Jayesh: Good morning, good afternoon, and good evening to all of you. Thank you for joining us today on this latest episode of MSX Live. Now, EV sales are soaring. In a bleak 2020 for the automotive industry, EVs were a welcome bright spot. Some of the statistics are staggering. Whilst the global automotive industry was down 14%, EV sales were up 43%. This was a story across the world, but the story in Europe was truly incredible. EV sales were up 137% when the industry was down about 20%.
Now you might think that the small base of EV volumes is distorting these growth percentages a little bit, but is that the case really? Is the base really that small? EVs accounted for 4.2% of all light vehicle sales in 2020, and that was almost twice the 2.5% in 2019. We are now at 3.2 million units of EV sales volumes in 2020 and that is forecast to jump 44% to 4.6 million units in 2021. Small? Maybe. Insignificant? Absolutely not. It is clear that we are racing towards an electric future, but what exactly is driving this growth and what might impede it going forward? How has the rise and rise of electric vehicles likely to transform the automotive industry and, more specifically, automotive retail? What opportunities does this change create for motor retailers? And what challenges should they be watching out for?
These are the themes we are going to be exploring in today's episode of MSX Live with our two guests, both experts in their own, and both incredibly knowledgeable about this topic. Our first guest today is Andrea Sorrenti, Vice President, Americas at MSX International. Andrea, thank you for joining us. Please do introduce yourself.
Andrea: Thank you. I'm very happy to be here. I'm excited to be part of the industry as it's facing this incredible transformation. You cited pretty impressive numbers, Jayesh, so I look forward to our conversation.
Jayesh: Thank you. We are also delighted to welcome Luca Fontanelli, CEO of E-GAP. Luca, thank you so much for spending time with us today. Please do introduce yourself and your company.
Luca: Thank you very much to you, Jayesh. It's a great pleasure to be here. Of course, I stay on the recharge-side of the market. We'll see how this new transition could be sustainable in terms of recharging-system regarding solution that is a big issue for the market.
J: Thank you, Luca. Thank you for joining us. I look forward to our conversation. And finally, my name is Jayesh Jagasia, I'm an Executive Director at MSX International and I'll be moderating today's discussion. So let's get going.
Now, I've been dying to make this pun because I've prepared it for a long time. So, Luca, to you, what is fueling and forgive the pun, the rise and rise of electric vehicles? What's going on. Take us through what's really happening in the market out there.
L: What's happening is that, from a different point of view, there are events happening that are pushing the market towards the usage of electric vehicles. There is, for sure, an issue in terms of policies, technology improvements and consumer awareness too. And, of course, this is a new user experience that the people want to try to perform. And due to these multiple factors that are happening, it means that we are rising very fast, in all aspects of the market.
J: Andrea, you're sitting in the heart of the legacy motor industry in Motown. How do you see things from there? What's going on?
A: Absolutely true. This is the heart of the legacy internal-combustion-engine, world, Detroit. But I have to say that Detroit is going through a very significant transformation itself. And we're seeing that in the announcements of all the major auto manufacturers that are really putting a lot of resources and efforts behind EVs. And, I think, the big drivers of this change are certainly the new environmental conscience that is rising across society, but also the elimination of some of those obstacles that were traditionally considered as impeding the development of sales of EVs, namely price is one of them. We've all observed the cost of EVs steadily decrease and become more competitive with the traditional internal combustion engine. It's enough to cite one statistic which is the price of the batteries, probably the most expensive component within an electric vehicle, and from 2013 they were around $700 per kilowatt hour They are now projected to be around $100 per kilowatt hour. And is it is expected that by 2030, they'll be down to $58.
So, price is definitely one of those key elements that has made EVs way way more competitive over time.
J: I also find in my experience that EVs are starting to get more and more cool and more and more mainstream. I remember the time many years back when a small EV manufacturer in India had created a small two-seat electric vehicle that was then exported to the UK and made its way to Top Gear. And I remember how much Jeremy Clarkson mocked it because it looked so strange. And from there, to come to an uber-cool vehicle, like a Tesla, that is tugging at all of the emotional heartstrings of a car buyer, I think is a massive journey to have traversed in about 15 years.
And I feel like that also has played a huge part in making EVs mainstream and taking away some of those barriers from a buyer's standard of being seen in a car that looks a bit strange and goes a bit slow. And I think that has had an important role to play as well.
So that is the coolness factor. There is, Andrea, you said the consciousness towards the environment with EVs being considered cleaner alternatives to traditional internal combustion engine vehicles. But the question is, are they really that clean? And this is something that keeps popping up every now and then, especially because the argument is that you're still charging the electric vehicle using an electricity source that might use a fossil fuel or coal to generate that electricity. How do you view this, Andrea? Let me start with you.
