Madhumita Gogoi, India (PPRE 2012-2014) is presenting her personal reflection on the industry scenario of Electric Vehicle (EV) based on her comprehension from the available resources. 

Motivation

My impetus for the said observations has originated after having exposed and exploited concepts of Economics for Managers at Waikato Management School, New Zealand (2017-2018). A subsequent voyage of wisdom to strengthen business and management knowhow after completing an insightful PPRE (MSc.) journey.

Five forces model

Companies are looking for a competitive advantage in this period of globalisation. In 1980, Michael E. Porter introduced a Five Forces framework to analyse any industry as illustrated in figure 1 (CISA & CFE, 2012). These five competitive forces will determine the competition and the required strategies to improve the existing scenario of the said industry. 

Current and future potential of EV

EVs are captivating the attention of policymakers and vehicle manufacturers to achieve a climate-proof global economy. To achieve a 1.5^oC pathway for mitigating climate changes by 2050, the roadmaps are (IRENA, 2022):

• Sales of 147 million/year for both battery and plug-in hybrid EVs compared to 7 million/year in recent years
• Investment in charging infrastructure - 131 USD billion/year
• 18 billion EVs compared to about 10 million EVs in 2021 (IRENA, 2021a)

The global major policies and campaigns of EVs (IEA , 2021a) are:

• Electric Vehicle Initiative (EVI)
• EV30@30 Campaign
• GEF-7 Global Programme
• Drive to Zero Campaign in adopting EV among pledged members and signatory countries

Primary dynamics affecting demand

Coffman, Bernstein and Wee (2015) stated that incentives by the government, supporting infrastructure, consumer characteristics and other factors are affecting EV adoption. On the other hand, awareness of the environment, government schemes and social influence through market integration will assist positively in inclination of people to buy EV (Jian & Wei, 2019). Based on the available references, following are major factors.

1. Urbanisation

7 out of 10 people will live in cities by 2050 and 6 billion will live in urban cities by 2045 (The World Bank, 2020).  

• Urban cities will play a crucial role in combating climate change
• Healthy investment options are vital
• Government promoting planned cities may take advantage of EV and fight air pollution
• Sustainable growth in urban areas possible with clean transportation system along with basic needs, jobs and affordable housing

Thus, the EV industry plays a crucial role in the clean transportation system with increasing urbanisation trends in the future.

2. Individual responsiveness to environment

Study of Egbue and Long (2012) reveals that EV has the positive potential to minimise the hazardous impact of climate change. An individual belief about the current/future causes and trends of environment situations encourages the purchase of environment friendly products favouring demand.

The World Bank estimated that the global greenhouse from the transport sector would (The World Bank, 2022)

• Have 60% increase in 2050, if protection measures are not taken
• Domestic and international transport makes 20% of the said emission

3. Purchasing Price

Consumers will prefer to buy conventional vehicles if there is a limited budget. It will lead to lowering of EV sales with the challenge of high price as per Lévay et al. (2017).

In contrast Bibra et al. (2021) specified that,

• The consumer’s spending is on a higher sider compared to the government
• The said trend grew between 2015 and 2020
• The average price of EV rose by 6% between 2019 and 2020 and a 50% increase in EV purchase although the price is on a higher side in Europe compared to Asia
•  The average global price was around USD 40 000 (battery EV) and around USD 50 000 (PHEV)

Still the purchasing price remains a hurdle notwithstanding low maintenance and fuel cost savings.

4. Availability of infrastructure

Growing charging stations will only meet the growing demand of EVs on the road [Virta Global (2022)]

• Major charging happens at home or at work
• Many European countries are adopting faster charging methods
• Germany, UK, Spain and France  are still relying on slow chargers
• The vehicle to grid technology will grow over USD 5 billion between 2020 and 2024
• 1.3 million public EV chargers in Europe by 2025

Bibra et al. (2021) indicated that

• Many countries/regions are lacking charging infrastructure and can impact the sales of EVs (mostly USA and UK)
• Members of EV100 reported that the top barrier of adoption is absence of infrastructure
• Between 2015 and 2020, China has the highest battery demand in automobiles followed by Europe, USA and others
• The battery demand also exceeds the production capacity in Europe in 2020. New battery plants planned at different locations
• The average cost of batteries has declined by 13% (USD 137/ kwh) (IEA, 2021). 

