Turmoil and Turbulence in the Powertrain Business

Say goodbye to Big Oil and start working with the electric utilities instead. That was one of the main messages that came out of the conference. The biggest roadblock to EV adoption is the fragile state of the U.S. grid, which was built up in a patchwork style over the past 100 years. So, the faster the utilities and OEMs sit down and hammer out a long-term plan, the faster the grid will get updated. The good news is there are no technological roadblocks to modernizing the grid. It’s mainly a matter of getting organized and starting to make improvements. But a word of warning: The current regulatory structure and oversights by public-service boards cannot keep up with the pace and scale of changes needed by 2030. It currently takes five to 10 years to approve upgrades and build new plants. A big uncertainty is the pace and place of EV adoption: Where and when should the grid get upgraded?

Widespread adoption of EVs will add unprecedented loads to the grid, probably an additional 150 terawatt hours by 2030. They are about to become the biggest load since the widespread use of air conditioning started in the 1950s. 

With bi-directional charging, EVs can become part of the solution for fixing the grid, by providing storage that can be tapped during peak demand. In fact, this could change the “value proposition of owning an EV,” as owners could actually make money by arbitraging the electricity in their batteries – buying during low demand when it’s cheap, selling during high demand when it’s expensive. This becomes even more attractive if people can plug in where they work, not just at home.

U.S. battery prices will average around $100/kWh in 2025 and will drop to $75/kWh in 2030. But even then, an EV will cost about $3,000 more to manufacture than an ICE vehicle.

Sourcing raw materials for batteries in North America is ramping up quickly. In five years, 42% of the anode, 63% of the cathode, 72% of the key metals and 100% of the electrode will be sourced in the U.S., Canada or Mexico.

Second use of EV batteries could become a booming business, especially for home energy storage. The batteries could last as long as they did in an EV but would cost half as much to buy. The growth rate for second-use batteries could be as much as 16% compounded annually. 25%-30% of IC engines are pulled from scrapped cars and sold, and the same could happen for batteries.

There are lots of opportunities to improve electric cars beyond the batteries. Highly efficient electric motors that don’t use any rare-earth minerals are coming. One trick to improving motor efficiency is by oil cooling the windings, which allows the entire cooling system to be downsized. Silicon carbide chips in inverters are going to increase driving range and will be in 70% of all EVs by 2028.

Low-carbon “drop-in” fuels, also called e-fuels or synthetic fuels, will be an indispensable part of decarbonizing the transportation industry, but mostly in aviation, marine and rail.

ICE vehicles will still represent 57% of the global car parc in 2050, including hybrids. So, e-fuels could play a major role in decarbonizing the fleet. One prediction: E-fuels will match the price of gasoline in a decade. But they have to be made with renewable energy or they will not be carbon neutral. So, they are very cost-dependent on that energy source.

Burning hydrogen as a fuel in IC engines could be a viable way to instantly cut carbon emissions. A bus using hydrogen as a fuel costs $180,000 versus $170,000 for one using diesel fuel. A battery-electric bus costs $500,000 and a fuel-cell bus is $700,000.

Fuel cells may have a compelling business proposition for long-haul trucking and energy storage.

As ICE production winds down, suppliers want “sunset pricing” from the OEMs. As production falls, they want higher prices to offset their loss of manufacturing scale. OEMs don’t seem to like the idea but realize that suppliers are not going to bid on business where they’re going to lose money. This is going to compress the OEMs’ profit margins on ICE vehicles.

The auto industry is going to spend $860 billion between now and 2030, mainly on EVs. Capital deployment is a critical issue. Companies can’t afford to invest in areas that will not produce a return. But their assumptions about how the market will develop will almost certainly be wrong, so they need flexible strategies.

Forming partnerships is the only way to get through this transition. “Partnership is the new leadership,” said one industry leader. “Things are moving too fast to do it yourself.”