A: Yeah, so it is impossible, I think, to analyze the impact and the footprint on greenhouse gases of EVs without considering how that energy is actually produced. There are numerous studies, and it's clear that EVs are becoming more and more competitive from that standpoint as well, but some studies consider EVs as having a higher footprint in terms of greenhouse gases and some lower. One of the key reasons, like I said, is how that energy is produced. Today, renewable energies in Europe and in the US are only about 20% of the overall energy production. And as those numbers change over time, the EV footprint, or carbon footprint, will be reduced and therefore EVs will be more and more sustainable from an environmental standpoint.
J: Luca, how do you see things from your perspective, especially as a company that offers charging solutions? Do you see any weight in this argument that EVs may not be as clean as they are made out to be? Or when you compare them to an internal combustion engine, the delta between the emissions or the carbon footprint is not as big as people intuitively believe it is?
L: Well, what I’ve seen in the market is a great different approach to reduce the impact of the usage of lithium or other materials that are involved in the battery industry. And we are seeing that now everything is happening in a more sustainable way. And this isn't a very good thing for these technologies. And of course, each player in the market is thinking which way we have to think to perform - to make the life of the battery longer as possible. What E-GAP, for instance, is doing is to use the battery in a different stage during the life - the back to life - and we are thinking since the beginning of our business model to think to the second life of the battery in order to make this life longer - around 10 years. After this time, probably for sure we could recover the material that we have in the battery to recharge, again, the system. We believe that this is a good way to perform this kind of industry.
J: So, is this related to the circular economy that is often mentioned? And does that go some way in, in helping address some of these concerns, especially around what happens to a battery at the end of its life, knowing that there are elements within that are not easy to recycle or not easy to get rid of?
L: Yes, absolutely. Yes. What we are doing, for instance, in our infrastructure of recharging is mobile. Okay. We have the storage system inside a van, we use this battery for three or four years. After this, we use the storage of the system as a fixed system that could be used for another four or five years. And this is a great opportunity to avoid the risk to having a problem about the second life of the battery. Consider the fact that what Andrea is saying is very inline due to the fact that in Europe, and we are in Italy, but more in Europe we are using renewable energies with a great percentage. And for instance, E-GAP is able to use the 100% of energy inside the system coming from renewable energy sources.
J: That's a really interesting point you make, not just about using renewable sources as the source of electricity to charge the batteries, but also the fact that a battery, once it's done with its life in an electric vehicle, actually has a number of other applications that it could be used for and hence extend its life. And that's something that I was absolutely not aware of. And I feel like it's stuff like this that the everyday electric car buyer, or somebody who's in the market to buy a car and maybe considering an electric vehicle, it's probably not aware of some of these things.
So, Andrea, my question to you is, is there a problem of buyer education or user education? And what else can manufacturers do, and dealers do, to make sure that buyers know what they're getting into, so they have answers to all of their questions? Talk to us a little bit about that aspect of buyer awareness and education as well.
A: There certainly is, Jayesh. The automotive industry has operated with a similar product or with internal combustion engines for a long time now. And undoubtedly, the dealer network plays a key role in making sure that there's a direct connection with the consumer. Education and training will be of the essence for all OEMs to make sure that dealers are capable of addressing some of those customer concerns which are arising more and more. And they're obviously related to the product itself, but they will be in the future also related to service and how we treat the vehicle moving forward.
It's common to hear in the industry that there will be a need for a lot less service, but that customers will have the opportunity to spend less on the maintenance of their vehicles. But I was reading recently - it's very interesting - that at the onset, right now in this phase, actually customers and the service expense is a little higher on electric vehicles. And that's essentially connected to this need for incremental education at the dealership. So, the labor component is more expensive. So, there's a lot of work that we need to do as an industry to make sure that we align to the new needs, both on the front-end of the store and on the back-end of the store.
J: Fantastic. So, we spoke about some tailwinds that are driving this growth and this transition towards electric vehicles. They may be supportive policies, incentives, EVs themselves starting to look more like mainstream cars and perform more like mainstream cars. It's all around, the falling delta in price between an EV and an equivalent ICE. Range anxiety is starting to disappear now that even mainstream electric vehicles can do 200-300 miles on a single charge.
So, we spoke about some of these tailwinds. Let's talk about some of the headwinds that might come in the way of this fantastic story over the next three or four years. Do we think that this market will continue to grow at 40-50 percent a year? More? Less? And if less, then what might be some of those friction points, or some of those headwinds, that might come in the way? How do you see this, Luca?
