Electric vehicles could hold half of automotive market share by 2030

16 March 2018 Consultancy.uk

As countries seek to meet Paris Agreement targets, electric vehicles offer major benefits, not merely on reduced emissions, but also reducing localised air pollution in high-density areas. New analysis shows that the EV market is set to pick up pace, hitting 50% market share by 2030, as battery technologies become cheaper, and an inflection point is reached around 2025.

Shifting the transportation industry towards sustainability remains a key part of the wider shift of the economy to meet global climate targets. The automotive industry remains a major source of pollution – emitting around 15% of total global emissions. The industry is also the cause of considerable impacts on human health, with air quality impacted by both major types of Internal Combusion Engine (ICE) emissions.

As bans on sales of new combustion engine vehicles in Germany, France and the UK, among others, are mooted, the move to vehicle types that have lower emissions is seemingly inevitable – with more stringent regulatory requirements on emission standards coupled with improved cost profiles for technologies likely to increase the shift. A new report from The Boston Consulting Group considers a variety of projections related to industry changes. The study assumes a base model of oil at $60 a barrel on average over the period to 2030, at battery prices of around $90 per kw/h by 2030 – as well as no subsidy offerings from governments.

CO2 targets

Rules around the energy efficiency of vehicles in major global jurisdictions is set to become increasingly stringent over the coming decades. The drive towards more efficient engines, whose output is also less damaging to human and animal health, is set to surpass the technical ability of manufactures to develop engines. This is particularly in the EU, where the wall, as it were, will be reached in around 2021 – with stiff fines for failure. The US too is set to tighten standards, with 97 g/km projected for 2025.

While ICE vehicles are facing drops in sales, electric vehicle technology, particularly battery cell costs per kw/h, are set to see continued decline. The rate of decline remains debated, however, various projections see the decline to around $100 per kw/h before around 2025, from between $150-180 in the current environment.

Cell costs per kw/h projection

The steady decline in cost, coupled with various incentives from governments, is likely to see consumers, as well as companies, increasingly shift focus towards EV types over the coming decade. The shift will increase pace between 2025-30, when the inflection point is reached – with consumer demand, rather than policy, further driving the change. In the EU, for instance, battery EVs are set to account for around 22% of total market sales by 2030, while all xEV types will represent more than 50% of vehicles sold.

The US too will see a substantial shift, with just under 50% of all new vehicles some type of EV by 2030. Although the total cost of ownership of BEVs in the US over a ten-year period is set to be substantially lower than ICE types within the 2020s. China is set to see rapid electrification of its fleet, with around 17% of the fleet projected to be BEV by 2030.

Sales volumes US and EU

Commenting on the changes, Xavier Mosquet, a BCG Senior Partner and lead author of the study, said, “OEMs and their suppliers should keep their eye on two broad trajectories. The rise in market share of electrified vehicles from about 3% today to 50% around 2030, and the increase in share for battery-powered vehicles from almost nothing to about 14% of the global market in 2030. There will be variations in the pace of change, depending on regulatory actions, consumer adoption of autonomous vehicles and car sharing, and the economics of different fuel sources. Companies will need to develop a suite of strategic and product options to manage a transition that is both inevitable in its destination and uncertain as to its route.”

Sensitivities

The firm notes that various factors could see a more rapid shift towards electrification – with various sensitivities to the firm’s base case adding considerable numbers on various sides of the equation. For instance, higher oil-prices, at $90 a barrel, will see ICE vehicles lose market share ((3.4%)) further to xEVs, while lower battery costs could see an additional drop to ICE ((1.5%)) while boosting BEV sales (2.2%). Government incentives have a considerable impact, improving BEV sales by 4.8%.

Sensitivities

Mosquet added, “The timing of the market’s transition to a new type of powertrain has long been the subject of debate. The prospects for electric vehicles are now clarifying, and the transition period from an ICE-dominated marketplace to a market in which electrified vehicles grow share and BEVs start to compete with hybrids and ICEs is about to commence.”

×

Private equity firms ramp up sustainability focus

19 April 2019 Consultancy.uk

In line with business leaders across the industrial gamut, private equity firms are increasingly on board with sustainability projects. According to a new study, the investment arms for major funds are implementing a number of strategies aimed at supporting sustainable economic development in line with global goals.

While the business world has finally begun to acknowledge the danger of climate change, effective action plans remain difficult to achieve. The Paris Agreement has stipulated a clear target for the decades leading up to 2100, although massively reducing emissions while not crashing the economy could be a tall order.

Businesses that are able to acquire capital can use it to boost productivity and output, thereby creating a virtuous cycle of development. However, some businesses are better able to utilise resources than others, both in terms of their relative productivity, as well as the value of the respective outcomes relative to costs (including environmental harms). Financing can therefore provide an avenue to select businesses that are aligned with various global sustainability goals, while shunning those that drive little or unsustainable social value creation.

Top moves made by investment arms towards responsible investment

Profit has for the longest time been the central criterion for investment decisions. Yet profit at any cost is increasingly seen as creating considerable social harms, while often delivering only marginal value. As a result, the private equity sector, which was initially sluggish to change its ways with regards to sustainability, has started to see the topic as an opportunity as much as a challenge.

A new study from PwC has explored how far sustainability goals have become part of the wider investment strategy for private equity (PE) firms. The report is based on analysis of a survey of 162 firms and includes responses from 145 general partners and 38 limited partners.

Maturing sustainability

Top-line results show that responsible investment has become an issue for 91% of respondents. For 81% of respondents, ESG (environmental, social, and corporate governance) was a board matter at least once a year, while 60% said that they already have implemented measures to address human rights issues. Two-thirds have identified and prioritised Sustainable Development goals that are relevant to their investment segments.

Change in concern and action on climate-related topics over time

While there is increasing concern around key issues, from human rights protections to environmental and biodiversity protection, the study finds there are mismatches between concern and action. For instance, concern among investment vehicles around climate change has increased since 2016.

In terms of risks to the PE firm itself, concern has increased from 46% of respondents in 2016 to 58% in the latest survey. However, the number who have taken action remains far below those concerned, at 9% in 2016 and 20% in 2019. Given the relatively broader scope of investment opportunities, portfolio companies face higher risks – and more concern – from PE professionals, at 83% in the latest survey. However, action is less than half of those concerned, at 31%.

Changing climate

In terms of the climate footprint of the portfolio companies, 77% of respondents state concern in the latest survey. 28% of respondents are taking action through the implementation of measures to mitigate their concerns.

Concern and action taken on ESG issues

In terms of the more pressing issues for emerging responsible investment or ESG issues, governance concern of portfolio companies comes in at number one (92% of respondents), while 60% have taken action on it. Firms have focused on improving awareness – setting up policies and a range of training modules for their professionals around responsible investment decision making. Cybersecurity takes the number two spot, with 89% concerned and 41% implementing strategies to mitigate risks.

Climate risks take the number three spot in terms of concern for portfolio companies (83%), but falls behind in terms of action (31%). Health and safety track records are a key concern at 80% of businesses, with 49% implementing action. Gender imbalance within PE firms themselves ranks at 78%, which is being dealt with by 31%. A recent survey from Oliver Wyman showed that there is gender balance at 13% of GP teams in developed countries.

Biodiversity is also an increasingly pertinent topic, with risks from pollution and chemical use increasingly driving wider systematic risks around environmental outcomes. It featured at number eight on the ranking of most likely global risks for the coming decade, with its impact at number six. As it stands, biodiversity is noted as an issue at 57% of firms, with 15% implementing action.