The Coronavirus is crippling global supply chains, pushing back mass adoption of electric vehicles
China is the world’s largest exporter by far, ahead of the US. The global Coronavirus pandemic has meant significant disruptions in global supply chains not just for the short-term, but with lasting impacts. These represent an unprecedented risk to the global economy.
There is precedent for this. When an earthquake and tsunami hit Japan nine years ago, it resulted in a serious nuclear accident at the Fukushima Daiichi power plant. Many industrial and electronic parts makers for Japan’s auto industry were severely impacted. Japanese car companies responded by fortifying their local car assembly operations around the world, including the US, in order to mitigate against future such shocks.
As the trade war between the US and China over the past year has escalated, many US companies have been exploring near-shoring or repatriating some of their facilities to the US as a hedge against a more protectionist stance. Tesla had announced last year that it would seek to localise its supply chains further in China, to meet the rise in demand in the country.
There are some acute challenges for the mobility industry. In short, estimates for the Grand Transition from lead-acid batteries to lithium-ion and from internal combustion engine vehicles (ICE) to electric vehicles (EV) are all out of the window. This may not be a short-term blip but a more medium-term reset. Remember that this is the year of COP-26, important climate change talks that hope to achieve global consensus on a range of issues, including accelerating a move away from fossil fuel-based fuel cells. Indian and Chinese leadership is of fundamental importance in making this happen, just as the US continues to step away from its climate change obligations.
Depending on the estimates you believe, EV sales would account for up to a fifth or more of all sales in Europe, the US and China, by 2026. Regulation and favourable subsidy environments have shored up the demand side globally. But even before Coronavirus, growth in Chinese EV sales has stalled. Significantly reduced government subsidies have led to a more than 50% cut in sales numbers in Q1 this year, according to the China Association of Automobile Manufacturers. Car sales fell in China by 92% in the first two weeks of February, according to the China Passenger Car Association. Consumers are price-conscious, and the high upfront cost of the vehicle is still more of an important determinant than reduced running costs.
And now, the Coronavirus pandemic has brought a further shock to the demand-side. India already had anaemic economic growth and decades-high unemployment, before the recent collapse of Yes Bank, the introduction of global travel restrictions, and potential consolidation in the telecoms industry. China is India’s largest trading partner. Lower economic growth in India and a global recession means the price-sensitive Indian consumer will eschew purchases of high-value ticket items such as vehicles, even if credit is easily available.
At the same time, a fall in global oil prices in the last few days has meant the incentive to switch from diesel or petrol to EV outside India is reduced. In India, the government has decided to hike excise duty on petrol and diesel, thereby offsetting the reduced global oil prices. Still, the direction of travel for prices is only down, not up.
India’s EV market has breadth, but not yet depth. Just as the withdrawal of subsidies in China led to market consolidation, changing market conditions may lead to weaker startups in India exiting the market, if an increased amount of risk capital is not readily available.
On the supply-side, India could look to insulate itself from such future shocks.
Research from Deloitte says that both for OEMs and new entrants, the current battery cell production and end-of-life landscape mean that there needs to be close cooperation with battery manufacturers. Looking ahead, this must include second-life utilisation.
EVs benefit from falling battery costs, increasing capacity, lower depreciation costs (Lithium based EV batteries last longer than lead-acid), higher reliability (the drivetrain in an ICE has more than 2,000 moving parts, whereas for a typical EV, this is less than 20), and of course the fact that they are cheaper to fuel.
Given batteries are the main cost of an EV, India must look to indigenize more of its supply chain, reducing reliance on global supply. This could be a wake-up call to explore alternatives such as hydrogen, sodium, fluoride and manganese that are abundantly available at home.
The Coronavirus outbreak is impacting all areas of electrification, from worldwide solar module manufacturing to stationary storage to reserve power storage, as well as mobility. However, it offers markets such as India the opportunity to make the industry leaner and more capable of withstanding future such shocks.
About the Author
James Quinn is CEO of Faradion, the world leader in non-aqueous sodium-ion cell technology, based in Sheffield, UK, and soon to be manufacturing in India.