The Future Is Electric

In the past few years, the auto industry’s transformation has accelerated around the world. J.P. Morgan Research examines the developments that are driving this progress and expectations for the future.

November 17, 2020

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.”

Ryan Brinkman 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. Ryan Brinkman U.S. Autos & Auto Parts Research J.P. Morgan

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

Source: J.P. Morgan; Jan-Aug. 2020

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 C02 emission targets.” At least 23 new BEV models are expected to roll out in 2021 and by 2022, 14 additional models could debut.

Jose Asumendi Quote 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 C02 emissions. Jose Asumendi European Autos Research J.P. Morgan

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 program chart