Ever ready? Europe pushing off the backfoot in batteries!

Please note this blog post was published over 12 months ago and so may not include the most up-to-date information, for example where regulation around investing has changed.

Ever ready? Europe pushing off the backfoot in batteries!

The evolution of battery technology in recent years has been incredible. Lithium ion (li-ion) is enabling electric vehicles to become a realistic alternative to unleaded/diesel fuelled vehicles. The batteries offer increased mileage capacity and appealing performance. One of the most popular brands bringing performance, practicality and luxury is US based Tesla. They are expected to top sales of Porsche in 2018 (270,000 vehicles relative to 256,000).

This week the dynamics of regulation have shifted the goal post. The need to respond to climate change has moved from an ideology to a requirement. European car makers are required to meet a 35% reduction in carbon dioxide emissions by 2030, sparking concern amongst Europe’s leading manufactures including Volkswagen. The direction of travel is going one way, towards electric powered vehicles and away from fossil fuels.

At the core of the electric vehicle is the rechargeable battery. As it stands the world is inherently dependent on production from Asia. They will produce 80% of the batteries in the 2.1 million cars expected to be manufactured this year. China alone will produce 69% of that total figure, a leadership which the Stanford Social Innovation Review felt was optimistic back in 2013.

However, in innovative industries change is ever present. The US is currently lagging, but in 2009, as part of their economic stimulus plans, they allocated $2.8bn towards investment in advanced battery technology. This was an incredibly smart move directed at battery makers, technology companies, automakers and universities. Those participating had to provide matched funding.

The recent announcement by the EU suggesting they are only now waking up to the fact that they are woefully behind is disappointing. The US currently has a 15% market share, but Europe is languishing at just 4% despite having positions of dominance in the global car market.

Units of Electric Vehicle Sale Forecasts (millions) Per Region

Source: Bloomberg New Energy Finance, October 2018

The monopoly which Asia holds may not last. It is the result of first mover advantage and whilst their creativity has been to the benefit of the global industry, it leaves the rest of the world lagging and playing catch-up. However, with the US firmly back in the race and Europe keen to participate, there is a lot to play for.

For Europe it may not be too late. They plan to target research in technology to power other transport forms, as a diversifier, rather than focus on the electric car market. They have introduced plans to establish smarter ways of managing investment, focusing on true innovators i.e. the businesses who are on the ground developing the technology to ensure the most efficient application of funds. They hope this is a smarter way of working to avoid government bureaucracy.

The basis of intervention is that EU member states must collaborate on development and share knowledge. If a member state uses the European funding available, it must work with two other states and share knowledge. A key aim is to avert job losses in a sector which employs 13 million people. Cambridge Econometrics believe this move could add circa 200,000 jobs to the market by 2030 should 50% of new production be electric. The chart above is taken from research carried out by Bloomberg back in May 2018, however, the announcements this month may enable Europe to take a greater share than previously expected.

According to Bloomberg global demand for all electric vehicles is forecast to be at 30 million units per annum by 2030, thus if Europe can increase their existing 4% share of battery production they may be able to benefit from a new growth industry.

With investing, your capital is at risk. Investments can fluctuate in value and you may get back less than you invest. Past performance is not a guide to future performance. Tax rules can change at any time. This blog is not personal financial advice.

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