Global Economy / Are EVs a 'disruptive technology'?

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By Shigeki Kurokawa / Yomiuri Shimbun Senior WriterThe trend toward electric vehicles is accelerating worldwide. The governments of France and Britain announced a ban on sales of gasoline and diesel vehicles starting in 2040, and China will be discussing when to impose a ban as well. However, EVs also face challenges such as lengthy battery charging times and short travel distances.

At the Frankfurt International Motor Show that started from Sept. 12, German automakers such as BMW AG and Daimler AG staged an “electric vehicle rhapsody.” Volkswagen AG plans to introduce about 50 EV models by 2025 and invest €20 billion (about ¥2.7 trillion) in the transition to EVs.

At a press conference in Paris on Sept. 15, Carlos Ghosn, who serves as chairman of Nissan Motor Co., Mitsubishi Motors Corp. and Renault SA, stressed, “In the next 10 years, the auto industry will face changes greater than any experienced in the past 50 years.”

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However, this great transformation will not necessarily be arriving soon. In a forecast of global auto production (see chart 1) compiled this spring by research agency IHS Markit, EVs are estimated to reach 3.7 million units in fiscal 2025, or 3.4 percent of all production, while plug-in hybrids that can be charged from an external source will rise to 5.39 million units, or 4.9 percent of production.

Gasoline and diesel vehicles are predicted to account for about 70 percent of new models produced in fiscal 2025. Even as the trend toward EVs gathers momentum, they are still far from being the “lead character” in the industry.

A history of competition

Electric and gasoline vehicles have a long history of vying for supremacy. In 1899, La Jamais Contente, an electric car driven by Belgian Camille Jenatzy, was the first vehicle to break the 100-kph barrier, ahead of gasoline engine vehicles.

However, EVs had the fatal flaw of short running distances. When the Ford Motor Co. released its Ford Model T in 1908, gasoline engines capable of driving long distances became overwhelmingly dominant.

EVs have been in the spotlight a number of times. Seven years ago at the 2010 Paris Motor Show, there were similarly wide expectations for the popularization of EVs. Nissan released the Leaf that same year, but together with partners such as Renault, it has achieved EV sales of just 500,000 units. They were unable to achieve the target set by Ghosn of 1.5 million units by fiscal 2016.

The tricky problem of battery life has persisted for more than a century. U.S. automaker Tesla Motors, Inc. delivered its new Model 3 in the United States in July, with a running distance of 350 kilometers to 500 kilometers under U.S. standards. The new Leaf model that Nissan is releasing in Japan in October will have a running distance of about 400 kilometers under Japanese standards, doubling that of the first-generation model.

Battery performance has greatly improved, but unlike a gasoline engine vehicle that can be filled up in a few minutes, charging batteries still takes time.

Favorable winds

EVs emit no exhaust fumes, but the key point in terms of preventing global warming is how the electricity used to power them is produced. In China and Japan, countries reliant on thermal power generation, carbon dioxide (CO2) is released when power is generated.

“Ultimately, there’s not much difference between emissions produced by electric and hybrid vehicles [and other vehicles],” said a source related to the energy industry.

The announcements by the French and British governments to abandon gasoline vehicles should be regarded as their political resolutions to promote renewable energy and EVs simultaneously, based on the Paris Agreement, an international framework to mitigate global warming.

In France, nuclear power generates about 80 percent of all power produced, so the popularization of EVs will enable them to reduce CO2 emissions.

Britain is also keen on renewable energy. In the first six months of this year, Scotland’s wind power generation reached 57 percent of its entire energy consumption.

The main focus of attention is on China’s course of action as the world’s largest automobile market (see chart 2).

Vexed by air pollution, the Chinese government outlined a policy in September that would promote discussions on when to impose a ban on gasoline vehicles and the like. Automakers will meet the quotas for local production of new energy vehicles, including EVs, starting in 2019.

Some within the Chinese government have said they cannot beat developed countries with gasoline vehicles, and that China should compete via EVs.

The future of engines

It is precisely because they listen to their customers and invest in technology and production facilities that blue-chip companies become unable to cope with major technological changes, or “disruptive innovation.” This is the “Innovator’s Dilemma” warned of by Harvard Business School Prof. Clayton Christensen.

As a clear example of this, Christensen points to Japan’s electronics industry, which became complacent with its successes and lost its competitive edge.

Christensen performed a case study on EVs and the auto industry, saying that what concerns automakers is that EVs have the feel of “disruptive technology.”

About 5.3 million workers in Japan are employed in auto manufacturing-related industries, and the industry has a broad base that involves the precise assembly of about 30,000 parts. However, the mechanism that powers an EV’s motor is simple.

Yasumori Ihara, president of Aisin Seiki Co., Toyota Group’s core parts manufacturer, expressed deep concern.

“Taking away all the transmissions and engines, you take away about ¥2 trillion of our ¥3.5 trillion in sales. The impact is huge,” Ihara said.

Conversely, the situation presents an excellent opportunity for manufacturers of electrical parts such as motors and batteries.

The Japanese government’s target is to increase the proportion of “next-generation vehicles,” including EVs, fuel cell vehicles and hybrids, to 50 percent to 70 percent by 2030. These vehicles already comprise a little less than 40 percent, so the target can be viewed as not terribly ambitious.

Engines boast more than 100 years of history and will continue to see strong demand in developing markets, with room for improvement.

Nevertheless, an executive at Continental AG, a leading German auto parts firm, told Reuters that as the transition to electric continues, developing next-generation engines will lose economic rationality starting around 2023 due to advances in electrification.

The transition to EVs may be slow in coming. Even so, the turning point will arrive sooner or later. Preparing for a future that moves away from engines is crucial.Speech

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