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Electromobility ecosystem

electromobility-ecosystem

For the average car user, electromobility is associated with electric-powered passenger vehicles, chargers, quick acceleration and numerous urban traffic facilities. Although global sales of electric cars have been growing exponentially since 2010, by 45% last year alone, they are still a rare sight. So, for the average John Doe, electric vehicles belong to a distant future. However, things look quite different from the perspective of industry and the economy. There must be a good reason why this global megatrend is said to have enormous business potential.

Indeed, if we look at global sales figures, the share of electric vehicles (EV) in the global market for new light-duty vehicles (passenger cars and light commercial vehicles) (LV) remains marginal. In 2017 it was merely 1.7%, and it is important to note that the EV category encompasses both battery-powered cars (BEVs) and plug-in hybrid vehicles that have a traditional internal combustion engine in addition to a plug-in rechargeable battery (PHEVs). There were 2.8 million electric cars cruising the roads around the world in 2017, accounting for a tepid 0.2% of all light vehicles, which exceeded 1.3 billion.

Sales of electric cars vary greatly across geographies, and not only between countries, but also between various regions and between urban and rural areas. The electric car market share of new light vehicle sales is the highest in Norway – one in every three new vehicles sold in that country in 2017 was an EV. Norway is followed by China, where 2.3% of all new LV vehicles sold were electric, although in absolute terms the country is of course the undisputed global leader. The United States, the homeland of Tesla, where electric cars represent 1.2% of all new LVs, comes only seventh in this ranking (preceded by the Netherlands, the UK, France and Germany). However, the US ranks second in terms of the absolute number of electric cars sold. It is worth mentioning that one fourth of all electric cars on US roads are registered in California. In Poland, the number of electric cars has been growing at a spectacular rate. According to a report by KPMG and the PZPM Polish Motor Industry Association, in 2017 the number of electric cars registered in Poland was 1,068 (including 439 BEVs and 585 PHEVs), an increase of 87.7% on 2016. Their share in the light vehicle fleet was just under 0.2%. For the ordinary road user looking at the electric drive as an alternative to a traditional combustion engine, an electric car is too expensive, its range is too short, and the scarcity of chargers and long charging times pose further constraints. Therefore, for the average motorist, electric cars still belong to a distant future.

However, things look quite different from the perspective of industry and the economy. The Polish government and PKN ORLEN recognise the immense business potential of this global megatrend. Where does it lie? In a nutshell, the one hundred years old business model for selling cars to private users is giving way to a new rivarly with electric and autonomous vehicles, new supply chains and new market players. The automotive ecosystem is becoming a field of multidimensional international competition: traditional drives will be competing against alternative ones (electric, biofuels, hydrogen); human-driven cars will compete with self-driving ones, and people will have the choice between owning and using cars, and further between ride-hailing and car-sharing. The IHS Markit has demonstrated the interpenetration of these processes in the form of a three-dimensional Mobility Cube. In terms of ownership, we are moving from the traditional ownership model to on-demand economy and resource sharing. In terms of autonomy, we are evolving from human drivers, through increasingly automated driving, to autonomous cars. In terms of vehicle electrification, we are moving traditional drives to electric-powered vehicles. The Mobility Cube helps to understand how light car users’ (consumers’) behaviour will change under the influence of these dynamic multidimensional processes.

What are the factors driving the shift towards electromobility? The most important factor is the technological advancement, including improved battery performance, availability of new petrochemical and chemical materials that reduce vehicle weight, and autonomous control systems. Another factor is policy, with governments having control of fiscal and regulatory systems that can either stimulate or inhibit the advancement of electromobility. In this context, urban zero-emission zones and bans on entering urban zones in vehicles powered with older-type diesel engines (like those in Stuttgart and Düsseldorf) are of paramount importance. Introduced in one place, such initiatives tend to become “contagious” (a phenomenon well known in the financial markets) and spread to other localities, in the long run leading to reduced sales of traditional engine cars. Consumers have a big role to play in this context, as their behaviour is another factor driving the development of electromobility. Equally important are the resources (and their cost), including crude oil, used as a fuel and a raw material in petrochemical and chemical production; rare minerals, used to manufacture batteries; and the condition of the natural environment (air pollution in cities). Finally, there are the new business models which, as demonstrated by Uber’s example, are capable of giving a strong boost to the development of car ecosystems in a specific direction. It is worth noting that the largest potential to revolutionalise the automotive ecosystem is attributed to the autonomous driving technology, which reduces travel costs, improves access to mobility (including for older people), helps to lower traffic accident rates, reinforces the importance of electric vehicles and mobility service providers, and requires appropriate urban planning. When on May 31st SoftBank announced it would invest USD 2.25bn in General Motors’ self-driving affiliate, the price of GM stock soared 11%. According to IHS Markit, over the next 20 years the factors discussed above will propel shifts in the automotive ecosystem deeper than in the whole of the last century, impacting the automotive, energy and chemical industries.

This will happen because the automotive ecosystem links the broad automotive industry with the petroleum, chemical and power industries. New electric drives will spur demand for electricity at the expense of oil-based fuels. Taking into account the full emission cycle (from emissions associated with the acquisition of the primary energy source to road vehicle emissions), the preferred sources to fuel car batteries are the renewable energy sources, such as solar and wind power. However, it is common knowledge that due to the intermittency of renewable energy sources and the notoriously high costs of energy storage, backup power from conventional energy sources, such as gas or coal-fired power plants, is required. As it turns out, electric cars might be helpful in solving the problem of energy storage. ENEL, the Italian national energy conglomerate, has carried out studies leading to the conclusion that the key to stabilising the RES-based system could be obtaining access to the batteries of electric cars connected to the grid for charging, as the batteries can become a source of power, stabilising any fluctuations in availability of solar and wind power. For instance in the case of Rome, in order to stabilise a power system fed exclusively by solar and wind energy, access to 5% of battery capacities in 100,000 Tesla cars or other cars with similar batteries would be required. The benefits per vehicle, estimated at USD 10,000 per year, would enable ENEL to subsidise each vehicle that provides Rome with access to 5% of its battery capacity!

Equally strong are the interdependencies between electromobility advances and the petrochemical and chemical sectors. New design concepts for the use of autonomous vehicles and alternative propulsion systems will entail changes in the types and quantities of materials produced by the petrochemical and chemical industries. For example, changes in car sizes and weights will have an effect on the volumes of synthetic rubber used in tyre production; electric engine components will be printed from new materials invented by the plastics engineering industry; electric propulsion systems will require efficient lubrication and cooling with synthetic oils; car bodies will be made of lightweight impact-resistant plastics. According to estimates by the International Energy Agency, the increase in the use of crude oil as a raw material for petrochemical production will result in demand for crude oil in 2040 being higher by 5 million barrels of oil per day than it is today. Thus, PKN ORLEN’s investments in the petrochemical segment fit into the European and global megatrends related to the development of alternative fuel vehicles. To capitalise on the strength of these megatrends, we are making the relevant strategic investments today. The petrochemical business expansion programme that has just been announced and is the largest such programme in the Company’s history, is our response to the challenges that lie ahead of us in the coming decades. The cost of the programme is estimated at around PLN 8.3bn. After its completion, our annual EBITDA is expected to increase by an impressive PLN 1.5bn. But with this programme we are also laying the foundations for further development of the entire Polish chemical sector.

 



Adam Czyżewski

Adam B. Czyżewski, Ph.D., has been the Chief Economist at PKN ORLEN since 2007. He specialises in the changes of the global energy sector that are driven by economic policies and revolutionary innovations.

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