In [Adepetu et al. (2016) and Mersky et al.(2016)], the authors stress on the fact that the availability of good charging stations positively influences the purchasing power of consumers to adopt EV, thereby affecting the demand side.

5. Monetary incentives from government

CNBCTV18 (2022) states that

• Norway, France, Germany, UK, USA, India, China, and Japan are providing high incentives for adoption of EVs
• Norway reduced VAT by 25% on purchase and compensations for converting conventional vans to zero emission type
• Romania offers a bonus of €10,000 and Finland €2,000 for buying a new electric car
• An ecological and conversion bonus upto €19,000 is given in France
• Germany government and the local manufacturers deliver incentive upto €9,000 (purchase value of EV < €40,000)
• Road tax is exempted in the UK. Grants upto 35% of the cost of EV (maximum capping £3,000) and 20 % for EV bike (maximum capping £1,500). Federal tax credits for EV buyers - upto $7,000 (The scheme will expire after the car manufacturer reaches the sale of 200,000 nos.)
• India offers subsidies between Rs 10,000-15,000 per kwh of battery capacity  in cars and two wheelers
• Japan doubled its subsidies by the end of 2020 to increase EV sales. Further rise to 800,000 yen ($7,000)  in 2022

However, Germany is aiming to gradually stop aid by 2025 for plug-in hybrid electric vehicles. Car manufacturers believe that ending subsidies may risk the increasing level of electro mobility.   [Federal Ministry for Economic Affairs and Climate Action, (2022)]

Incentives from the government act as a catalyst to influence the decision of customers to buy EV and ramp up the EV industry.

Primary dynamics affecting supply

Raw materials and land are prerequisites for the EV industry. Government promotion policies and initiatives act as factors on both the demand and supply side. Major aspects are:

Land for investment in technology and supply of materials

To accelerate the sales of EVs, it is vital to invest in charging infrastructure from normal to high charging methods, which requires land.

• However, it is a challenge in high-density populated cities in India where land is a big constraint
• There is the high cost of urban land and the unwillingness to offer land for the installation of EV charging stations by the contractors who are owning public parking spaces, including the government-owned land in municipal parking, metro areas, and other public areas
• Also, while exploiting the mineral reserves used for EVs and other purposes, it make changes in the land coverage area, quality of land and ecological habitats (The Role of Critical Minerals in Clean Energy Transitions, 2021)
• Gielen (2021) argued that multiple sites are untapped in countries due to environmental regulations and geo-political concerns

Hence, land may risk the installation of charging infrastructure and supply of critical materials.

Major raw material

The report of The Role of Critical Minerals in Clean Energy Transitions (2021) declared that

• Electric motors and batteries consume the most of the minerals
• EV uses six times more minerals than conventional vehicles.

According to Gielen (2021),

• Each EV car will require 250 kg of battery materials
• Demand for battery material will increase 7 times in 2030 from 2020. 1/5^th of the battery weight comes from lithium, nickel and copper
• The go-getting target to use EV is accompanied with challenges of the availability of the needed metals and minerals for increasing the supply and its future access
• Critical material is not widely distributed
• The critical materials used in EVs and battery storage are copper, cobalt, nickel lithium, and rare earth materials. The behaviour of supply varies with the types of materials

Copper:

• Compared to an internal combustion engine, EVS will double or quadruple the use of copper
• 4-8 Mt of copper will be used for 100 million cars
• Battery pack uses 40kg of copper and the remaining is used in motor cabling/wiring
• There is a demand of 4Mt of copper by 2030 for lithium batteries
• Copper mining occurs in the mountains of Andes, Rocky and African Copper Belt. Chile corresponds to a quarter of world production followed by China
• EVs are expected to become about two to three times more copper intensive than combustion cars: at least 44 kg with new expected battery technologies and 22 kg with current internal combustion powertrains

Nickel: 

• By 2025, new mining regions will be from Australia and Indonesia. China and Indonesia are responsible for half of its global production. Indonesia is the global leader
• A quarter to a fifth of the global demand of nickel will be used for lithium ion batteries in EV by 2025

Lithium:

• Demand will increase for nickel (3-5 times from 2019) in the range 1.3-2.0 million tonnes by 2030 due to increasing demand for EVs
• Argentina, Bolivia, and Chile produce nearly half of brine based lithium. Remaining lithium centred on spodumene ore are from Australia, Canada, China and the United States, which are growing but unclear how far the expansion will continue
• Germany has identified this resource in Saxony and the Valley of Upper Rhine

Cobalt:

• For lithium ion batteries, 62% of all cobalt was consumed in 2020
• Demand is expected to grow faster than nickel and copper
•  60% of the world production of global cobalt comes from the Democratic Republic of the Congo
• Chinese company BYD is mainly developing Lithium Iron Phosphate batteries that use less material. 

