Reimagining the Automotive Ecosystem – Electrification challenges | Chapter 5

The previous chapters in this series discussed the different EV sub-systems and how the transition to e-mobility impacts the automotive ecosystem. This fifth article of the series by Dr Maruti Khaire (Head EV and Special Projects at SKF India) discusses vehicle Electrification Challenges.

The previous chapter 4 reimagined the automotive ecosystem with electric vehicles. It can be visualized that the new ecosystem with vehicle electrification will be different from the current ICE ecosystem. There will be new taxonomy in the auto-ecosystem, new supply chain partners, and some fundamental changes. The new automotive ecosystem with vehicle electrification will be centred around the battery, battery management system, recharging, motors, and electronics hardware which is significantly different from the current ICE vehicle-centred ecosystem.

The change will invite new challenges as well as new opportunities. Therefore, the ecosystem players must consider new technological and solutions development approaches. This article will throw some light on major challenges for building new solutions.

Automotive Ecosystem Challenges

EVs offer abundant technological and performance-related merits compared to ICE vehicles. EVs utilize motors as prime movers that provide close to 80% conversion efficiency, which is significantly higher than conventional thermal engines, which provide around 30% ‘tank of wheel’ efficiency. However, to achieve the full benefits on a larger scale and experience the green impact of vehicle electrification, there are many challenges the industry needs to overcome. The current vehicle electrification challenges can be broadly categorized into three broad areas (a) technology side, (b) supply side, and (c) demand side challenges.

Figure 1: Overview of EV Automotive Ecosystem Challenges
a) Technology side challenges

Battery electric vehicles have achieved roadworthiness recently; however, they have still not gained the required customer confidence for technology’s superiority. Range anxiety, lack of charging infrastructure, battery cell technology, and disposal or recycling of batteries are some of the key technological challenges to solve for vehicle electrification.

Range Anxiety – perceived downtime

The current automotive ecosystem is developed and centred around fossil fuels. The ubiquitous infrastructure for refuelling the vehicle gives them an infinite expandable range. However, in the case of battery electric vehicles, the energy storage is limited to battery capacity as well as the recharging time of the battery. Technologically, increasing battery storage capacity per unit mass and reducing the recharging time are major challenges in EV space. The battery is the most expensive part of EVs and needs to be optimized for performance and cost balance. Contrary research suggests that personal-driven cars do not need frequent charging in everyday usage, considering limited travel distance; however, still driving range is a perceived concern.

Few major OEMs like Mercedes have developed solutions for the range. For example, Mercedes EQXX can cover 1,000 km per charge. Many companies worldwide are developing fast-charging batteries, with Tesla, Enevate, and Sila Nanotechnologies all working on silicon electrodes. However, in the near future, it is a technological challenge to make it affordable and make this technology available to mass vehicle producers.

Lack of charging infrastructure

Range anxiety and lack of charging infrastructure challenges have considerable overlap. If the ecosystem has a good charging infrastructure, the range anxiety may not be a challenge. However, recharging time still remains to be solved. The number of charging stations, locations, etc., is more of an investment and policy decision. Reducing charging time and developing affordable, fast charging solutions is a technological challenge. Many OEMs and technology companies are developing charging technologies that will reduce charging time as low as 5 mins which will be almost close to ICE vehicle refuelling time. However, affordability of the same may still be a challenge.

Battery cell technology

As Tesla CEO Elon Musk mentioned, “Battery cell production is the fundamental rate-limiter slowing down a sustainable energy future. Very important problem.” Battery cell chemistry and manufacturing technology are a challenge. Only a few nations can produce Lithium-Ion cells on a mass scale, constraining the vehicle production limit and penetration.

Battery cell technology has multiple challenges besides manufacturing technology. The cell technology suitable for fast charging requires special ways of managing heat to avoid damage to the cell as well as accidents due to unstoppable chemical reactions. The challenge is not limited to developing technology but also making it economically sustainable.

Battery disposal and recycle

EVs pose the challenge of disposal or recycling of batteries from the vehicle.

Figure 2: Electric Vehicle Penetration Outlook [Adapted from Article of Prerna Lidhoo in BusinessToday. published on 20 Feb 2022]

Referring to Figure #2, by FY25, India alone expects over 6 to 8 times increase in electric vehicles. The number of vehicles will keep growing, and so will the end-of-life batteries. These batteries need to be prepared for their second life or disposal, which is a mammoth technological and economic challenge. Moreover, chemistry is changing to adapt to the changing requirements. However, experts are discussing the technologies for recycling of Lithium-Ion batteries. It is not about having the technology alone but also making business sense to further technological advantage.

b) Supply side of challenges

Building a reliable and continuous supply chain is the function of capacity, time, and investment. The supply chain gets matured with experiences and continuous improvement.

Higher reliance on imported supply chain

The raw material for battery cells is available in specific geographies and controlled by a few countries like China. Processing of raw materials, as well as mass-scale manufacturing, is also available in a few countries. Reliance on imported material and supply chain has its challenges, including lead time, thin scope and cost of customization. The political landscape, foreign exchange, and other external factors also play a role.

Figure 3: World Leader in EV Battery Manufacturing. [Adapted from EV Future of Mobility Report Feb 2020]

LG Chem, CATL, BYD, Panasonic, and Tesla are the world leaders in battery production. Currently, China has the largest capacity for battery manufacturing. Asia-Pacific is the largest region in the global EV battery market and is likely to grow at a CAGR of 19% during 2019-2025.

Large-scale investment is proposed in many Asian regions, including Korea, India, and Japan. However, the outlook of EV and capacity expansion is synchronized. Hence, in the near and medium term, there will be higher reliance on imported materials for EVs, which will be a challenge for EV makers in countries like India.

