Automotive Insights from Clearwater International
clearthought Electric Vehicles
As OEMs and their suppliers are confronted with huge challenges in a rapidly changing industry, the market is seeing significant consolidation through M&A
Electric future With governments, OEMs and the global scientific community setting ambitious targets for electric mobility to counter CO2 emissions, the Electric Vehicle (EV) industry is projected to enter an era of rapid growth. The summer of 2017 was notable for a string of announcements from governments and OEMs. For instance both France and the UK proposed to ban the sale of new petrol and diesel cars by 2040, while Germany hosted a 'diesel summit' which discussed the very future of the engine. OEMs already offer EV models in most segments of the market - from SUVs, executive cars and sports cars through to smaller family and compact models. But most now have plans to significantly up their game. For instance VW is aiming for more than 30 new EV models by 2025, while Volvo Cars says every model from 2019 onwards will have an electric motor. Tesla has also launched its ground-breaking Model 3 as an affordable mass market EV. Looking ahead, the combination of stricter emission regulations, lower battery costs, more widely available charging stations, and increasing consumer acceptance will create strong momentum and growth in
the EV market1. As the chart below shows, exemplary Tier 1 supplier Schaeffler is preparing for 30% BEV (battery electric vehicle) penetration by 2030.
government incentives and its goal of reaching 7 million annual New Energy Vehicle (NEV) sales by 2025. The market is also being driven by forthcoming rules which would require as much as 8% of the sales of global carmakers in China to be EVs as early as next year, with the figure rising to 12% by 20202. The move will strongly affect German and US OEMs with major operations in China and carmakers who miss the target will be forced to buy credits from competitors who exceed the percentage.
Challenges The speed of this revolution raises serious concerns for suppliers so reliant on the combustion engine. How do they secure the future of their businesses? And are the timelines being set by politicians and regulators realistic? A key question is also how quickly consumers will move across to EVs and see it as a credible transport option. At present, issues around cost, user requirements, choice, limited range and technological uncertainty have held back the market.
Europe is also seeing significant investment by both governments and leading automotive players. This growth is part of a much wider electro mobility revolution with increasing numbers of electric trains, trams and bikes in operation.
Global picture The race for the EV market is hotting up. China has rapidly become the biggest global market as a result of a range of
1
McKinsey&Company: Automotive revolution – perspective towards 2030
2
The Chinese government is currently considering an easing of this rule
Development of the automotive market (in millions of units)
74 2%
98%
2010
89 3%
97%
2015
SOURCE: Schaeffler
Basic scenario
Accelerated scenario
CAGR +2.4%
CAGR +2.4%
102
111
2% 13%
24%
85%
2020e
4%
72%
2025e
120 10%
89
74
3%
2%
102
111
120
2% 13%
15%
30%
37%
35% 98%
40%
97%
85%
53%
2030e
Internal combustion engine
50%
2010
2015
2020e
Hybrid electric vehicle
2025e
30%
2030e
Battery electric vehicle
clearthought | 2017
Automotive Insights from Clearwater International
Types of electric vehicles There are a number of different EV models1: Battery electric vehicles (BEVs) BEVs are powered solely by an electric motor using electricity stored in an onboard battery. The motor can also act as an on-board generator for the battery by producing electricity while the vehicle is decelerating. Most EVs use lithium-ion batteries which have higher energy storage capacity and longer lifespans compared to other battery types. Solid state batteries are currently under development as an alternative option.
Fuel cell electric vehicles (FCEVs) The electrical energy is not stored in a battery but provided by a fuel cell stack that uses hydrogen from an on-board tank combined with oxygen from the air. The main advantages are their longer driving ranges and faster refuelling, similar to those of conventional vehicles. Such
power is required or when the battery’s state of charge is low. The battery capacity is designed more for short trips in the city or commuting.
technology is still at an early stage and the market very small.
Hybrid electric vehicles (HEVs) Although predominantly powered by a conventional engine the HEV also has a battery-powered electric motor which is not charged from the grid but during regenerative braking or while the vehicle is coasting. So-called ‘parallel hybrids’ employ an electric motor and combustion engine that are connected so that they power the vehicle together, while ‘seriesparallel hybrids’ can be driven from the battery alone but only at low speeds for short distances.
Range extended electric vehicles (REEVs) The combustion engine acts as an electricity generator and is used to power the electric motor or recharge the battery. The on-board battery can also be charged from the grid. One advantage is that the conventional engine can be small as it is needed only when the vehicle exceeds its electric driving range, which helps reduce the vehicle’s weight.
