Gas Guzzlers to Green: Renewable Energy Trends within the Car Sector

Policy Background

Climate change is a prominent issue at the moment. Governments across the globe are setting policy agendas and making pledges in a bid to attempt to avoid the negative effects of climate change. The UK and EU governments have set a target of net zero carbon emissions by 2050.

Decarbonising the economy is therefore pivotal if these targets are to be met. An important component of this economic transformation will be the attempt to decarbonise transport. Figures from 2016 show that road transport contributed nearly 21% of the total emissions of carbon dioxide in the EU. From these figures it is clear that decarbonising the transport industry is a key factor in reaching net zero climate targets.

What all this means is that the car sector as it currently stands is set to be potentially turned upside down by the demise of the internal combustion engine and the uptake of low carbon emission technology. The UK government has announced that from 2040 sales of new petrol and diesel cars will be illegal. As it stands, well known German and Japanese manufacturers have been dominant in the sector, however it is now all to play for in the changing landscape.

Technology Battle

The broad consensus at the moment appears to be that electric powered vehicles will replace the internal combustion engine. However, this is far from settled. It has been argued that should the forecasted numbers of road users all use electric cars the UK electricity infrastructure would not be able to cope and provide the electricity. For this reason hydrogen fuel cell technology is also being developed and hydrogen versus electricity is an interesting battle about to unfold.

New Challengers or the Old Guard

It remains to be seen whether the dominant forces in the car sector can retain their market share when switching over in technology. Whilst the existing big names are likely to have better developed supply chains than new challengers, it is unclear whether they will be able to hold onto their market share. American car manufacturer Tesla only build electric cars and do not have the luxury of pre existing supply chain relationships and have recently turned a profit, sending a strong signal to the market that their focus on the technology may be paying off and that the main contenders need to respond. Electronics giant Sony also made a surprise entrance into the market as further evidence of the shake up of the existing order.

Corporate Responses

One of the key issues which has hindered the growth of manufacturing of electric vehicles so far has been the difficulty to turn a profit on electric vehicles. The vehicles need to be priced comparatively with petrol/diesel counterparts in order to achieve mass popularity, but this is very difficult to do when the technology needs to be developed at great cost. In response to these challenges expect to see more solutions from executives at big car manufacturers to tackle these issues. Fiat Chrysler and Renault recently announced a merger to save $5bn a year by sharing research.

Whilst the uptake of low carbon electric still represents a fraction of the market, keep an eye on this sector as large change is inevitable.

Insight article byAisha Wardell

Aisha Wardell

Partner

+44 (0)7976 927 001
[email protected]

 

Insight article byWilliam Rees

William Rees

Trainee

+44 (0)333 0163553
[email protected]