Decarbonising automotive: a How To
Totally eliminating greenhouse gas emissions from the nine sectors that currently produce most of them: now that’s a challenge. But in a new report, McKinsey shows “solutions are within reach”. Those nine sectors are the usual suspects: power, oil and gas, aviation and shipping, steel, cement, mining, agriculture and food, forestry and land use, and of course automotive. Here’s what the report (‘Decarbonizing the world’s industries: A net-zero guide for nine key sectors’) says about the latter.
McKinsey projects that by 2035, new car sales in the world’s major automotive markets – i.e.: Europe, China and the U.S. – will be close to 100% electric. However, getting there still requires some work. Specifically, new supply chains and new manufacturing capabilities on the production side, and on the market itself: a ramp-up of charging infrastructure both for EVs and for the expected rise in hydrogen vehicles. What would also help speed up the transition: faster progress in electrifying heavy vehicles, and in developing fully autonomous vehicles.
The report focuses on four areas in automotive:
ICE businesses
The transition away from the internal combustion engine (ICE) is gathering speed. Over the past year, 15 OEMs – representing 75% of global vehicle production – announced they would only sell zero-emission vehicles in the near future, more than half of them before 2040.
So, while many suppliers are still heavily reliant on ICE business, that business is likely to decline soon – and fast. For example, the global market size in transmissions, estimated at $93 billion in 2019, is projected to decline to just $25 billion in 2035.
To survive, these suppliers must maximise value in the short and medium term (where, according to McKinsey, there’s still plenty of value left to create), while at the same time urgently developing a new operating model for the longer term. Some of the lessons learned in the power-generation sector, which is going through a similar change, can be instructive for automotive suppliers.
EV battery production
Growing at 30% per year, global demand for EV batteries is expected to reach 3,900 gigawatt hours (GWh) in 2030. Supply is struggling to keep up. Global production capacity is expected to reach 2,900 GWh by that year. This despite huge efforts, particularly in Europe, which will see EV battery production capacity reach 960 GWh, a twentyfold increase from 2020.
In other words: if we don’t increase production capacity, there will be a significant, structural shortage of EV batteries. And that will seriously risk slowing down the electrification of transport. The report points to the U.S., where current commitments will failt to meet projected demand as early as 2025; and to Europe, where 25% of announced projects are by start-ups, which entails a high “implementation risk”, as McKinsey calls it.
To break dependency on China, Japan and South Korea (where most battery cell production takes place), the rest of the world needs to invest €300 billion in gigafactories by 2030 (of which €100 billion in Europe and €65 billion in North America). One crucial target to jump-start the process: “Ensure circularity. Closed-loop systems for the second life of batteries (will) mitigate raw-material supply risk, optimize battery carbon footprint, and improve economics of the battery recollection obligation for OEMs.”
The future is electric
Despite battery bottlenecks, electric is the way to go, McKinsey says, thanks to changes in three main areas: regulation, consumer behaviour, and technology.
Governments of all stripes are devising increasingly stringent rules to speed up the switch to sustainable transport. One example is the EU’s ‘Fit for 55’ programme, which wants to reduce net greenhouse gas emissions by 55% by 2030. Cities are also very active, with over 150 cities in Europe already boasting low-emission zones.
Consumers are changing to more sustainable mobility patterns. Inner-city trips with shared bikes and scooters have increased 60% year on year. More than 20% of Germans already use ride-pooling. To name just two examples.
In terms of tech, automotive has attracted more than $400 billion in investments over the last decade - of which $100 billion since 2020 alone – for innovations in electrification, connectivity and autonomy. This is reducing the cost of EVs, and making EV sharing a real alternative to owning an ICE.
Towards a truly zero-carbon car
Between 65 to 80% of emissions an ICE generates come out its tailpipe. So, focusing on decarbonising the powertrain is the right choice. But a truly zero-carbon car is only achievable if we also eliminate emissions generated by a car’s materials. And that is becoming increasingly critical. As BEVs – zero tailpipe emissions, but higher material emissions - become more common, the average share of material emissions will rise from 18% now to more than 60% by 2040.
The good news: technology is already available that can help reduce material emissions of ICEs by 29% by 2030 in a cost-positive way. Just one example:: by using recycled material, new technology and green electricity, emissions from aluminium production can be reduced by around 73%, while also reducing production cost. In total, McKinsey estimates the automotive industry could reduce the emissions currently associated with its production processes by 66%, while keeping vehicle costs the same.
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