China, as the world’s largest vehicle market -- 28.9M in vehicle sales in China in 2017 compared to 17.2M in the US -- is defining an aggressive pace for global automakers to make the transition to electric vehicles with its sales/credit quota system on the minimum percentage of each manufacturer’s sales that must be New Energy Vehicles (NEV) (electric, plug-in hybrid and fuel cell vehicles). These quotas begin with 10% in 2019, 12% in 2020 and 20% in 2025. Chinese automakers and their respective foreign partners are scrambling to meet the challenge. Foreign automakers must partner with a Chinese firm to do business in the world’s largest market.
China’s latest figures are now in, 777,000 electric vehicles and plug-in hybrids were sold in the country in 2017, a 53% increase over 2016 and representing 2.7% of overall 2017 vehicle sales of 28.9M. The China Association of Automobile Manufacturers predicts a 40% increase in in 2018. China’s Ministry of Finance is confident that China’s automakers will catch up and overtake global competitors.
Is the US-based industry ready to be competitive in the North American and global markets?
In the US, electric and plug-in hybrids accounted for 1% of 17.2M in new vehicle sales in 2017. Several indicators suggest that the US-based automakers will not keep pace with their foreign competitors.
The soon to be outgoing CEO of Fiat Chrysler, Sergio Marchionne, has described the migration to electric vehicles as something which would crush the industry via “disintermediation”. His reasoning is that the last set of vehicle components designed and manufactured by the automakers is the internal combustion engine and its powertrain components. The rest of the vehicle components are outsourced.
Rumor now has it that Chrysler is seeking a new partner or purchaser, having invested little in electrification and being the vehicle manufacturer most dependent on trucks and SUVs.
Sergio Marchionne has a point, though. Much of the electric motor and battery components of the Chevrolet Volt and Bolt are supplied by LG Chem. Toyota engaged in a joint feasibility study with Panasonic on new battery technologies. Samsung’s SDI battery manufacturing facility in Hungary will be a principle supplier for Volkswagen electric vehicles and plug-in hybrids. Tesla and Panasonic are partners on battery manufacturing.
Then there is the matter of the US Corporate Average Fuel Economy (CAFE) standards (average fuel economy of vehicles sold by an automaker in a given year), for the 2022 to 2025 period. Thanks to the growing popularity of SUVs and light duty trucks, representing two-thirds of 2017 US passenger vehicle sales, the CAFE for all vehicles sold in the US plateaued at 9.4L/100km from 2014 to 2017. The best-selling vehicle in the world is the Ford F-150 pick-up truck.
As for GM, while it likes to boast about the Bolt and Volt, trying to find just one of these models in any region is quite the challenge.
The reality is the current mix of North American sales is welcome for the US automakers since the difference between the cost of manufacturing a vehicle and its selling price is three times higher for SUVs and light duty trucks, than for conventional passenger vehicles.
Adding to the pending growing gap between the US-based automakers and their competitors, is a wild card, the Trump administration. Scott Pruitt, the Environmental Protection Agency administrator, appears to be determined to roll back, freeze or eliminate the CAFE standards for 2022 to 2025.
The US National Highway Traffic Safety Administration (NHTSA) is expected to propose revising the CAFE standards for 2022 to 2025 in a report due March 30, 2018.
This is where things get complicated.
First, 14 US states are prepared to challenge the US federal government in the courts in the event that the Trump administration modifies the CAFE standards. Second, California and 12 other states have a waiver from federal CAFE regulations that would allow them to maintain the currently proposed CAFE rules for 2022 to 2025. Third, California, nine other US states and Québec have quotas for zero and low emission vehicles which are set at 3% of sales in 2018 and incrementally rise to 15.5% in 2025.
On January 26, 2018, California upped the ante from an objective of having 1.5M zero emission vehicles (ZEVs) on its roads by 2025 to 5M ZEVs by 2030. To achieve the new objective the state will invest $2.5B between now and 2025 on increasing the numbers of charging stations from 14,000 now to 250,000 and hydrogen fueling stations from 1,500 presently to 10,000, plus enhance rebate and incentive programs. This new objective implies that about 40% of vehicles sold in the state in 2030 will be ZEVs, well-aligned with California’s intention to ban internal combustion engine new vehicles in 2040.
The combined impacts of the above-described factors are difficult to predict, but could result in a checkerboard North American market for which the distribution/availability of vehicle models would vary from one regional jurisdiction to another.
No wonder the new CEO of Ford, Jim Hackett, has left the leadership of Ford’s electrification agenda to its China division and Chinese partner, Zotye. Behind closed doors, Ford is lobbying the Trump administration to weaken CAFE and is joined by Chrysler and GM.
Meanwhile, Volkswagen plans to have 80 electric vehicle models on the market by 2025 and achieve 20% to 25% of its sales in the electric vehicle category for that year; Audi figures that 30% of its sales will be electric and partially electric by 2025; Mercedes is working on plug-in hybrid variants of all of its sedan and SUV volume models by 2022; Tesla hopes to be able to produce 500,000 vehicles, excluding trucks, in 2019; Volvo, will have electrified versions of every model, including plug-in hybrid versions, beginning 2019, will offer an electric XC40 and expects to have 1M electrified vehicles on the roads by 2025; BAIC and Changan Automobile Co, respectively the largest and fifth largest automakers in China, will go 100% electric by 2025; and BMW intends to have electric and/or plug-in hybrid versions of every BMW model, with plug-ins anticipated to reach 25% of BMW 2025 sales.
I could go on, but the point is already made that the non-US-based automakers are prepared to meet the challenges associated with the phenomenal and near-immediate zero and low emission vehicle requirements of China plus the more stringent than US standards of Europe.
This brings us back to a variation of the two fundamental questions raised in this article. Is the Government of Canada going to act to foster a substantive and rapid transition to zero and low emission vehicle market in Canada? Is the Government of Canada going to participate along with the US government in the bailing out of US-based automakers a second time while sacrificing Canadian jobs in the process? The answer to the first question is no and to the second question, there is a real possibility.
Note, the Californian population is about the same as all of Canada.