Carmakers Eye Partners as EV Race Speeds up

Battery strategy seen as critical to future success, with Chinese firms already positioned to expand.

A new wave of mergers may sweep the global car industry as firms seek to raise the huge sums needed for the transition to electric vehicles (EVs).

The 2021 marriage of France’s Peugeot with Fiat Chrysler to form Stellantis may be the first of many as manufacturers try to secure capital and supply chains in the transition to a carbon-free future.

That’s one of the conclusions of a new report from research group Signal Climate Analytics on the auto industry’s path to net zero.

“The transition from traditional car manufacture will cost a lot of money,” said co-author Carole Ferguson, a Partner and Research Director at Signal. “You could argue that the industry needs more mergers along the lines of Stellantis.”

A parallel development is the prospect of carmakers extending their reach into the mining and chemical industries that supply many of the elements needed for EV technology. This, said Ferguson, is partly a response to a shift in the balance of power between the manufacturers and their suppliers, with consolidation among the latter having given the latter increased bargaining strength.

Leaders and laggards

“Relatively few companies can supply batteries,” she said, “thus companies have to pay more attention to their suppliers than in the past. Who has secured their supply chain? Those who haven’t are going to see their ambitions held back.”

But she urged caution to those manufacturers tempted to go into the supply business on their own account, rather than through partnerships and strategic alliances: “Mining is a long-term industry and not straightforward.”

The report names leaders and laggards in the race to carbon-free road transport. It scores firms based on their exposure to risks associated with climate change, using 12 metrics grouped into three categories – transition risks, transition opportunities, and climate governance and strategy – drawn from the framework of the Task Force on Climate-related Financial Disclosures.

America’s Tesla and China’s BYD “have emerged as two clear leaders”, it notes, and three other Chinese companies – GAC Group, Changan Automobile and SAIC Motor “are emerging as potential disruptors”.

Three traditional carmakers, General Motors, Mercedes-Benz and BMW, lead the response of established multinationals, with all three “relatively well positioned in terms of battery supply chain resilience”.

But other traditional manufacturers have some ground to make up, none more so than Japanese firms which, according to the report, have failed to develop the technologies needed to deliver deep cuts in carbon emissions. This includes Toyota, which had the largest global market share at 12.4% in 2021, but is given the lowest ‘transition opportunities’ score of any of the 29 firms analysed.

Overall, the report finds a quickening in the pace of growth in the EV market. Between just 2020 and 2021, sales of electric cars doubled, to a record of 6.6 million vehicles, nearly 9% of sales worldwide. The most notable factor behind this growth, said Signal, is public policy support.

“A huge challenge”

Legislative incentives to adopt EVs have taken the form of both carrots and sticks. Subsidies totalled US$30 billion in 2021, double the level of the previous year. Meanwhile, a number of major jurisdictions intend to ban cars powered by internal combustion engine (ICE) by 2030 or 2035.

Supportive factors outside the political process include the falling cost of batteries, down about 90% during the last decade, as well as the wider, and longer, range of EV models on the market.

But there remains some way to go before net zero road transport is achieved. The report notes that light vehicles, which takes in cars and light trucks, accounted for 8% of global CO2 emissions last year.

In order to keep to the International Energy Agency (IEA) pathway for net zero emissions by 2050, light vehicle emissions will need to fall by 45% by 2030 “with a further 90% reduction required by 2050”.

China is leading the way on sales of EV, with more units sold in the country in 2021 (3.3 million) than in the whole world the previous year. The report credits China’s regulatory framework for the fact that local firms have managed to develop might lighter EVs – on average weighing 200kg less – than foreign manufacturers operating in the country. This domestic strength is equipping China’s leading manufacturers to break into key overseas markets, including Europe, posing a “huge challenge” to established US and European carmakers.

Ferguson said Chinese companies were well-placed to meet the demands of European consumers for affordable EVs if incumbents failed to make the necessary strategic investments and partnerships.

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