The road to a fully electric future was paved in 2020 with potential new partnerships between automakers and Electric Vehicle (EV) start-ups, advancements in battery range and heightened government efforts to reduce CO2 emissions. J.P. Morgan’s previous EV report explored what the landscape will look like by 2025, cited as the tipping point for the industry, but how far has that wave really accelerated and what gains will the market still need to bypass?

EV penetration steadily rising in North America, but not as quickly as in Europe and China

Since J.P. Morgan’s previous EV report in 2018, Battery Electric Vehicle (BEV) adoption has progressed only roughly as expected in North America; rising from 1% in 2017 to 2% in 2018, 3% in 2019, and a forecast of 4% for 2020, according to J.P. Morgan Research estimates. This contrasts from the adoption in Europe and China, where growth has been much faster. J.P. Morgan Research attributes this lag, in part, to the relaxation of Corporate Average Fuel Economy (CAFE) standards in the United States earlier this year, although notes the trajectory of EV penetration could change again should priorities shift in any new political administration.

Trucking along at zero emissions

General Motors (GM) recently announced a planned alliance with Nikola Motor Company, an electric truck start-up that has piqued investor interest with plans to transform the industry through zero emission, hydrogen and battery-powered vehicles.

With the partnership, GM will engineer and manufacture the Badger, Nikola’s all-electric and hydrogen fuel cell pickup truck. GM will also supply the batteries and hydrogen fuel cells for two variants of the Badger, and become the sole provider of hydrogen fuel cells for certain long-haul commercial trucks.

“GM’s next-generation of batteries, Ultium, possess performance characteristics that we estimate are at least on par with, or even exceed that of the most advanced competition,” said Ryan Brinkman, U.S. Autos & Auto Parts Research. “The alliance is a validation of GM’s Ultium battery technology, its hydrogen fuel cell technology, and the cost competitiveness of both.”

What are hydrogen fuel cells?

Energy is stored as hydrogen. A fuel cell converts it to electricity through a chemical reaction.

Quick stats: General Motors’ Ultium

  • Up to 200 kWh
  • Up to 1,000 horsepower
  • 400+ miles of range
  • 0-60 mph in as low as 3 seconds
  • Can recharge up to 100 miles of range in just 10 minutes

Earlier this year, GM showcased Ultium’s capabilities at its EV Day and provided an overview of its future Battery Electric Vehicle (BEV) lineup. A composite of nickel, magnesium, cobalt, and aluminum (NMCA), Ultium is a departure from other batteries that do not contain aluminum. Brinkman notes that Ultium is comparatively lower cost at $100 per kWh, down from $145 prior. This is achieved by substituting rarer and more expensive cobalt for less expensive aluminum.

GM plans to debut 10 new BEVs through 2025: three Cadillacs, two Buicks, three Chevrolets, and two Hummers. “We emerged from EV Day with a more positive view of GM’s competitiveness in the BEV space, just as investors appear to be placing greater-than-ever importance on this area,” added Brinkman.

However, since the alliance with Nikola was announced in September, negotiations have been ongoing. Terms of the agreement may even be renegotiated, particularly given Nikola’s drop in share price. “We see GM as holding a lot of cards in any renegotiation,” said Brinkman. “Closing the transaction now appears materially less favorable to GM, but potentially increasingly important to Nikola.”

“GM’s next generation of batteries possess performance characteristics that we estimate are at least on par with, or even exceed that of, the most advanced competition.”

Tesla charges ahead with new battery plans

Tesla’s recent Battery Day detailed plans to significantly lower the cost of its batteries, while also increasing their power and range. Cost and performance gains are primarily expected to stem from design and material improvements, as well as better packaging into its vehicles.

Tesla targets a +54% improvement in range, a -56% reduction in cost per kWh, and a -69% reduction in upfront investment per GWh to begin to be realized by approximately mid-2022. However, according to Brinkman, benefits are about three years away. “We generally believe Tesla can at least maintain its comparative advantage in batteries, allowed by its earlier start and currently greater scale,” he said.

Tesla also plans to debut an inexpensive $25K model within the next three years, enabled by its lower cost batteries; although, Brinkman anticipates delays. “The ability to price an EV that low seems contingent upon Tesla realizing its targeted battery cost savings, which it does not expect for another three years,” he said.

Europe moves toward carbon neutrality as EV penetration picks up

In the past two years, the European Union (EU) has heightened its focus on combatting climate change with new plans to bolster the European Green Deal. In late 2019, members of the European Council agreed on the goal of achieving a climate-neutral EU by 2050. To support this, the European Commission announced new plans in July for its clean energy strategy including the electrification of end-use sectors, such as autos. Its plan calls for 1m EV charging points, and the use of clean fuels such as renewable hydrogen.

Alongside the European agenda to decarbonize the economy, BEV penetration rose in the first half of 2020 across France, Germany, Italy, Spain and the U.K., with these markets comprising 63% of EV volumes across the EU in 1H20, according to J.P. Morgan Research estimates. BEV penetration in September 2020 in these five markets was approximately 6%, up from 1.6% last year and more than 27% of sales are now electric (vs. 8% in 2019) including pure BEV, plug-in hybrid, hybrid and mild hybrid technologies.

Europe's electrified mix

Bar chart showing the EV market share in Europe.