L: From my point of view, of course the direction is struck. OK, I am sure that this growing will be maintained in the future, for sure. Of course, we have to solve some issues. We have to solve the issue to recharge these cars, to have enough points to recharge in the city. Our business model is focusing on the last mile of point charge. We are talking about the center of the city, and we believe that in this context, probably, we have to solve a certain number of constraints. The number of points of recharge in an ancient city, like European cities, is an issue. And our business model wants to disintermediate the grid[MM1] in order to speed up the process to improve the infrastructure in the market in order to be an enabler of the EV market.
We are actually pushing on this side, and we are making an agreement with a certain number of car makers in order to stay and to facilitate the sale of this kind of technology in a car. This is an important point.
J: It goes without saying, one of the barriers that at least I have seen customers express when it comes to considering an electric vehicle is the age-old question; so, where am I going to charge it, given that a number of these significant percentage of people still live in cities and apartment blocks, and may not have access to their own garage where they can install their own charging point.
The second concern I hear repeatedly is the time it takes to charge an electric vehicle, especially if you're not using one of the fast-charging stations on the motorway. Andrea, talk to us a little bit about this whole charging piece and how much of a bottleneck that is, starting with the grid itself.
Should we be concerned that we're going to run out of electricity once we have millions of electric vehicles on the road wanting to be charged every night or every other day. So, talk to us a little bit about that piece there and then talk to us about the constraint and the bottleneck on the charging infrastructure as well.
A: Absolutely. I think that is the bottleneck today. In the past, there was a lot of talk about price, and we already addressed price in the earlier part of our discussion. The other topic that always came up was the range of the vehicles. And what you're seeing today is vehicles like the Lucid Air that have over 500 miles of range.
So, range is becoming worse of a concern for consumers. But indeed, charging is the problem. And again, there's some myths out there that we've been talking about for quite a while. The first one is, can we produce enough energy to meet the demand? And if you look at the actual numbers, if you look at the U S for example, the US produces about 4 trillion kilowatt hours of energy every year.
If everybody were to drive an electric vehicle, suppose the averages that we talk about - so 13,000 miles per vehicle - we would probably require one extra trillion kilowatt hours, which is a lot. But it doesn't seem impossible considering that this is going to be a slow ramp. The challenge is exactly what Luca was saying.
How do we get, how do we deliver that electricity in the right place and at the right time? And that's what we, as an industry really need to focus on moving forward. Because, and when I talk about the industry, I talk about the OEMs, I talk about the dealers and players like ourselves because that is definitely something that's influencing customers.
I was reading a recent study that said that about 20% of customers that own EVs in California are actually thinking about going back to internal combustion engines. And the main reason is the availability of the charging infrastructure.
J: That is interesting. And it would be a pity if that happened because that would be like taking one step forward and two steps back.
Now I'm aware that there's a variety of charging solutions out there that are available. And I feel like the end solution will require all of these different solutions to work together rather than there being one silver bullet that says, this is the charging solution. We need to ramp up our infrastructure.
And I drive an electric vehicle. I live in London, so I know that there are public charging stations at the street. There are fast charging stations in places like malls and shopping outlets on the motorways. And then people who can afford, in London, a house with their own garage also install their own slow charging point that they use to charge their EVs overnight.
What else exists out there? So, I've heard of vehicle-to-grid, for instance, where individuals might be able to use the energy stored in the battery pack of their electric vehicle, feed it back into the grid and probably monetize it. Is that viable? Talk to us Luca a little bit about that particular facet, how it works, and then also talk to us a little bit about the charging solution that you offer in terms of your last-mile charging and getting the charging point to the vehicle rather than the other way round.
L: Yes, this is the point at the end. He goes way back to the fact that the grid is not able to sustain the demand. Okay. At the end, it isn't a question of peak. It isn't a question of energy that we are producing during the day, but you need the energy during the night.
This is a sort of a symmetry between the demand and the offer. And it's very strange for the people to accept the fact that you have to give back your energy from the car to the grid, because what the utility company is asking the people is, remember I'm giving you the energy now, but if I need to, I could take back the energy from the car.
And of course, this is a change of mindset for the people to understand that, and a different perspective to the usage of the car and it isn't a question of time, for sure. But we believe that is a question even of service that you receive, because if you have the possibility to store the energy during the peak, and sell the energy during the off-peak, eh, of course you have no impact on the grid.
And this gives to the EV user the possibility to stay in a more usual kind of usage of the car. This is the bigger business model, what we have to think about doing. And we believe this is the way to go on the future.