Plug-in hybrid electric vehicles (PHEVs)
1
Electric vehicles in Europe - European Environment Agency
The battery can be charged from the grid and the combustion engine supports the electric motor when higher operating
Infrastructure There remain wide variations around who provides charging stations and whether they are free. Some countries have free charging at public stations, while manufacturers such as Tesla offer their own network of charging points for owners of certain models. Other industrial players are also entering the space. Siemens recently invested in electric charging network ChargePoint, Inc. a US company which owns a network of more than 36,000 charge stations across the world. VW, Daimler, BMW and Ford have also formed a consortium to build 400 charging stations this year, with an ambition of having ‘thousands’ across Europe by the end of this decade.
EVs can be charged in three main ways1:
Wireless charging
Plug-in charging
A localised electromagnetic field is created around a charging pad which is then activated when an EV with a corresponding pad is positioned above it.
Vehicles are charged either using normal household sockets or via public stations. Household sockets can be slow to charge because domestic sockets provide only a low amount of electric current. As such, faster plug-in charging requires specialised infrastructure and charging points installed by either public authorities, utilities, EV manufacturers or other companies.
Battery swapping A battery is replaced with a fully charged one at a special swapping station. Current barriers include a lack of EVs that support battery swapping, no standard type or size of battery, and the high cost of developing such infrastructure.
1
Electric vehicles in Europe - European Environment Agency
clearthought | 2017
Automotive Insights from Clearwater International
Battery technology The cost of a lithium-ion battery pack fell 65% from 2010 to 2015 and is expected to drop below $100 per kilowatt hour over the next decade1, further adding to the appeal of EVs. Meanwhile to improve EV driving range, different battery technologies such as lithium-sulphur or solid state batteries are currently being explored and could greatly increase battery capacities compared with current technologies2. Global battery production for EVs is currently dominated by Panasonic which has a strategic partnership with Tesla. The companies are currently building the huge Tesla Gigafactory 1 in Nevada, a lithium-ion battery factory which will have a projected capacity for 2018 of 50 GWh/yr of battery packs and final capacity upon completion of 150 GWh/yr. Terra E Holding also has plans to build a huge battery factory in Germany, which will reach full capacity by 2028, while Daimler is building a battery factory in China in a ¤655m joint venture with BAIC Motor. Samsung SDI and LG Chem also both have plans for new battery plants, while VW is rumoured to be planning to build one or more giant battery factories. Meanwhile there have been concerns that the limited range of technical alternatives within lithium-ion technology makes the automotive industry dependent on a small number of key raw materials such as lithium, nickel, silicon, manganese, cobalt and graphite. For instance a recent report3 said a critical issue was meeting demand for graphite and cobalt. Some 95% of today's reserves of natural graphite are found in China and almost half of global demand for cobalt comes from Congo. 1
An integrated perspective on the future of mobility – Bloomberg New Energy Finance, Mckinsey & Company
2
Electric vehicles in Europe - European Environment Agency
3
Emobility index, Roland Berger, Q1 2017
Supply chain impact The new EV era heralds huge change for automotive suppliers, many of whom are rapidly re-engineering their businesses as they ask how they fit in to this changing environment and work out what technologies they need to pursue. For instance last year German technology firm ZF, which opened one of the world’s first electric drive factories almost a decade ago, founded an eMobility division. In doing so it has merged all of its e-mobility activities under one roof and now offers hybrid modules and plugin hybrid transmissions as well as electric drives for EVs.
Bosch has unveiled new electric drive units to complete its electric powertrain offering to OEMs, with its ‘eAxle’ drive unit flexible for multiple platforms and bringing together Bosch powertrain components into one system. Continental also recently signed a cooperation framework agreement with EV startup NIO. The two companies will collaborate in the EV field as well as on ‘intelligent’ transportation systems and automated driving. Another supplier Hella has increased production of electronic components and sensors, while automotive and industrial supplier Schaeffler is repositioning itself to be a leader in the EV revolution.
clearthought | 2017
Automotive Insights from Clearwater International
M&A activity The EV sector has seen significant M&A activity in the last 12 months and this trend is set to continue as the future potential and growth of the market becomes clearer to investors. In particular there will be considerable M&A activity both in the supply chain, as suppliers acquire competencies and reposition themselves for the electric future, and among traditional OEMs seeking to acquire more technological know-how in electrification. Another area of activity will also be around securing supplies to the resources needed to power the EV revolution. Date
Target
Country
Acquirer
Comment
03/06/17
Sevcon New Energy Technology (Hubei) Co., Ltd. (50% Stake)
China
Sevcon, Inc.
