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Electric vehicles: the carmakers wary of going ‘all in’ on batteries

Flanked by row after row of the new electric models Toyota plans to release this decade, it appeared that the carmaker’s boss Akio Toyoda was preparing to throw the company’s full weight behind battery-powered vehicles.

After years of promoting hydrogen technology and its own hybrid systems that combine engines and batteries, this seemed to be the moment the Japanese titan finally embraced the EV-mania sweeping the auto industry.

But even as it announced a $35bn investment in electric vehicles earlier this month, Toyota was hedging its bets.

“It is difficult to make everyone happy with a one-size-fits-all option,” Toyoda told investors and spectators at an event in Japan. “That is why Toyota wants to prepare as many options as possible for our customers around the world.”

The company is not alone in believing other options are needed.

Over the course of the past year, many of the world’s biggest carmakers have gone “all in” on electric vehicles. General Motors, Ford, Mercedes-Benz and Volvo Cars have set end dates for the sale of any vehicles containing an old-school engine. Volkswagen, which has pledged to spend €52bn on battery powered cars, has all but ruled out other solutions. With one eye on strict regulations and the other on the dramatic success of Tesla over the past few years, these companies are now preparing for a swift transition to EVs in many of their main markets.

Toyota unveiled 30 new battery models earlier this month but has stressed its dedication to other technologies including hydrogen power © Dhiraj Singh/Bloomberg

Yet others, most notably Toyota, BMW and Stellantis, have shied away from the headlong rush into battery models.

Their concern is not the direction of travel — all three have plans to sell significant numbers of electric vehicles over the next decade — but the speed of the shift, and its wider consequences for society and the climate.

While many executives share these concerns behind the scenes, the holdouts are becoming ever more vocal, arguing that policymakers need to take into account emissions from supply chains and power grids when deciding whether battery cars are truly “green”.

Furthermore, although carmakers are agreed that developed areas where regulators are pushing hardest, such as western Europe or China’s megacities, will become major electric markets in the space of a decade, they are sceptical that lower income economies will keep pace.

Currently, electric vehicles account for just 1 per cent of sales outside of Europe, China and the US, according to Bernstein, and countries with patchy power grids will take much, much longer to catch up.

This could lead, they believe, to a two-tier world where richer countries have transitioned to electric cars but consumers in large parts of the developing world are left driving dirty older cars, or being priced out of private car ownership altogether.

The companies more cautious about EVs also believe that the way the transition in the car industry is handled could have a big impact on the climate.

If consumers who could cut emissions by switching to hybrid models in large parts of the world remain in their old cars, the impact will be higher emissions until, by choice or government edict, they eventually move to electric cars.

“If the charging infrastructure isn’t there, it doesn’t matter how much CO2 would be replaced, customers won’t buy it and instead keep their old car for longer,” Gill Pratt, Toyota’s chief scientist, told the FT.

German premium brand BMW agrees. “It is absolutely unrealistic to expect that every customer in the world will have sufficient access to charging infrastructure in 2030,” says BMW’s sales chief Pieter Nota, in a thinly-disguised reference to the date when arch-rival Mercedes plans to switch to electric-only sales in Europe.

“That’s our conviction and that’s why it’s important to still be able to offer internal combustion engines at that point in time in order to serve these customer needs.”

Ultimately, those who remain stubbornly off the battery-car bandwagon share a single concern: a fear that carmakers are being led by regulators too fast down the single technological avenue of battery electric vehicles.

Stellantis boss Carlos Tavares, seen speaking at a press conference earlier this year, fears the additional costs of electrification will price a lot of the middles clasess out of the EV market
Stellantis boss Carlos Tavares, seen speaking at a press conference earlier this year, fears the additional costs of electrification will price a lot of the middles classes out of the EV market © Cyril Marcilhacy/Bloomberg

Carlos Tavares, the head of Stellantis who has for years been the torchbearer for the industry’s cautious wing, often likens carmakers to lightbulb manufacturers as they moved from incandescent bulbs to LED lights.

He notes that low-energy bulbs, an interim step, were once considered the future, but they were fundamentally compromised: inefficient, expensive and dim.

Had the bulb-makers of the world been forced by regulators to go “all in” on these substandard products, the industry would have collapsed when better technology eventually presented itself.

“We are trying not to predict the future, but to make sure we can be successful whatever the future will be,” says Toyota’s science leader Pratt.

