The switch to electric vehicles (EV) will disrupt the automotive industry and cause changes in the mix of polymers required, but in the short term, macroeconomic factors are having more impact on chemical markets.

Battery technology limitations mean the switch to electric will be gradual, with more hybrid vehicles likely to enter the market in the short-to-medium term. Electrification will be more rapid in countries such as China where strong regulatory pressure is pushing the market.

Declining vehicle demand and production is putting additional pressure on automotive brand owners (original equipment manufacturers or OEMs) which are already struggling to find the money to invest in new technologies such as electrification.

New mergers and alliances are changing the sector, giving more purchasing power to the OEMs with 
consequent pressure on suppliers down the supply chain. Lower revenue growth (-5%) and profitability (-6-6.3%) for suppliers is forecast in 2019 by consultancy Roland Berger.

The current slowdown in automotive sales is driven mainly by consumer sentiment. This has been dented by the US-China trade war plus other political events such as Brexit which have made consumers delay big ticket purchases such as automobiles. Other headwinds include concerns over pollution following the “dieselgate” scandal in Europe and changing ownership patterns.

Car ownership is declining among millennials and older people in Western urban areas as people switch to ride-sharing apps or public transport.

 

These pressures have led to double-digit declines in some automotive markets in 2019, across many value chains and hurting profits.

REGULATORY PRESSURE

In Europe and China there is huge regulatory pressure on automotive producers to reduce carbon emissions.

In China, new rules introduced in 2019 required manufacturers to meet quotas for low or zero emission vehicles. Regulators are trying to tackle the country’s chronic urban air pollution problems as well as stimulate the electric vehicle sector.

It has introduced a “cap and trade” system which forces manufacturers to produce around 10% of total output as electric vehicles. Companies exceeding the target can sell credits to other OEMs falling below the target.

By 2025, regulators expect electric vehicles to account for 20% of China’s new vehicle sales.

Meanwhile, in Europe, limit CO2 limit passenger vehicle emissions to 95 grams/km with 95% compliance mandated for 2020 and 100% compliance for 2021. This equates to a 21% reduction against 2018 levels. There are fines for non-compliance with “super credits” earned for ultra-low emission vehicles.

Although the industry has known about the targets since 2009, analysts estimate Europe’s carmakers could face fines running into billions of euros for non-compliance. At the same time as regulators are pushing for lower emissions, consumers are switching to heavier, sports utility vehicles. There has also been a switch from diesel to petrol engines which are less efficient in terms of CO2.

Analysts at Oxford Economics estimate automakers in Europe could face fines of around €7bn by 2021. “Preferences change slowly, while other barriers to mass-market adoption include worries about the adequacy of charging infrastructure and the drive range of battery electric vehicles,” they said in a note published on 21 January.

As manufacturers scramble to meet the target amid falling sales the industry’s trade body, the European Automobile Association (ECEA) has , as it sets out a plan to meet the EU’s Green Deal. It also calls for a dense network of charging points to be established.

CHANGES TO MATERIALS MIX

Automotive is of huge importance as an end use for the chemical industry, and the switch to hybrid and electric vehicles will have a big impact on the types of materials required.

EVs operate at lower temperatures of around 80 degrees Celsius, so the requirement for high heat-resistant engineering polymers such as nylon may decrease. Lower weight increases the range of an EV so the use of lightweight polymers to replace steel and glass may increase. Cooling systems which are currently metal could switch to acrylonitrile butadiene styrene (ABS) or polypropylene (PP).

■ Winners include composites, adhesives, engineering plastics, polycarbonate, bio-plastics

■ Stable demand for commodity plastics (PP, PE, PVC, PU), coatings

■ Losers include high performance plastics, rubber, fluids

There are signs of the impact, with earlier in January that demand in China for acrylonitrile butadiene rubber (NBR) has shrunk, partly because of the switch to electric vehicles.

Components such as large lithium ion batteries and their casings will boost demand for polymers. Increased use of electronics will also boost demand for electronic chemicals.

Roland Berger analysis suggests light-weighting and the shift to electric vehicles will boost demand for aluminium, electronic materials and plastics for battery housings whilst cutting demand for steel, glass and rubber.

The consultants suggest that polycarbonate (PC) use may increase as a substitute for glass in the rear window, sunroof and side windows. PC has greater impact resistance than both glass and acrylic while also needing less structural support.

Composites are classified as multi-material builds – metals and plastics – pieces which meet tensile or modular strength requirements with minimum weight.

These are structural and semi-structural with a lot of growth expected but from a very low base, from around 1kg/vehicle in 2020 to 14kg by 2030, according to Roland Berger estimates. They forecast strong growth in adhesives (from 2kg/vehicle in 2020 to 4kg/vehicle in 2030) linked to a shift from mechanical to adhesive fastening, especially in high-end vehicles.

Carbon fibre offers significant weight saving, with potential to replace metals, with a 30% weight saving compared with aluminium. Growth in the carbon fibre market would support upstream acrylonitrile (ACN) – with polyacrylonitrile (PAN) becoming a precursor for carbon fibre.

However, according to Roland Berger, carbon fibre is only suitable for high end vehicles in the top 5-10% of the market. Its speed of manufacture does not match the speed of a high volume automotive line.

SPEED OF TRANSITION

According to ICIS forecasts there will be only a gradual transition to electric vehicles, with internal combustion engine (ICE) units continuing to dominate the market for years to come.

ICIS senior analyst, Man Yiu Tse, said: “In a business as usual scenario, it would take a long time to replace conventional ICE vehicles. Even in China where we expect to see the fastest penetration among the major markets, we still see more than 80% of its passenger car population being the traditional ICE by the end of the decade.”

He says China is the only major market where battery only vehicles are the predominant electrification option. Hybrids vehicles are the electrification of choice in western Europe and the US.

Roland Berger’s Jonathan Wright explains that electric vehicles face significant technological hurdles which make hybrids the best option in the short-to-medium term.

“With full electric vehicles the weight of the battery becomes a major constraint in design."

His colleague, Konstantin Shirokinskiy added: "You reach a point where  reducing weight is more economical than adding extra cells to increase range.”

Current lithium ion battery systems that have a range of 300 miles and above – 100KWH batteries – weigh a tonne and cost around $20,000. By contrast the much smaller battery in a hydrid car doubles fuel efficiency but only has 10% of the weight of a 100KWH battery, according to Shirokinskiy.

In Wright's analysis:  “The implication is that we may end up with a new class of vehicle – the urban electric vehicle with smaller battery and a smaller range. This will make sense especially where legislation is driving this but might not suit the US where Tesla dominates with large range vehicles.”

Shirokinskiy pointed out that hybrids require a wide range of materials. He said: “These use multiple materials – you still need high performance plastics for the ICE, plus you need materials for batteries and casings. ■

Additional contributions from Rhian O’Connor, Mark Victory, Heidi Finch, Tom Brown and Jonathan Lopez