J: Now. I want to share something interesting that happened with me yesterday, and this is something I was waiting for with a lot of fear and it finally happened last night. I use the street charging, public charging network that's available in London. And I got to my regular charging point last night because I had to make a long drive today. And I found that was fully occupied at 10 in the night.
And I thought, oh my God, this is going to be another episode, eventually in the future… I'm used to driving around, looking for a parking spot. Now, do I also have to drive around looking for a charging point? How close or far are we from that sort of reality, especially in the big cities? And then how quickly does the charging infrastructure have to ramp up and what can OEMs, companies like ourselves, companies like E-GAP do working with civic authorities with governments to make that happen Andrea?
A: I'd like to observe that it’s really different stages in different areas of the world. If you think about China, which has definitely pushed EVs earlier than a region like the US, there you have one charging point for every five electric vehicles roughly.
Clearly the first answer to your question is we need some level of investment from both private players and from the government to support the expansion of charging points. But I think this is where there's an opportunity for all the players in the industry - for the OEMs, the dealers and all of us to make sure once we understand that this is the problem that we need to address, to make sure that we do focus on increasing the presence of EV chargers.
Luca, you wanted to add something.
L: Yes, behind the planning of the infrastructure, the fixed infrastructure, you have to invest a lot of money, but you have to know exactly where the demand is. And you have to anticipate a market evolution that at the beginning you didn't know. This is the fact. The risk is that you put that charge infrastructure in the wrong place. And what we believe is the fact that you have to speed up the process. You have to anticipate the demand. This gives the market the possibility to speed the transition and to do this, we believe that E-GAP power company is very focused because we could follow the demand without putting in place fixed point recharge with the risk that we are making a wrong choice because at the end we don't know exactly where people need to recharge their car. Yes. We know that at the company during the day, at the house during the night, or in the mall during the weekend, but at the end, in the realistic way, we don't know exactly where the people need to recharge the car.
We believe that with a mobile solution like our solution, we could avoid the risk to lose money investing in the wrong way.
J: Very interesting. I'm conscious of time. I know our listeners have tuned in and I'm respectful of their time as well. So, I'm going to switch gears and move to the final part of our conversation, which is all about how commercial real estate operators, malls, office space operators, and indeed automotive dealers, motor retailers. How can all of these different entities benefit from some of the opportunities that this rise of electric vehicles is presenting to them? What's your take Andrea?
A: I would say the dealers represent a huge asset for all the OEMs. They have presence throughout the territory and, like we said before, they play a key role in the contact with the customer. Definitely we think that dealers should be looking at the charging EV infrastructure as a model that may offer opportunities for them moving forward.
Then there's that education component that we talked about. It's extremely important that we give customers peace of mind to make sure that they feel like they can jump onto the EV bandwagon. And I think the third piece is we need to adopt innovative models. Like, Luca is presenting with E-GAP, which is a fantastic way to resolve a specific issue in areas like urban settings, where it is extremely difficult to actually find a charging point.
So, I think it's the combination of various players and various ideas that will actually help us overcome this obstacle.
J: Luca, do you see a world where charging points themselves could be a credible differentiator when it comes to highly competitive markets like a retail outlet or the mall? Do you see buyers making decisions on where to go and what to visit based on what sort of charging infrastructure is available there, or that the real estate operator has invested in? Do you see that being a credible viable differentiator?
L: Absolutely. Yes. I could say that without a point of recharge in the future, you cannot sell anything. This is an extreme concept but is what will happen because if you want to sell a house or an apartment or whatever, without the possibility to give your buyer the solution to recharge his car, possibly it will be impossible to sell. We are seeing this from a different point of view. We see this on the retainers, so from the dealer’s side or from a real estate company that wants to sell an apartment without a recharge solution. Those who want to plan an investment for the future, will, for sure, ask to receive a solution to recharge the car.
J: That's going to be a very interesting direction and that this whole space takes in terms of how some of these players use charging infrastructure and indeed everything else that supports electric vehicles to really differentiate themselves in competitive marketplaces.
Gentlemen, I want to thank you for your time and a very enlightening and engaging conversation. Thank you also for all the listeners who tuned in very kindly and took time out of your busy schedule. MSX is doing some really interesting work in the electric vehicle space. And if you are an OEM, a retailer, or indeed any other player in this space and you're looking for ideas and for partnership, please do visit our website.
Look at some of the things we are doing and feel free to reach out to us. Once again, Andrea, thank you for joining us. Luca, thank you for your time. It has been an absolute pleasure hosting you.
A: Thank you both.
L: Thank you. Thank you very much.