Does COVID-19 Have the Potential to Accelerate the Transition to Electric Mobility?

impact of Covid 19 on EV fluids and electric mobility

As the world is entering a new phase of unprecedented economic, social, and political instability triggered by the COVID-19 (C-19) health crisis, the global community is busy digesting a plethora of views on the immediate impact of C-19 on every type of sector, while its far-reaching implications for the global economic fundamentals are analyzed less.

Given this context, it will be of great interest to analyze the repercussions of the pandemic on the development of disrupting technologies and, in particular, the diffusion of electric vehicles (EVs) and their implications for the entire automotive aftermarket segment, including lubricants.

Each crisis can act to as an accelerator to give momentum to change directions

Before the crisis, the EV market was booming—driven by sales in China, first and foremost—but also in other developed countries in Europe and North America. In the early stages of expansion, EVs have been heavily promoted by strong governmental intervention, leading to regulatory frameworks imposing stringent emission reduction levels, coupled with generous financial support and incentives. The aim of governmental efforts was to impart momentum to the market until a certain level of technological maturity is achieved. Currently, there are three key issues preventing the mass-scale consumer acceptance of EVs: the relatively high vehicle cost, long recharging time, and limited vehicle range. Prior to the outbreak, Kline reported that EVs might account for about a third of the global passenger vehicle fleet by 2040. But as the world is gradually entering a post-C-19 “new normal,” the question arising is whether the pace of deployment of EV technology will be slower or faster in the aftermath of C-19. How will governments prioritize the emerging challenges on various fronts? Will sustainability and EVs be given priority?

Passenger Vehicle Population in Select Countries, 2019 and 2040 ( under most likely scenario)

EV fluids market 2040

Source: Kline’s PCMO 2040 report

The market foundations for electric mobility remain intact; the global lockdown has delivered  beneficial effects for the deteriorated environment

The confinement measures were imposed by governments to curb the spread of the pandemic in countries representing nearly half of the world’s population, including heavily polluted industrialized regions in Asia, Europe, and North America. The lockdown had a positive effect on the reduction of emissions from transport and industrial activities. Pictures of strikingly clean cities around the world became viral and enhanced environmental awareness among the population.

While the fundamentals of conservation efforts remain intact or even intensify, and as sustainability remains a priority for governments as well as for people, fundamentals of personal mobility may undergo some alterations. There might be an increase in the utilization of personal vehicles. More people will start using alternatives to public transport because of health concerns, including passenger vehicles and bikes, among other modes of transport. EVs pose a powerful value proposition that contributes to emission reduction in the context of a higher utilization of personal transportation, driven by health concerns. Therefore, there is a growing consensus that amid the crisis, there is a political will to intensify the transition to low zero-emission mobility.

For instance, the financial package recently announced by various governments in Europe, namely Germany’s incentives to reactivate the economy, reiterates the government’s determination to push the automotive industry toward a transition to electric vehicles.

  • The package is comprised of several initiatives, including a value-added tax rate cut from 19% to 16% (including passenger vehicles)
  • The package also offers a EUR 6,000 subsidy for the purchase of electric vehicles with a sticker price below EUR 40,000, while it rejects the highly expected scrappage scheme for gasoline/diesel-propelled internal combustion engines vehicles.

It is likely that other governments might be tempted to replicate similar schemes promoting sustainable and innovative technologies. Lastly, the pandemic revealed the pressing need to speed up the deployment of the digital economy and smart technologies. This renewed interest could also impart momentum to autonomous and electric vehicles.

All in all, some companies emerge as the winners in this revived interest for EVs. Nikola, a company operating in fuel cell battery-powered trucks, went public, reaching a market capitalization of USD 26 billion. Tesla is also doing relatively well, pushing to increase its production volumes and getting an immediate positive response from the market, with Tesla shares increasing stock values. This growth is also supported by Tesla’s strong sales, notably in China.

As per Kline’s report, the increasing penetration of EVs will certainly have a negative impact on passenger car motor oils (PCMO). However, beyond the negative impact on market demand in terms of volume, the ongoing transition to new mobility systems is triggering fundamental shifts in PCMO market dynamics, involving alternative trade channels and novel business models.

Quality-wise, there will be also a major shift in other automotive lubricants and fluids. Although conventional ICE lubricants are currently used for most electric vehicles, there will soon come a point when they will struggle to meet the performance requirements of the most modern EV powertrain technologies.

It is unlikely that mainstream lubricants will be able to deliver the enhanced cooling and electrical properties that EVs of the future will require, in addition to traditional tribology. New generation EV fluids will become instrumental in overcoming the three key barriers currently deterring EV uptake: cost, distance range, and charging infrastructure.

Kline's Electric Vehicles Fluids: Market Analysis and Opportunities helps to understand the evolving EV fluids market in the context of emerging EV technologies, their penetration in the overall market, and their fluid requirements.

Another Kline's report The PCMO Market in 2040: A Long-term Outlook assists lubricant marketers in identifying opportunities and challenges within the PCMO industry.

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