In September, EVs had a combined market share of 27.4% in these five countries, up from 21% in July 2020 and 17.9% for the full second quarter, according to J.P. Morgan Research estimates. During September, 59k BEVs, 45k plug-in hybrid electric vehicles and 166k hybrids were registered, implying a market share of 6%, 4.6% and 16.8% respectively.

“This upward trend offers a clear guide for where Europe is heading,” according to Jose Asumendi, European Autos Research. “We expect this continue throughout the year and into 2021, with tailwinds from a robust EV launch calendar and supportive government policies that help automakers meet their CO2 emission targets.” At least 23 new BEV models are expected to roll out in 2021 and by 2022, 14 additional models could debut.

“The upward trend of EV penetration offers a clear guide for where Europe is heading. We expect it to continue into 2021, with tailwinds from a robust launch calendar and government policies aimed at reducing CO2 emissions.”

Stimulus packages fuel EV momentum

In response to the economic fallout from COVID-19, European central governments have initiated stimulus programs to help boost recovery and accelerate the adoption of energy efficient vehicles. “We largely attribute the increasing consumer momentum around EVs to the implementation of generous government packages to help overcome the economic damage caused by the pandemic,” said Asumendi.

Most of the below programs are in place through the end of 2020*:

Stimulus package programs in Europe.

Power players race to meet demand

Asumendi expects global electrified share of vehicles sold to reach 10.3% in 2021, vs. 8.7% in 2020 and 6% in 2019. Pure BEV share is expected to reach 3.2% in 2021 vs. 2.7% in FY19, with leading battery market players—Europe, China and the U.S.—ready to meet the growing demand. “In Europe we expect a factory utilization rate of about 50% over the next three years, 45% in China and 95% in the U.S., with the battery market dominated by Tesla-Panasonic,” he said.

Last year, the European Battery Alliance set a manufacturing capacity target of 200 GWh/year by 2025. “This will require unprecedented coordination between EU states and companies, as well as careful negotiation with their equivalents in Asia,” said Asumendi. “We think European battery manufacturers, mainly Sweden’s Northvolt and France’s SAFT, will own about 25% share of the supply in Europe.” He expects the top three Korean players (LG Chem, Samsung SDI and SK Innovation) to take about 48% of share, and 22% will go to China’s CATL and SVOLT.

Global EV penetration targets

Bar chart showing global EV penetration targets.



China’s smart EV phenomenon

According to J.P. Morgan Asia Autos Research, China’s EV supply chain is experiencing a rise, led by a multi-year “Smart EV” phenomenon. “The global auto industry is taking two structural directions,” said Rebecca Wen, Asia Autos and EV Battery Research. “Greener, with new energy vehicles, and smarter with autonomous driving and connectivity.” Wen expects that future vehicles will reflect a merger of the two, driving both earnings and valuations. “We believe that companies with Smart EV exposure will increasingly trade like tech stocks,” Wen added.

This year’s Beijing Auto Show, one of the largest auto shows globally, showcased 160 new energy vehicles. A key trend is larger batteries that achieve longer driving ranges. Nearly all vehicles debuted have driving ranges of above 400km, and there are several models with ranges of 700-800km. “We believe this is consumer-driven rather than government policy-led, as there are no incremental subsidies for vehicles above 500km driving range,” noted Wen.

“The global auto industry is taking two structural directions. Greener, with new energy vehicles, and smarter with autonomous driving and connectivity. Companies with smart EV exposure will increasingly trade like tech stocks.”

“We expect to see solid momentum the rest of the year, and accelerated growth into 1H21 at more than 50%, with the first quarter potentially doubling,” says Nick Lai, Asia Autos Research. This is on top of J.P. Morgan’s expected 20-30% yearly growth in the broader China auto space due to economic recovery from COVID-19 and a strong model launch pipeline.

Earlier this year, the Asia Autos team turned more bullish on NEV demand, forecasting penetration to nearly triple from less than 5% in 2020 to nearly 15% for 2025. In October, they raised expectations again, now anticipating China’s NEV penetration to quadruple by 2025 to 20%, from less than 5% in 2019.

“A key driver behind this change is Tesla’s rise in China, which has caused two structural trends,” said Lai. “First, the shift from corporate customers, like taxi operators, to individual customers. Second, a growing concentration among top NEV auto manufacturers and battery suppliers.”

“We expect to see solid momentum the rest of the year, and accelerated growth into 1H21 at more than 50%, with the first quarter potentially doubling.”

When looking at China’s NEV industry more broadly, the team classifies it in two stages: development (2015-2019) and acceleration (2020-2025). During development, the rise in penetration from 1% to 5% was led by government subsidiaries and emission requirements. With acceleration, penetration should surge to 20%, primarily driven by continued battery cost reduction (Asia Autos expects production cost-parity by 2023), the rapid increase of individual buyers and innovative EV functionality.

When it comes to Tesla’s future impact on China’s NEV market, Lai believes it not a “winner takes all” but “a rising tide lifts all boats” scenario. Lai noted, “Chinese auto manufacturers who have competitive product portfolio and smart-EV solutions should enjoy potential upside, a pattern similar to that seen in the smartphone market, where selected Chinese brands were able to seize market opportunity through product offering or pricing strategy.”

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