Rare earth material:

• Neodymium is the second most abundant rare earth material used for permanent magnets in the electric motor of EVs
• There may be challenges in the short and mid-term of supply of this material
• China is the main mining region. India, Sri Lanka, USA, Brazil and Australia have neodymium mining as well. Around 3 kg of magnet is required in EV
• 50kt rare earth elements will be needed to meet the annual production of permanent magnets of 150kt
• The supply of dysprosium is inhibited in future as it constitutes only 1% of the available rare earth material. It is required to operate at high temperatures for the neodymium magnet for EVs
• There is a constricted supply to meet the forecasted demand by 2030, wherein 40% of total demand of material is rare earth material uses
• 25% of global production of NdFeB production will be used by EV industry especially in passenger and commercial vehicles including two-wheelers by 2030 (30Kt-125 kt)
• Major car manufacturers such as Renault, Tesla, Nissan, Toyota and Volkswagen are trying to reduce the use of rare earth materials
• China dominates in the rare earth material supply (90%) and it is a concern for Australia, Japan and other countries in Europe

Overall it is seen that

• Lithium mining has to be expanded rapidly to meet the demand for batteries
• The growth of new mines requires time
• Supply scarcity might occur in the future as demand increases
• Imbalance in material supply to meet the demand which depends on the specific intentions       of suppliers
• Price fluctuations in the cost of extraction/production/refining of materials and geo-political          tensions could affect its mining and production field. Hence, it will disturb the supply chain    and future cost targets of EV industry
•  It will delay the energy transition process and become less affordable (The Role of Critical             Minerals in Clean Energy Transitions, 2021)

Policy/ regulation advantage

• To limit the rise of global temperature to 1.5^oC, carbon emission needs to decrease by 43% by 2030 (Lewis, 2022, para. 2). As per the IPCC Working Group III Sixth Assessment Report, EVs, solar and wind can avert the disastrous impact of climate change

As per IEA (2021b),

• EVI, a multi government policy (2010) under the Clean Energy Ministerial (CEM), is committing for adoption of EV globally
• EV30@30 launched in 2017 aims to increase share EV sales to 30% by 2030. 14 countries including 30 companies and organisations have approved it
• Drive to Zero campaign on 2020 counts on 100 partners to develop policies, projects and actions for deployment of zero emission vehicles
• The Global Environment Facility (GEF) funded the GEF-7 Global Electric Mobility Programme (2021) aim to implement EV projects in 27 countries (low and middle income) over a five year period
• 70 subnational and governments in cities have opted for 100% zero emission in transport by complete phase out of conventional vehicles
• Multiple European countries are applying incentives to the stakeholders of the EV industry
• The European Commission has targeted 100% emission reduction goals for 2035- 55% (cars) and 50 % (vans) with battery and fuel cell EVs
• Canada has targeted in 2021 for zero emission (light vehicles and passenger trucks) by 2035 and 100% sales by 2040
• The United States has aimed to increase the share of EV sold (50% for new passenger cars and light trucks) by 2030
• The incentives for two wheelers are an added advantage for India. The Faster Adoption and Manufacturing of Electric Vehicles in India Phase II (FAME Phase II) is extended upto 2024

The ambitious policy targets help to accelerate the development of the EV industry. This will facilitate a proper environment to increase the number of EV manufacturers in the world (especially two wheelers, lightweight passenger EV and passenger trucks).

