As you read these pages, the automotive sector is in the early days of a huge evolutionary leap. At its core is the collision between environmental, societal, and economic drivers on the one hand, and technological innovation on the other. Specifically, ubiquitous sensing, abundant and affordable processing power, and wireless connectivity. For the first time since mass-produced, combustion-engine-powered vehicles hit the roads, cars – once mere mechanical devices controlled by their drivers – are becoming “sentient.” Not like you and me, but still capable of sensing their environments, communicating with their surroundings, and assisting their drivers, often helping them overcome their – human – limitations. In the near future, they will take over the wheel altogether.
Contributing around 16 percent of global CO2 emissions, the road vehicle transport sector is being challenged to curtail its greenhouse gas emissions to limit the impact of climate change, with national governments driving a shift towards new propulsion systems and net-zero-carbon fuel sources. There is an expectation to increase safety on our roads, on which around 1.3 million people die in crashes each year, and up to an estimated 50 million more suffer non-fatal injuries. And to compensate for the higher component cost of today’s more sophisticated vehicles and the stagnation of global output, automakers are updating their business models to remain profitable, while private and commercial customers are changing their consumption patterns to adapt to the new normal.
This is a unique and exciting time in the automotive sector. For the first time in history, the industry has the technological toolkit it needs to rise to the occasion and meet these challenging demands. The very trends that transformed society through the internet, smartphones, constant real-time communication, and social media are now getting ready to transform every aspect of the automotive sector, too. Because of the industry’s long production cycles, the first legs of its journey – spanning the coming three to four years – have already been charted. Automotive research and development teams are busily laying the groundwork for the vehicles that we’ll see on our roads by the end of the decade. But where this ongoing evolutionary leap will take us over the course of the coming decades is anyone’s guess.
New propulsion systems and fuel sources
Amidst the uncertainty, one thing is clear: with regulations on CO2 emissions beginning to show their teeth, the heyday of fossil-fuel-powered vehicles is over. Norway’s ban on sales of new ICE (internal combustion engine) vehicles will take effect in 2025. Ireland, Iceland, and Denmark will no longer sell fully fossil-fuel-powered cars as of 2030. And, starting in 2035, China, the world’s largest automotive market, will follow, banning the sale of standard ICE vehicles and limiting the sale of hybrids to 50 percent. Meanwhile, Volkswagen will phase out the development of fossil-fuel-powered vehicle platforms by 2026, with investments of US$ 80 billion to transition to electronic vehicles (EVs). Jaguar will become all-electric by 2025, with Bentley and Volvo among those to follow by 2030, and GM by 2035.
The very trends that transformed society through the internet, smartphones, constant real-time communication, and social media are now getting ready to transform every aspect of the automotive sector, too.
According to a survey by the World Economic Forum and McKinsey, consumer sentiment is evolving too. During the first year of the COVID-19 pandemic, the appreciation of automotive OEMs by consumers improved around the world. In Asia, the share of respondents that viewed them positively went up by 12 percent. In North America and Europe, it increased by 7 percent. At the same time, 83 percent of North American and Asian respondents reported an increased interest in purchasing an EV, while in Europe, where opinions were already very positive prior to the pandemic, two-thirds reported that their interest had either stayed the same or increased.
Despite clear indications of a shifting tide, fossil-fuel-powered vehicles will stick around for some time, and not only due to their lower cost. Cars have an average lifespan of over 11 years. Semi-trucks can average around 15 to 16 years. So, even if new sales of plug-in hybrids and battery-powered electric vehicles grow to over 25 percent by 2029, as ABI Research anticipates, it will take much longer for them to outnumber ICE vehicles on our streets.
In the interim, ancillary services and infrastructure will be given time to adjust. Auto workshops will be hit by reduced demand, as electric motors, which have far fewer parts and do not need oil changes, require less maintenance than ICE vehicles. Unlike gasoline, electricity is available more or less everywhere. As a result, gas stations will be forced to charge their offering to meet the needs of the new vehicle fleet and grow the network of EV charging points. And homes, commercial buildings, and offices will see the need to install charging points to meet increasing demand.
Fuel cells, which produce electricity by letting hydrogen and oxygen react, offer an alternative way to power EVs. Like today’s fossil-fuel-powered fleet, fuel cell electric vehicles (FCEVs) need to go to dedicated charging stations to top up their hydrogen tanks. But while standard vehicles emit a cocktail of noxious gases, FCEVs simply emit water. With roughly the same drive train as any electric vehicle, FCEVs can outperform EVs in terms of range without putting on too much weight: hydrogen offers 120 megajoules per kilogram compared to around 5 megajoules per kilogram for batteries. While the US foresees a vast expansion of FCEV-powered commercial vehicles, Japan, Korea, China, and Europe have set ambitious targets for passenger vehicles as well.