By Dr. Christina Y. Liu, Policy Advisor of TEEMA
It was my great pleasure, as a policy advisor to TEEMA, to join the U.S. portion of the recent TEEMA U.S.-Mexico Tour alongside various esteemed Association members and Taiwan EV industr y representatives. I would like to express my sincere thanks to Chairman Richard Lee and Deputy Secretary-General Roger Liao of the Association for their excellent coordination and tour arrangements. I am also grateful to AIT as well as one of our own, Director Johnson Sen Chiang of TECO Chicago, and his colleagues, for sponsoring, hosting, and accompanying us throughout this wonderful multi-day event. Finally, I would like to extend a special thank you to Ohio Governor Mike DeWine, Ohio Lieutenant Governor Jon Husted, and Michigan Lieutenant Governor Garlin Gilchrist, and the many other local dignitaries and industry representatives who welcomed us, for their warm reception and generous thought-sharing on the future of the EV industry and many other ancillary issues.
I must first emphasize the extreme warmth and enthusiasm with which our group was received in the duration of the Tour. This, in turn, facilitated very open and productive dialogue between us and our American counterparts, and was no doubt rooted in the close relationship between Taiwan and the United States, as well as the key role Taiwan's EV industry plays in the global supply chain. Whether viewed from a perspective of managing global climate change or pure business opportunity creation, the EV industry is a revolutionary trend that has attracted an unprecedented amount of worldwide attention and investment.
After Glasgow Climate Agreement, EV trend is more confirmed
In November 2021, the Glasgow Climate Agreement modified the original "2050 net zero carbon emissions" target to the more stringent "2050 net zero emissions" target. During the conference, the specific declaration to transition all transport vehicles to net-zero emissions was also made, and six major international auto manufacturers and governments pledged that all new vehicles sold by them and/or within their territories would reach net-zero emissions by a particular deadline. To this end, overnments around the world have incorporated "transportation electrification" into their domestic net-zero emission plans: For example, the United States has declared that EVs must account for 50% of new car sales by 2030, and the European Union plans to ban all sales of fossil-fuel vehicles starting in 2035, with all new cars being net-zero emissions. Given these stated objectives, the EV industry is destined to undergo a revolutionary development.
Business Opportunities in the EV Industry
According to the latest "Global Electric Vehicle Outlook" released by the International Energy Agency (IEA) in May of 2022, a total of 6.6 million new electric vehicles were sold worldwide in 2021, an increase of 100% compared to 2020. Sales of new EVs during the first quarter of 2022 likewise reflected a 75% jump compared to the same period the year prior. Also, in 2021 the total number of electric vehicles in existence worldwide was 16.5 million (four times the number in 2019), accounting for nearly 10% of total vehicles. The EV market’s growth potential is undeniable.
Even beyond their astounding increase in sales and production, the diversification of electric vehicle brands and models has also grown exponentially. Currently, there are as many as 450 distinct models of electric vehicles, a five-fold increase compared to 2015; needless to say, EV manufacturers are investing more effort and thoughtfulness into meeting consumers’ diverse demands. That said, price sensitivity continues to be a focus on the retail side, as China's EV sales demonstrate their absolute advantage in this regard.
As the consistent leader in global EV sales, China’s 3.3 million new car sales in 2021 not only contributed to 50% of global electric vehicle growth, but in fact slightly exceeded the total new electric vehicle sales for the entire globe from the previous year. This was likely attributable in large part to China’s EV manufacturing and sales pricing strategies.
EVs manufactured in China are generally smaller in size and thus lower in production costs than those manufactured in other regions; accordingly, the price differential between Chinese EVs and traditional fossil-fuel vehicles is smaller. Last year, the median price of newly sold EVs in China was only 10% higher than the median price of traditional vehicles, while other major global EV manufacturers’ prices were 40% to 50% higher. The appeal of the Chinese-manufactured EVs versus the traditional vehicle – and therefore versus the non-Chinese-manufactured EV – has thus further contributed to the country’s superior stance in global EV competition.
In addition to Chinese EVs’ lower prices, the speed with which large-scale EV charging points have been installed throughout China as compared to the United States and Europe is also a contributing factor to China’s dominance in the EV market. As of now, the quantity and availability of EV charging stations in most countries is still vastly insufficient, and the demand for EVs will inevitably be stymied without commensurately strengthening EV charging infrastructure on a worldwide basis. According to IEA estimates, in order to meet the current Announced Pledges Scenario reflecting the forecasted growth of EVs, charging points installations need to increase by at least twelve-fold by 2030, i.e., by an average of 22 million charging points per year. The projected need for such EV charging points include both “private-use” installations (e.g., residential homes and office buildings) as well as “public-use” installations (e.g., shopping malls and public parking lots). Currently, private-use charging stations overwhelmingly dominate between the two categories, and this trend is expected to continue. IEA estimates that by 2030, private-use charging points will comprise as much as 90% of the total number of charging points worldwide.