Sevcon, Inc. has agreed to acquire a 50% stake in Sevcon New Energy Technology (Hubei) Co., Ltd., a Chinese distributor of on-road electric and hybrid vehicle applications
13/04/17
Fox Automotive Switzerland AG; Magnum Pirex AG
Switzerland / Germany
Zara Resources Inc.
Zara Resources Inc. acquired Fox Automotive Switzerland AG, a manufacturer of electric cars, and Magnum Pirex AG, a manufacturer of fuel cell range extenders for electric cars
10/04/17
Rimac Automobili d.o.o.
Croatia
Camel Group
Chinese battery maker Camel Group signed a framework agreement to invest ¤30m in Rimac Automobili, the Croatian EV components manufacturer
22/03/17
US Hybrid Corporation (10% Stake); US FuelCell Corporation (55% Stake)
US
Jiangsu Dewei Advanced Materials Co., Ltd
US Hybrid Corporation is engaged in the design and manufacturing of integrated power conversion components for electric and hybrid vehicles, US FuelCell Corporation is a fuel cell engine system and part maker
16/03/17
NIO
China
An investor group led by Baidu, Inc.
An investor group led by Baidu, Inc. has acquired an undisclosed stake in NIO, the China-based technology company engaged in electric car development
06/02/17
Power Vehicle Innovation
France
Renault SA
Renault SA has acquired Power Vehicle Innovation (PVI), the France-based electric commercial vehicle, drive chain and drivetrain producer, for an undisclosed consideration
31/01/17
OVALO GmbH
Germany
Nabtesco Corporation
Nabtesco Corporation has acquired OVALO GmbH, a producer of mechatronic systems for automobiles, and electric motors
03/01/17
Proterra, Inc.
US
Kleiner Perkins Caufield & Byers; General Motors Ventures, LLC; 88 Green Ventures; Constellation Technology Ventures; Tao Capital Partners; Obvious Ventures; Edison Energy, LLC; VentureSouth
A number of new and existing investors have acquired an undisclosed stake in Proterra, Inc., a manufacturer of hybrid and battery electric buses
20/12/16
Compact Dynamics GmbH (51% Stake)
Germany
Schaeffler AG
Schaeffler AG has acquired a 51% stake in Compact Dynamics GmbH, a developer of innovative electric power concepts focussing on high performance motors and integrated light weight construction in small series and for motor sport applications
07/12/16
Delta-Q Technologies Corp.
Canada
Zapi S.p.A.
Zapi S.p.A. has acquired Delta-Q Technologies Corp., a Canadabased company that develops and supplies power conversion and power management solutions to vehicle manufacturers
27/10/16
Hofer AG (27% Stake); Hofer Powertrain GmbH (53% Stake)
Germany
ElringKlinger AG
ElringKlinger AG has acquired a 27% stake in Hofer AG and a 53% stake in its subsidiary Hofer Powertrain Products GmbH
18/10/16
Kristronics GmbH
Germany
Marquardt GmbH
Marquardt GmbH has acquired Kristronics GmbH, a developer and manufacturer of electronic and mechatronic systems and modules
28/06/16
UQM Technologies Inc. (57.91% Stake)
US
American Compass, Inc.
American Compass acquired UQM Technologies Inc., a listed US-based manufacturer of electrical motors, generators and hybrid systems for passenger and commercial vehicles
13/06/16
AMK Holding GmbH & Co. KG
Germany
Anhui Zhongding Sealing Parts Co Ltd
Anhui Zhongding Sealing Parts Co Ltd has acquired AMK Holding GmbH & Co. KG, the company engaged in electric drive and control, and industrial automation engineering
05/05/16
NRG EV Services LLC
US
Vision Ridge Partners LLC
Vision Ridge Partners, a US private equity firm, acquired the electric vehicle charging network operator NRG EV Services LLC
18/04/16
Valeo SA (High Voltage Power Electronics Business); Siemens AG (E-Car Powertrain Systems Business Unit)
Germany / France
Valeo Siemens eAutomotive GmbH
Valeo SA and Siemens AG have agreed to form a joint venture for High Voltage Powertrains. Valeo will contribute its high voltage power electronics business, while Siemens will contribute its E-Car Powertrain Systems Business Unit
clearthought | 2017
Automotive Insights from Clearwater International
Expert insights Clearwater International's automotive senior advisers Dr Rolf Leonhard and Prof Hubertus Tuczek share their views on the EV revolution. Although the automotive market is aware of significant changes due to the electrification of the industry, the speed and final direction of development cannot be predicted. That's the view of Dr Rolf Leonhard who says that because of these uncertainties both OEMs and suppliers are pushing a dual strategy of investing in both pure EVs and hybrid solutions. He says one of the biggest issues facing both OEMs and governments is the electricity supply - for instance in Germany meeting future primary energy demand from private and industrial electricity consumers as well as traffic implies at least a four-fold increase in renewable energy supplies compared to today. “One also mustn’t forget that renewable energy power must remain available for current electricity consumers too, a market that is also increasing as the global population increases and the primary energy requirements switch to renewable energy.”