Economies of scale

Economies of scale play a vital role in supply chain management. At present, EV penetration is concentrated in China, parts of Europe, and the USA. Countries like India have a huge population of two-wheelers, which are likely to fast transform into electric vehicles, alongside three-wheelers and followed by passenger vehicles. However, current electric vehicle sales in India are <2% of overall vehicle sales; hence, economies of scale will take longer. Current electric vehicles do not have purchase price parity with ICE vehicles, and the gap is significant. Based on SIAM white paper on EV, for 125 to 200 CC two-wheel ICE vehicles [popular commuter segment] and equivalent EV, the price gap is 200% to 250% depending upon the brand and model of vehicle. This gap can be lowered with economies of scale.

Capacity and capability of supply chain

The pace of evolution of electric vehicles seems faster than the supply chain development. Considering the number of vehicles is currently less, the supply chain can meet the demand. However, if the outlook of EV penetration is realized, the ecosystem will need a more capable and highly scalable supply chain.

The present ICE supply chain is proficient in manufacturing. However, there are limited technology development capable suppliers. EV supply chain development needs suppliers with the capability to do research and offer timely solutions. The supplier should have the capability to develop a product based on minimum requirements from OEMs. Another part of the supply chain is the capacity to handle a variety of components and volumes. Generating capacity demands new investments. An uncertain economic and political environment poses a risk to capacity generation. The new capacity generation is not only about building facilities but also about making an intelligent factory to control costs and increase productivity.

The challenge is what to build first – capability or capacity? EV ecosystem demands both at the same time.

c) Demand side of challenges

EV demand side challenges include initial price, number of choices, awareness of the technology, and investment risk hesitation.

Higher purchase price

In countries like India, where 2W and 3W are modes of personal transportation, the initial price of the vehicle is one of the major purchase decision factors over the total cost of ownership. However, it is believed that by 2025 ICE and EV will find purchase price parity.

Investment hesitation

Consumer confidence in new technologies builds over time. There is a strong fear of uncertainties of potential issues due to EVs in consumers’ minds. In India, recent EV fire life-threatening incidents of few electric vehicles dented the perception about the purchase decision of the vehicle. Investment hesitation is also a challenge for the supply side.

Limited choices

Global ICE OEMs present a huge portfolio of products – from economy to niche products. The EV product portfolio is still developing. In the Indian context, very few models are available in the passenger vehicle segment. In the two-wheeler segment [high volume], there are more choices in the scooter segment but very limited choices in the motorcycle segment.

Consumer acclimatization to EV technology

The current EV consumer profile is evolving from early adopters and tech-savvy purchasers to mass adoption. EV experience is still limited with the customers, and they are yet to experience electric vehicles to their full capability. Most customers’ purchase decisions are influenced by social media or secondary information. An interesting survey study published in the article “Key Factors Influencing Consumers’ Purchase of Electric Vehicles” by Jui-Che Tu and Chun Yang in 2019 reveals that “at present, the promotion methods of electric vehicle manufacturers are mainly through network information, which is easily ignored“. An important point to note here is that customers are looking for a solution that is comparable to or better than the current solution to its problem with competitive commercials. Many EV customers still believe that EV is the only replacement for ICE. However, EV provides many advantages, including good energy economy, higher acceleration, and lower maintenance, to name a few. Customers need awareness about EV operation and experience its utility in day-to-day life to reach mass-scale adoption.

Referring to Deloitte Global auto survey 2020 results, the customer is not concerned so much about the initial price or premium, but they are more concerned over the driving range in most economies.

Special Challenges

The challenges outlined in earlier sections are mainstream and can be solved with investment and focus. Additionally, the following aspects of the ecosystem also need attention.

Vulnerability of vehicles to hacking

Current vehicles have driver assist systems and are moving toward full autonomy. EVs have state-of-the-art electronics and software programs for effective vehicle operation. The vehicles are moving toward the connected vehicle, and it is risking the vehicle’s vulnerability. The unauthorized hacking of vehicle operating systems is one of the huge challenges in the future. The risk is there even now, but it will get more serious in the future as the population of connected vehicles keeps increasing.

Insurance options

As mentioned in previous chapters, the current automotive ecosystem is evolved around the ICE vehicle. However, the insurance system for EVs is still evolving. Insurance, as well as insurance premium optimization, is a challenge that needs faster solutions for EV adoption.

Vehicle finance

OEMs are taking steps to assure the vehicle’s performance and make EV financing lucrative to financial institutions. However, full-range finance options are still a challenge for EVs.

Safety

It is known that EV technology is still evolving and maturing. There are stray incidents of the vehicle catching fire. Vehicle fire incidents have a long-term influence on the vehicle purchase decision. Recent EV fire incidents in India, due to various reasons, have raised safety concerns for potential EV buyers. EV makers need to boost user confidence with aggressive and structured awareness building.

Conclusion

Vehicle electrification faces multifaceted challenges – technology, supply, and demand. Some of the challenges discussed in this article are more of “growth pains” and will get resolved with time and focused investments. However, some of the challenges will need intensive research as well as a full value chain effort to ensure a flawless transition. Special situations like vehicle vulnerability, safety, etc., need immediate attention to boost consumer confidence.

This article was supposed to be the concluding article of this series. However, it is important to discuss the solution and approach to the challenges; hence, we are planning one more article. In the next and final article of the series, we will discuss the approach to technology and solutions development for vehicle electrification.


Previous Chapters
  1. Transition to Electric Vehicles | Impact on the automotive ecosystem – Chapter 1
  2. Automotive Industry Stakeholders and Impact due to EV Transformation – Chapter 2
  3. EV Transition impact on different vehicle systems and subsystems – Chapter 3
  4. Reimagining the Automotive Ecosystem with Electric Vehicles – Chapter 4
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