Study with Five Forces Framework

Rivalry
With the increasing trend by 2050 for electric vehicle users and the ambitious targets of governments from varied countries, the EV industry may get competitive with

• Opportunity for new players entering the market with innovative technologies, better efficiency and competitive prices
• The government incentives, tax benefits and others as mentioned earlier may increase the demand of EV, unless its price skyrockets
• Price will increase due to high cost of raw materials for major components coupled with less mining activities as an outcome of stricter environmental regulations, public protest and geo-political border context
• The growing competition may lead to high exit barriers and may compel existing industries to invest in innovation, product improvement with minimum cost and finally limit the profits of the industry

Bargaining power of suppliers

The suppliers in any industry include vendors, distributors, importers/exporters of raw materials and others

• As there are substitutes and the switching cost of conventional/e-bicycles and public transport is low, there is less bargaining power of suppliers of E-vehicles on buyers
•  Also, the manufacturers of EV industry can only meet the objectives of specific customers who are well aware of the product, less-moderate price sensitive, so their power is low
• Additionally, as per aforementioned data, the suppliers of raw materials for EV industry and land owners for installing infrastructure can highly influence the bargaining power
•  Due to land scarcity, environmental restrictions for mining in regulated countries, very highly concentrated few regions for extracting raw materials, price fluctuation of refining/extraction procedures can affect the price and profitability of EV industry
•  If the supply terms of agreements are not met, and due to geo-political border tensions,          the industry could be affected in a huge manner.  

Bargaining power of buyers

• Customers are becoming aware of renewable energy technology including the EV due to one of the mitigation steps for climate change undertaken by governments in multiple countries
• The concerned buyers are well educated about the benefits of emission standards of electric vehicles and hence the power of buyers is high
• The buyer’s power is strong as substitutes of normal bicycles, e-bike and clean public transport are already available in significant countries (developed and developing). The switching cost is low
• The bargaining power of buyers is moderately low in European countries as customers are not price sensitive and the trend of purchase increased in 2020 as mentioned above.  It will have a similar effect or vice versa subject to similar trends showing in the future in any country

Threat of new entrants

• In the EV industry, new competitors can pose a high threat to the existing participants in the EV industry
•  The entry barriers are low, posing high risk due to social and economic factors such as environmental awareness, high per capita income, high purchasing power and the aforementioned development of supporting regulations in the developed and developing industries
• The outcome of this threat can be in terms of price fluctuation of products, market share and profitability of existing competitors

Threat of substitutes

• Purchase price determines the decision making power. When companies other than the EV industry provide low cost offers or products, then buyers can make trade off in terms of price/performance
• Conventional/electric bicycles can be a better option at lower cost of substitution for short to mid distances around cities
• The bicycle industry offers benefits in terms of health, carbon emission, less congestion on road and reduces commute time. For long distances, electric public transport is the viable option with low emissions

According to the Fortune Business Insights (n.d.)

• Due to awareness of health benefits, the global e-bicycles is forecasted to grow to USD 92.19 billion (2029) from USD 40.16 billion (2022). It will affect the expansion opportunities of this industry, which is substitution to other two/four wheelers electric vehicle industry
• Asia Pacific dominated the market, followed by Europe and North America. In North America, an e-bike costs USD 2600 to purchase compared to the higher average global price of a battery electric vehicle and plug-in hybrid electric vehicle
• Unless there is a high purchase cost, e-bike industries can be a threat to this industry  
• Companies manufacturing public transport vehicles will be a threat to the 4-wheelers EV industry as the cost of choice of substitution is low and the threat of substitution is high 

Sibilski (2015) has mentioned that

• Production of bicycle units are higher everywhere compared to cars
• 5 billion bicycles will be on the road by 2050
• It can be a threat to the EV industry due to low cost and multiple benefits
• Many developed and developing countries have been adopting this clean, cheap conventional bicycle technology for decades. 

Thus bicycle industry players can pose a threat to EV industry.

Conclusion

Overall,

• Governments and cities are turning towards sustainable transportation mode by offering more bicycles and cleaner public transport/vehicles on roads by 2050
• Consumer behaviour is changing with the awareness of initiated campaigns and regulations of governments
• The buyers and suppliers' decisions highly impact the said industry
• The threat of substitution will prevail in the coming future
• The market competition of the industry may increase with new entrants
• There is a positive market for the EV industry if company’s strategies are according to the ongoing trends in the factors affecting demand and supply side
• The EV industry should invest in varied sources of supply, increase recycling and develop resilience for supply chain
• Social and environmental factors must be equally stressed across value chain
• The industry should fortify the relationship between consumers and producers with market transparency and international collaboration
• Focussed strategy required in order to find alternative solutions for minimising the consumption of raw materials

Technology innovation with an optimum price will catch consumer’s attention and is the key to lower competition in a competitive environment

Contact: madhumita@daad-alumni.de / madhumita.gogoi@alum.uni-oldenburg.de
Orcid ID: orcid.org/0000-0001-8597-5461

References

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