Electrification of Transport

In broad terms, electrification of transport seeks to replace fossil fuels used in transportation with electricity. Transportation here is understood in the broadest sense as any means of transportation, such as cars, buses, trains, airplanes, and ships. The goal is to shift away from conventional internal combustion engine-based vehicles towards more efficient and cleaner electrified vehicles (EV’s). Electrical systems offer higher efficiencies and can be controlled more easily compared to mechanical systems.

Electrification of transport has a huge environmental impact in its potential to reduce CO2 emissions. The electricity can be generated from several sources like wind, solar and hydro, which are renewable and carbon-free. Mobility is a critical parameter to achieve economic growth, and a reliable, clean and sustainable transportation system is an important step to enhance mobility. Therefore, businesses, industries, customers and society at large need to replace fossil fuels with renewable and climate neutral energy. Maybe you’re not driving an electric vehicle yet, but your kids will.  

According to the World Economic Forum, more than half of all the new cars sold in the world will be EV’s in 2040. Most governments around the world has set plans for electrifying transport. For example, the Danish government has set an ambition of having one million green cars by 2030.

It is essential to understand what is happening in China not only due to its sheer size, but also due to its implications on global value and supply chains. China is in control of an estimated 80% of the raw materials that are key ingredients in producing the EV batteries. The world’s largest battery maker, CATL, has it’s headquarter in China and supplies companies like Tesla and Volkswagen. The Chinese battery manufacturer, BYD, is now powering up the majority of buses in Denmark, and Xpeng Motors (a Chinese EV company) has just entered Denmark.

Shanghai, has set an ambitious goal requiring that battery electric vehicles (BEVs) shall make up over 50% of all new private car sales by 2025. At a broader scale, electrification of transport has the potential to support global environmental goals, build customer satisfaction and reduce operating costs for companies. This means less noise and environmental pollution in the cities, which is important to improve local air quality, remove air pollutants and improve national health.

Electrification of transport has received massive support from all parts of society and has a very strong momentum. While there is room for improvement in cutting down more and faster on fossil fuels, there is no doubt that a high degree of funding, political support and research is going into the task. Some of the challenges that are still important to solve in order to move closer to electrifying transportation are high battery costs, inadequate charging infrastructure, and scarcity of lithium to produce batteries as well as chip shortages and the driving range of cars. These are all things technology is expected to solve.

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Policy – 5

Since 2015, the new energy vehicle (NEV) market in China has been growing rapidly, and the topic has taken a significant share in China’s national and provincial government plans. The most important of these has been in the 14th five-year plan, which sets specific goals for electrification of transport and greening of the Chinese economy and local government plans are in place in a number of provinces.

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Corporate – 3

There is strong support from the corporate firms, and a number of companies has formed alliances to accelerate the transition to electric vehicles. For example, EV maker Xpeng recently invested US $ 200M in a new growth-stage vehicle (Rockets Capital), and other big institutional names such as IDG Capital, Sequoia China, and eGarden are also looking for opportunities in the auto industry, clean energy and top-tier technology sector. Other investors include sovereign wealth funds, family offices, funds of funds, insurance companies, and pension funds. However, collaboration between policy-makers and corporates is still difficult, complicating things such as operating efficiency, procurement strategies and infrastructure development.

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Academia – 4

R&D is a key input to the industry, and as such, collaboration between universities and companies is essential for the industry to move forward. Higher education institutions are important in recruiting university students, subcontracting training projects and engaging in R&D activities to create new products and services. A number of large-scale partnerships exist between major actors such as Foton, Beijing bus group, United States Eaton Corporation, CITIC Guoan Meng Lee, IEE of Chinese Academy of Science, Tsinghua University, and Beijing Polytechnic University.  An example is Protean Electric, a global leader of advanced in-wheel electric drive, which is collaborating with the Department of Automotive Engineering of Tsinghua University in the research of distributed traction control on new energy vehicles using in-wheel electric motors.

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Entrepreneurship – 4

After stimulation from the government, a number of Chinese start-ups have emerged. Central to many of the start-ups is their desire to incorporate high levels of artificial intelligence, connectivity and autonomous driving technology into their solutions. In 2019, approximately 500 EV start-ups were registered in China and over 60 of them had announced their first concept vehicles. The management of these start-ups are often successful internet entrepreneurs (CEOs of Nio, Lixiang and Xpeng) or senior leaders of OEMs (CEOs of WM Motor, Aiways, Enovate).

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Investment – 5

Investment and subsidies in the sector is strong. This goes both for the investment into the companies, but also for the surrounding infrastructure. Investment in the start-ups is getting more competitive and both venture capital firms and industry veterans are eager to invest. For instance, one of the key drivers to realizing the electrification of transport is to invest in charging infrastructure. Increasing investment from all stakeholders is required for the transition to take place, and China has the world’s largest EV charging network (more than 1 million charging stations). All kind of actors are thus needed to support the sector with investments, including EV companies, automakers, charging network providers and governments.

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