Coronavirus and the great electric-battery dividend

The global health pandemic has dealt a body blow to many areas of the economy but the battery industry looks set to reap significant rewards, even if it will also have to put up with a short-term slump in demand.

Coronavirus lockdown measures, changing habits and shifting investments have altered the course of energy and transport policy, not just in Europe but worldwide, as governments mull the best way to shore up their economies in the wake of the pandemic.

Investments in traditionally safe projects like coal power plants are starting to fall apart as investors see the long-term and low-risk payoffs of sectors like renewable power generation as the more attractive option.

One of the worst-hit areas is the auto industry, which was already bracing to absorb lower sales figures this year even before the virus outbreak hit. Some of the bigger firms have applied for financial assistance to cushion the blow.

The French, German and Spanish governments have duly obliged, putting together aid packages and state aid deals in order to protect jobs and shore up an industry that contributes a significant amount to their respective GDPs.

According to the terms of those deals, carmakers will have to boost electric vehicle production while motorists will be given incentives to either buy a cleaner car or trade in their old model for a new one.

“We need a motivational goal: make France Europe’s top producer of clean vehicles by bringing output to more than one million electric and hybrid cars per year over the next five years,” President Emmanuel Macron said while unveiling an €8 billion stimulus plan.

Electric vehicle subsidies will be bumped up to €7,000 and manufacturer Renault will commit to joining a pan-European push to corner the battery market. Rival Peugeot is already a member of the so-called EU Battery Alliance.

That particular initiative is powering on, according to European Commission Vice-President Maroš Šefčovič, who said in mid-May that he was “pleased to see that despite the pandemic, the EU Battery Alliance has remained on track in its crucial work.”

The European Investment Bank is also bullish on the technology’s prospects, expecting investments to top €1bn this year across all areas of the production value chain.

Spanish Prime Minister Pedro Sánchez said during the launch of a €3.75bn aid package that “the automotive industry is a strategic pillar for our country and this government is not going to leave it behind”.

Spain-based firms will be expected to increase electric vehicle output to at least 700,000 units per year, so as to protect Spain’s 12% share of the European car market. The sector will also have to help promote the rollout of charging points.

Germany, meanwhile, will increase its electric car subsidies to €6,000. The government also batted off lobbying from its all-powerful auto lobby, which had called for a ‘cash for clunkers’ scheme aimed at stimulating new car purchases.

Charged up

The combined effect of those national policies means that electric cars, plus batteries as a result, are guaranteed to do well in the medium- and long-term, even if the impact of the coronavirus looks set to end the technology’s strong run of good fortunes.

According to estimates by Bloomberg New Energy Finance, demand for rechargeable batteries will decline for the first time in 2020. Analysts expect shipments to slump 14% and for 2021 to feel the pinch too, largely due to the pandemic’s cooling effect on motor sales.

Electric car manufacturers rank among the biggest users of batteries and although giants like Volkswagen are pushing ahead with the launch of new models, demand is not expected to recover until at least next year.

But the crisis was arguably well-timed for the battery industry, as costs have plummeted enough over the last decade for the sector to ride out the economic slump. Prices have dropped by nearly 90% thanks to economies of scale and technological developments.

Costs are expected to hit the magic $100 per kilowatt-hour benchmark around 2024, according to Bloomberg NEF, which is the point at which electric car and combustion engine vehicles are predicted to reach price parity.

By the end of the decade, a battery pack’s share of a vehicle’s total cost – currently hovering around the 30% mark – should fall to about 15%. 

“The long-term outlook for EVs remains bright, as fundamental cost and technology improvements outweigh the short-term impacts of the pandemic,” Bloomberg NEF says in its latest Electric Vehicle Outlook.

Its analysts predict that EVs will make up 10% of global sales by 2025 and 28% by 2030. EU CO2 regulations and China’s credit system are among the factors that will dictate the speed of adoption. 

Plug power

By 2030, the amount of recharging infrastructure could start to restrain passenger car sales, rather than price or model choice, both of which should no longer be precluding elements by that point.

National policies will again determine how serious a problem that shortage might be. At the moment, a lot of charging is done at people’s homes or workplaces.

Chancellor Angela Merkel’s stimulus plan includes an obligation for refuelling stations to offer charge points, which further cements battery power’s status in the Bundesrepublik’s future mobility plans.

On Friday (19 June), the European Commission approved €18 million in state aid support provided by the federal government of Schleswig-Holstein for charging infrastructure, including charge points for buses.

“The contribution to EU environmental and climate goals of the scheme outweighs any potential distortion of competition and trade brought about by the support,” the EU executive said in an explanatory note.

The Commission has also allocated an extra €1.5bn in its latest EU budget plan for the Connecting Europe Facility instrument, which is seen as a major avenue of funding for countries that want to roll out more infrastructure.

Its proposal for a €750bn recovery instrument – yet to get the necessary green light from EU member states – also identifies charge points as an area that will need heavy investment over the next seven years.

When it became clear that the pandemic would have a substantial impact on the EU economy, the Commission was quick to tout its European Green Deal as the right strategy around which to base a recovery plan.

The EU executive’s flagship policy, which President Ursula von der Leyen insists is the bloc’s “growth strategy”, primarily targets climate-neutrality by 2050 as its main objective but also delves into sectorial goals like tweaking CO2 standards for passenger cars.

Industry groups have already balked at the thought of even stricter targets getting the green light but any increase in ambition would likely have a stimulating effect on carmaker plans to boost EV production, which are already in motion.

The coronavirus may cool the Commission’s commitment to ratcheting up its regulations but the course charted by influential national governments might yet signal to Brussels that there would be support for rule changes.

Source: euractiv.com

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