Customer acceptance He adds that another key challenge remains customer acceptance of EVs and concerns around low travel ranges and higher costs of vehicles. Meanwhile companies that specialise in the production of parts for combustion engines, such as in the precision machining sector, also face huge challenges as they are forced to change their future product portfolio and switch to EV-oriented supplies such as batteries, stacks and electric motors. "There will also be a huge impact on jobs given that the propulsion system of EVs
requires more than 80% less precision machining and lower value-added than conventional vehicles," he adds. Dr Leonhard says one solution could be the creation of a synthetic electrochemical fuel market which would provide a smart and alternative method to complete electrification. “With synthetic electrochemical fuel, combustion engines could become CO2 neutral and one scenario is that OEMs could invest in the scientific research behind electrochemical fuel to support their production so that combustion engines could be further used.” Meanwhile he believes that plans by the French and British governments to ban the sale of new diesel and petrol cars by 2040 are unrealistic, both in terms of the charging infrastructure required and the production technologies needed. “The charging structure, especially in big towns and cities, remains very complex. Today there is no viable business solution for charging stations.”
Driving ranges Prof Hubertus Tuczek echoes the view that concerns over driving ranges and charging issues remain key challenges, and questions whether EV technology is the ideal solution to reducing CO2 transport emissions. “Low travel ranges remain a big problem which cannot be solved even with new battery concepts. Quick charging could also become a problem during the rush hour when many road users will want to access stations simultaneously. The infrastructure around EVs needs to expand massively.” He adds that another issue remains the weight of EVs. “The energy of approximately one litre of diesel is equal to a 15kg battery.
“There will also be a huge impact on jobs given that the propulsion system of EVs requires more than 80% less precision machining and lower value-added than conventional vehicles.” Dr Rolf Leonhard, former Executive Vice President of Robert Bosch GmbH This means that EVs have much more weight than conventional cars and the total weight of their batteries can be as high as 600kg which means worse driving dynamics.” Prof Tuczek also has fears over lost jobs. “The end of combustion technology means a complete turnaround for the sector with companies switching to alternative technologies and new competences required. Yes, electro mobility is on its way, but we would be well advised to keep in mind alternative driving concepts and value their potential as interim technologies. In this context, the combustion engine will remain relevant for the next few years and there is still a lot of potential for its emission purification.”
“The end of combustion technology means a complete turnaround for the sector with companies switching to alternative technologies and new competences required. Yes, electro mobility is on its way, but we would be well advised to keep in mind alternative driving concepts and value their potential as interim technologies.” Prof Hubertus Tuczek, former Vice President of the Dräxlmaier Group
clearthought | 2017
Automotive Insights from Clearwater International
Deal highlights
Meet the team
Some of our recent deals
Tobias Schätzmüller International Head of Automotive, Germany
+49 611 360 39 26
[email protected]
Faurecia
Grupo Sunviauto
Automotive equipment supplier
Automotive components manufacturer
Clearwater International advised Faurecia on the acquisition of Chinese in-car infotainment and technology company Jiangxi Coagent Electronics
Clearwater International advised the management team of Grupo Sunviauto on the MBO backed by the private equity firm Oxy Capital
Finoba Automotive
Starco
Partner, Spain
Lightweight component processing and machining firm
One of Europe’s leading wholesalers and distributors of industrial tyres and wheels
Jon Hustler
Clearwater International advised the shareholder of Finoba Automotive on the disposal of its shares to China National Machinery Industry Corporation
Clearwater International advised the owners of STARCO on the divestment of major parts of its aftermarket business to German Bohnenkamp
Philippe Croppi Partner, France
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Partner, UK
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Reverse Logistics
Joyson
Lars Rau Jacobsen Reverse logistics services
Leading global automotive supplier
Clearwater International advised Reverse Logistics on the structuring of two loan notes facilities with Proventus Capital Partners
Clearwater International advised Ningbo Joyson Electronic Corporation on its acquisition of Key Safety Systems, a leading global supplier of advanced engineered safety products
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