Reinventing the wheel: What the rise of electric
vehicles means for the chemical industry
The automotive industry is clearly in the early days of
disruptive change unlike anything it has seen since the invention of the
internal combustion (IC) engine and the assembly line method of mass production
that made cars affordable. Be it the rise of electric vehicles (EVs),
self-driving autonomous vehicles (AVs) or ride-sharing, the industry is on the
cusp of radical changes in the way cars are made, bought, sold and used. Given
that the automotive industry is one of the key markets for the chemical industry,
these changes will have major impacts on the latter: including on the
feedstocks from which chemicals are made; and on the business outlook for
several chemicals and materials. As the transition unfolds, it will also pose
several new opportunities.
The extent of business disruption anticipated is well
exemplified by the $50-bn market capitalisation that Tesla – the company that
has come to define electric mobility – now enjoys: it is as big as General
Motors, which produces 80 times as many cars!
Uncertain timelines
There are uncertainties on the pace at which things will change
and the share EVs will come to have. Much will depend on technological
developments to lower the costs of batteries to more affordable levels, but
just as important will be government policies. Incentives aimed at ushering in
cleaner transportation will give a leg-up to EVs in all its avatars, including
hybrid electric vehicles (HEVs). The Chinese government, for example,
incentivises EVs with subsidies of up to $9,000 per car, as well as with
registration privileges, and this has made China the world’s biggest market for
EVs – accounting for 60% of all EVs sold in 2015.
Several countries have set ambitious targets for sales of EVs,
but most are eyeing the 2030-2040 timeframe for the technology to mature and
make an impact at scale. Much of the innovation, including in business models,
is in the developed countries and China, and nearly every big auto major now
has several initiatives aimed at ushering in mass electric mobility. As per
some estimates, by 2030, one in every new car sold could be an EV or an HEV,
though others put this replacement a bit further into the future.
Senior members in the Indian government had made some
off-the-cuff remarks at industry forums on plans to usher in e-mobility by
2030, and a policy for EVs was reportedly in the making. Recent statements,
have, however, made light of the deadline and there is no clarity on a special
policy.
Sharing, not owning, to impact demand
Demand for passenger cars will also be impacted by the growing
acceptance of sharing as an alternate to owning. While the number of passenger
miles travelled will continue to rise, the number of cars made and sold will
not grow in the same linear relationship as in the past. The shift will be
quick in dense urban pockets where efficient and quick car hailing will present
an economic and convenient alternate to car ownership with all its travails of
parking, maintenance, etc. Further down the line, AVs will make a similar
negative impact on car sales.
Demand for automotive fuels will fall
Light vehicles currently account for about a third of global
demand for refined products, and a transition away from IC engines will dent
demand for the two automotive fuels – petrol and diesel. Some of the negative
impact on diesel sales will be mitigated by the fact that it is likely to stay
the preferred fuel for heavy vehicles, but petrol demand will bear the full
brunt of electrification.
Such a demand shift will quickly reflect in the product slate of
crude oil refineries, and their reconfiguration could lead to greater
production of alternate streams, including naphtha, an important feedstock for
petrochemicals.
The overall reduction in demand for automotive fuels – amplified
by tightening fuel efficiency norms for vehicles using conventional IC engines
– will also reduce demand for crude oil itself and likely drive its prices
down. As a consequence, a whole lot of petroleum products could become cheaper.
Resurgence of naphtha cracking
The combination of improved availability of naphtha at reduced
prices could lead to a resurgence in the use of this feedstock for
petrochemicals. It will improve competitiveness of petrochemical production in
countries in Asia and Europe, where naphtha has long been the preferred
feedstock, vis-à-vis natural gas in the Middle East and North America.
Material shifts
The materials used in cars will also undergo change with
electrification. The disappearance of the fuel tank will dent sales of high
density polyethylene – the preferred polymer. The need for fuel-resistant
piping will also vanish and with it demand for some speciality synthetic
rubbers. Demand for some engineering plastics such as nylon and polyesters that
serve under-the-hood applications with high temperature and high chemical
resistance properties may also be negatively impacted. The disappearance of the
radiator to cool the engine will rob monoethylene glycol of an end-use.
As EVs do not have pistons, there will be less demand for
lubricants in the engine, though it will be required to service other rotating
parts.
Light-weighting to become even more relevant
Extending the driving range prior to recharge will mean that the
desire for light-weighting will become an even more important specification,
especially since the battery is a heavy component whether charged or discharged
(unlike a gasoline tank). This could drive demand for composites, possibly of
commodity thermoplastics, if not the more exotic kind. Some estimates suggest
that weight reductions of up to 50% and similar improvements in driving range
could be achieved by these material changes.
The desire for weight reduction could also accelerate the
replacement of glass with other transparent materials and polycarbonate is
probably the best choice. The polymer has already made some dent in this
market, but not for replacement of the front windshields or the rear windows,
though there has been some success in the replacement of overhead sunroofs.
The use of polyurethane foams for better insulation to reduce
the demands on heating and cooling systems will be even more important. The
wires and cables – and there will be a lot more in an EV – will need to meet
higher performance standards in terms of voltage and current carried, affording
opportunities for flexible polymers, speciality additives and innovative
compounding. The assembly of cars will also undergo change; greater use of
robotics is a distinct possibility, especially in newer plants custom-built for
EVs. They will use greater quantities of synthetic adhesives to bond similar
and dissimilar substrates.
Front not rear focus
The three-way catalytic converter that cleans up emissions will
disappear in EVs. The three big groups in this business – Umicore (Belgium),
BASF (Germany) and Johnson Matthey (UK) – are already refocusing their
attention away from the rear of the car to the front by developing battery
materials. Indeed, chemical companies will have significant opportunities in
incrementally increasing the efficiencies of lithium ion batteries through
improvements not just in the core technology but also in the overall system,
such as, for example, new polymeric battery separators.
Chemical companies that have a significant portion of their sales
coming from the automotive industry will do well to track the developments in
EVs. The impacts may seem distant now, but the timelines forecast are
unpredictable and breakthroughs and failures could push them forward or
backward.
The wheel is being reinvented; chemical companies will do well
to prepare to do the same
Ravi Raghavan
CHWKLY 270218
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