‘You need to have options’

While regulators claim to be neutral about which technologies replace the combustion engine, in reality the strict timeframes they have set for the reduction of carbon emissions leave carmakers with little choice but to pursue battery car sales.

Not only is the cost of hydrogen and the lack of necessary fuelling infrastructure likely to hold back that technology before 2030, but regulators are pushing for non-electric solutions such as biomethane to be used in other areas of transport.

The shipping and trucking sectors, for example, need to go green but cannot rely wholly on batteries due to their relatively heavy weight.

“We don’t want to create a race in which the transport modes cannibalise each other in the fight for the same future,” EU transport commissioner Adina-Ioana Valean told the FT’s Global Boardroom summit earlier this month.

“So, for example, I would prefer to see the use of biomethane [go] towards maritime [transport], which does not have other solutions, [rather] than to waste it on the road where we have the solution for the moment.”

The holdouts insist they are also urging regulators to look at the bigger emissions picture.

BMW, for instance, says it is following a “holistic approach” to sustainability that will focus on using more recycled materials in combustion engine models, and ethical sourcing of raw materials.

European Commissioner for Transport Adina-Ioana Valean talks to journalists at a train station
EU Transport Commissioner Adina-Ioana Valean wants future technologies such as hydrogen or biomethane to be directed to other areas of transport — such as shipping and trucking © Horacio Villalobos/Corbis/Getty

It aims to cut emissions from the supply chain by 60 per cent in real terms, eliminate emissions from its factories, and find ways of reusing car parts at the end of their life.

“Climate friendly mobility is not automatically created through a higher number of electric vehicles on the road,” says BMW, which nevertheless has launched two new battery models — the iX and the i4 — to cater for the growing market.

Toyota makes a similar point when asked why it has not followed others by going “all in” on battery cars.

“It depends what you mean by ‘all in’, if it means reducing carbon, then there’s no doubt Toyota is all in,” says Toyota Europe president Matt Harrison, who notes the company’s 20-year bet on hybrid technology has seen it sail past EU CO2 targets ahead of rivals.

Earlier this month the Japanese group unveiled 30 new battery models, but still stressed its dedication to other technologies including hydrogen power.

“Carlos [Tavares] is a heterodoxical thinker, so are BMW and Toyota,” says one industry insider who has witnessed the internal struggles in automotive boardrooms as executives wrestle with the question of how to cut emissions responsibly.

“You need to have options, you can’t close down options.”

However, keeping options open forces carmakers to spread costs across a number of competing technologies at a time when the industry is already forced to shoulder vast investments into new electric systems.

The industry plans to spend $330bn on battery electric vehicle technology alone in the next five years, according to calculations from consultancy AlixPartners.

The need to consolidate spending was the rationale for the €50bn merger of France’s PSA and Fiat Chrysler to create Stellantis, as well as the driving force behind Ford’s global alliance with VW.

Yet the added costs from developing electric cars will still flow through to electric car prices, which remain stubbornly dearer than their petrol forebears despite falling battery costs.

The gap is widest at the lowest end of the market, with the cars that often serve as many drivers’ first entry into motoring.

“Electrification brings 50 per cent additional costs . . . there is no way we can transfer 50 per cent of [the] additional cost to the final consumer, because most parts of the middle classes will not be able to pay,” Stellantis boss Tavares told a Reuters conference this month. The Portuguese executive previously warned that pricing people out of private vehicle ownership risked sparking the types of gilets jaunes protests that startled Paris in 2018.

Scratch the surface, and even Mercedes agrees that richer buyers will turn electric first. “I think we’re in a good position that our customer profile is perhaps a set of customers that will more easily access charging infrastructure,” Mercedes-Benz boss Ola Kallenius told the FT. “So that’s why we have set the ambition high.”

Some of the most vocal criticism of the rapid push into EVs has come from suppliers, some of whom face possible extermination if the industry does fully transition to battery models.

Privately owned Bosch, which makes engines for many household auto brands, appealed directly to politicians to tone down their electric-only rhetoric.

Mercedes-Benz boss Ola Kallenius, pictured at the new company’s production line in Germany, says its EV ambitions are high as their customer profile comprises individuals who are more able to afford the switch
Mercedes-Benz boss Ola Kallenius says the company’s EV ambitions are high as their customer profile comprises individuals who are more able to afford the switch © Michaela Handrek-Rehle/Bloomberg

“Modern diesel engines no longer have higher [nitrogen oxide tailpipe] emissions than other vehicles, and particulate emissions for the gasoline engines has been decreased by the factor of 100,” Bosch’s chief executive Volkmar Denner said in February. “This would have been impossible if we had stopped investing in these technologies.”

