetration by 2030, as proposed by many government targets, and to 70% by 2040 as forecast by Rho Motion?

We assert that increasing the energy density of EVs batteries is the key to overcoming both the range and cost issues, and that this will come from improvements in both the battery cell, and from vehicle design and battery pack management.

Looking at battery cells first. Outside of North America, major OEMs and battery makers have in large part settled on the use of the Lithium-Nickel-Cobalt-Manganese (NCM) cathode formulation, owing to its high energy density relative to its cost. The current iteration of that formulation, NCM 622, has facilitated the development of larger pack sizes and has reduced battery costs significantly over its predecessors. The next generation, NCM 811, will see both further gains in energy density and lower costs, due to its increasing nickel content with its high specific energy, and the thrifting of relatively expensive cobalt, see third chart. NCM 811 is likely to be available for commercial adoption from 2022 given the current rate of progress in R&D, and this will be a major boost for the market.

There are also anode technology developments that are helping to increase energy density in the cell. At present these focus on the inclusion of silicon, which helps boost the energy density in the anode. At present anodes in commercial EV batteries are composed of a blend of synthetic and natural graphite, and increasingly feature an average of 4-6% of silicon additives. There are a number of firms at R&D stage working on a silicon dominant anode, which could boost energy density in the cell by 20%. This is an early stage technology however, and commercialisation is still several years away. Similarly, R&D work is ongoing for solid state batteries, which offer a theoretical improvement in energy density of 70% over current lithium-ion technology, and faster charging times. Again this is an early stage technology with commercialisation from 2030 onwards a realistic timeline. 

There are equally important developments underway in the vehicle which will improve battery performance and lower costs. Firstly, the increasing sophistication of battery pack management systems (BMS). The BMS governs the way in which the vehicle interacts with the cells and modules in the battery pack, including thermal management and charge and discharge rates, and can have a large impact on final vehicle performance.

 

The second is the development of pure EV platforms by automakers. To date there have been very few vehicles specifically designed for a fully electric powertrain, however major automakers are now making solid plans for the rollout of dedicated EV platforms. A key announcement by VW is indicative of this, it is developing its Modular Electric Drive Construction Kit (MEB), from which it is planning to develop 50 EV models on the same platform. This will offer greater homogeneity of battery pack and component configurations, and major cost savings a result. The first of these vehicles will be rolling off the production line from 2020.

Taken together, battery cell and battery pack management improvements, as well as the mass roll-out of dedicated EV platforms mean that we should see parity in cost and range in EVs relative to ICE vehicles by the mid-2020’s, with significant increases in adoption rates as a result. Then there will be further issues to consider, including the development of charging infrastructure, and the impact of all these EVs on the grid.

To receive similar articles on a regular basis sign up to our free EV Spotlight newsletter at https://rhomotion.com/get-started, or for more information please get in touch:

Email: info@rhomotion.com
Telephone: +44 (0) 203 286 8936
Twitter: https://twitter.com/rhomotion
Linkedin: https://www.linkedin.com/company/rhomotion/

 

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Presentation to the Association of Mining Analysts, London, 14th March 2019

Presentation to the Association of Mining Analysts’ Battery Masterclass, London, 14th March 2019

Mar 15, 2019

It was great to speak at the AMA Battery Masterclass in London, the session was attended by over 200 people, with excellent speakers from Talga Resources, Terraframe, Benchmark Mineral Intelligence and SRK Consultants, as well as Adam Panayi of Rho Motion. You can download our presentation here.

If you have any questions or comments please get in touch on info@rhomotion.com or +44 (0) 

 

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Anodes and the future of energy density

Anodes and the future of energy density

Mar 13, 2019

We recently had the pleasure of presenting to a working group at the German Association of the Automotive Industry, VDA, in Berlin. The topic under discussion was Trends in downstream anode and battery markets, and the impact of these on cell formulation, energy density and future battery technology.

This edition of our EV Spotlight provides a summary of the main points from the discussion, if you would like to discuss any of the issues in depth please get in touch. Additionally, if you would like to receive a free copy of our new EV Energy Density Monthly Assessment simply email info@rhomotion.com and we will send one out to you.

We consider there to be the three main issues in anode technology that are likely to affect battery cell cost and energy density. These are the role of natural versus synthetic graphite, for which we are grateful for the input of Simon Moores at Benchmark Mineral Intelligence, the role of silicon and the development of solid state technology.

The key development for anodes in the short term is the level and rate of substitution of synthetic graphite for natural graphite. To date the level of substitution has been relatively slow compared to expectations. Most anodes now contain a blend of synthetic and natural material, at a ratio of roughly 65%-35%, but we assert that the rate of substitution is likely to grow as the quality of processed natural flake graphite increases and the market expands.  

Natural flake graphite is relatively cheaper and less energy intensive to produce than synthetic material, and, with a few exceptions, this energy is largely derived from coal. This poses both economic and corporate social responsibility costs, especially for a green technology such as EVs.  There is also limited new synthetic capacity being added, while there will be a marked increase in availability of natural flake graphite owing to a number of greenfield and brownfield capacity investment projects.

In the medium term, the role of silicon is a key issue for anode technology. R&D is ongoing for a silicon dominant anode which would theoretically provide a 20% increase in energy density over a conventional graphite anode. At present blending already takes place, and it is not uncommon for anodes to be composed of around 4-6% silicon, with swelling of the material the main stumbling block to the inclusion of more silicon. There are a number of companies in R&D stage with the silicon dominant anode, with commercialisation posited for 2023, which at this stage still seems relatively optimistic.    

The long term outlook for anodes takes in solid state, probably the highest profile issue in the space. Solid state technology introduces a lithium metal anode and a solid – likely polymer – electrolyte. Theoretically this could lead to a 70% increase in energy density combined with higher voltage and faster charging. The technology is early stage however, and lithium metal is a limiting factor in terms of its cost, availability and its reactivity. The reality is that when solid state arrives it will have to compete against a mature Li-ion battery technology, with a developed supply chain and significantly lower costs and higher energy density than we see today.  

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