However, many environmental groups are not convinced by these arguments.

“The likes of Bosch and BMW refuse to see the writing on the wall that there is no future for combustion vehicles,” says Julia Poliscanova, a director at environmental research group Transport & Environment.

She says clean fuel technology and hybrid vehicles are merely “an attempt to prolong the life of the dying industry”, adding: “The problem is that the planet can’t afford such detours. Policymakers must set stricter emission rules this decade to avoid the unnecessary carbon pollution from such laggards.”

‘All in’ in name only?

As the industry debates how quickly to move to EVs, some analysts believe one of the dividing lines could be the differing ownership structures of companies.

While the Ford family, led by environmentalist Bill Ford, has backed ending the sale of polluting cars by 2040, in general the family-backed groups tend to be more cautious.

BMW, whose anchor shareholder — the Quandt and Klatten families — own as much as 46 per cent of the company, is under less pressure to convince investors of its plans than many of its listed rivals.

Toyota is still run by Akio Toyoda, the grandson of the founder, while the Agnelli and Peugeot families stand behind Stellantis.

This has led to some speculation that part of the reason for GM and Daimler to be so vocal about their ambitions is an attempt to garner some of the EV stardust that has propelled Tesla’s value to more than $1tn, and seen the market values of sales-less start-ups Rivian and Lucid soar ahead of established names such as Ford and Renault.

“There is definitely a PR exercise at Mercedes and GM that we need to discount,” says Philippe Houchois, an automotive analyst at Jefferies.

“It could be that a [share] re-rating is what they need — they are not protected by a family or a state.”

A BMW employee assembles components of Series 3 vehicle at the company’s Mexico facility in April. While BMW has launched two electric models, it is concerned that charging infrastructure will not be able to keep pace with the headlong rush into EVs
While BMW has launched two electric models, it is concerned that charging infrastructure will not be able to keep pace with the headlong rush into EVs © Mauricio Palos/Bloomberg

He adds that companies that have significantly reduced emissions from their vehicles often get overlooked by investors unless they embrace the accepted narrative.

“Toyota has done more for EU emissions in the last five years than any of the others [by selling hybrids], but the market is so obsessed with ESG all-in and not very discriminating when looking at all these issues,” he adds.

The gulf between enthusiasts and holdouts is also thinner than it appears. Mercedes for example, has caveated its 2030 commitment by saying it will be all electric “where market conditions allow”.

Houchois adds: “The big difference between BMW and Mercedes is BMW says upfront what the problems are — Merc says it is ‘all in’ but you have to look at the fine print”. He adds that the electric sales of both companies in Europe by 2030 are likely to be “be broadly the same”.

The cynical view, therefore, is that the EV enthusiasts want to boost their share prices in the short-term, while the laggards want to dominate sales of engine cars once their rivals leave the field.

Both are slightly unfair, though neither is wholly untrue.

Even those who have made the leap are realistic about the barriers that remain. “We need to have everybody in that transition and transformation that’s happening, and we need to make sure nobody is left behind,” says GM sustainability boss Kristen Siemen.

“And that, you know, for us means having a range of products across all segments and price points. It’s about ensuring infrastructure is available in all areas.”

The company’s two largest markets are the US and China, neither of which signed the COP26 pledge to end polluting vehicle sales by 2035, and which both face vast challenges in ensuring widespread adoption of EVs.

Nor is GM completely turning its back on engine improvements during the technology’s twilight years.

“We’re going to continue to develop fuel-saving technologies and more efficient solutions,” says Siemen.

A line of General Motors’ Hummer EVs. GM has pledged to end the sale of any vehicles containing an old-school engine by 2035
General Motors, which produces Hummer EVs, has pledged to end the sale of any vehicles containing an old-school engine by 2035 © Nic Antaya/Getty

“The policies need to be there in order to achieve customer acceptance. But we’re going to do everything we can and continue to work with those partners to make it happen.”

The likes of Bosch say their continued development of combustion engine technology plays a pivotal, if unglamorous, role in fighting climate change. With the vast majority of drivers still sitting behind the wheel of a petrol or diesel car for decades to come, reducing emissions will be as vital as eliminating them from newer models, they argue.

“We need combustion engines. We need to build combustion engines. We need to have them on the road,” said Denner in February. “And that’s a fact.”

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