EV Battery Supply Chain Challenges
Although EVs’ face unquestionably rapid demand in growth, they also face severe uncertainties in the supply chain of their single most crucial component: the EV battery. Whether due to the unpredictability of the COVID-19 pandemic, the ongoing war in Ukraine, the sharp rise in global inflation, or the deterioration of the global geopolitical climate, all of these factors have contributed to increased production costs as well as frequent and unexpected supply chain disruptions. Primary among these challenges have been the soaring prices of EV battery raw materials; not only have they led to a substantial increase in total EV production costs, but the lack of availability of such raw materials has also led to numerous EV battery manufacturers’ inability to produce and deliver goods on a consistent basis. As is the inevitable outcome of a literal assembly line that is missing parts, the inconsistent and unreliable access to the EV’s most important component has of course resulted in vehicle manufacturers’ inability to produce EVs sufficient to meet the explosive demand.
The raw materials required for the production of EV batteries are some critical and base metals such as lithium, cobalt, nickel, aluminum, manganese, etc. Among them, lithium, cobalt and nickel are in the highest demand for EV battery production. Whether it is the ternary lithium battery, which comprises the highest proportion of mainstream EV batteries, or the slightly less common lithium iron phosphate battery, the price of the key component in both types of batteries – lithium – has once increased by as much as 1000% during certain points in the past year or so. Just as some would say the 19th and 20th centuries were centered around coal and oil, respectively, one could say that the 21st century is now the century of precious metals, and thus any unpredictability surrounding metals has enormous ripple effects on the global economy. Now, with the recent pandemic, military conflict, inflation, and also geopolitical instability causing the price of metals to soar, the impact is immeasurably far-reaching. With Russia and Ukraine being key sources for many such metals, the outbreak of the war in Ukraine in February of this year has of course driven prices up. On the other hand, given the more recent global interest rate hikes, as well as numerous economies facing the real probability of recession, the prices of many raw materials have also seen a considerable decline in the last few months. All in all, it is fair to say that pricing will remain highly unpredictable throughout the rest of 2022.
In addition to the battery, the other key component of EVs is, of course, the IC chip. A traditional vehicle requires approximately 30-40 types of IC chips for proper operation; in stark contrast, an electric vehicle requires as many as 150 types of chips, and the actual quantity of chips required may number in the several thousands depending on the particular type of EV. Like batteries, IC chip production has also been severely impacted by the recent global supply chain issues as well as the war in Ukraine, and current production capacity of mid-to-low-end chips needed for even basic EV production is already unable to keep up with market demand. To make matters worse, on June 2nd of this year, Russia announced a ban on the export of neon gas, an indispensable material for the production of automotive chips. As Russia's neon gas exports account for approximately 35% of the world's total supply, this June announcement has put even more pressure on the already challenged IC chip production lines. Needless to say, the stability (in terms of both price and quantity) of the numerous components required for EV production – batteries and IC chips included – will likely be the single most determinative factor in the competitiveness of EV manufacturers going forward.
Vertically integrated supply chain to create advantages
During the first half of 2022, Chinese electric vehicle manufacturer BYD reported sales of 641,000 new EVs, surpassing Tesla's 564,000 and thus ranking as first in the world. One of the reasons for BYD's sudden emergence and rapid increase in sales is its high degree of vertical integration, as it boasts its own internal battery, energy storage and chip manufacturing divisions. BYD's EV battery production capacity currently accounts for 10% of the world's total, and, compounded with the fact that it has its own battery supply chain, is the key competitive advantage for BYD over its competitors.
Of course, Taiwan's EV industry has several built-in advantages already, most notably its superior technology in semiconductors, ITC, IC design and packaging, and automotive electronics. Unfortunately, Taiwan’s historical efforts to integrate these advantages more broadly into the finished-good production process have left much to be desired, and its technology and electronics companies have thus been more likely to operate in an isolated fashion in the global markets. With its roster of 3,006 member manufacturers, however, TEEMA has been making strides to change that, by inviting Taiwanese manufacturers to jointly establish a new alliance called “V-Team (Taiwan Vehicle System Integration Alliance)” with the aim of strengthening cooperation and expanding its members’ presence worldwide. In addition, in October 2020, Foxconn established an open EV platform called MIH (Mobility in Harmony), which has attracted 2,300 strategic partners from around the world to join in to collaborate on building an EV ecosystem with the specific goal of strengthening the stability of the EV supply chain. Looking forward, Taiwan should focus its efforts on increasing its access to the supply of raw metrials, improving capacity utilization, and adhering to the new trend of "short-chain production" supply chain management. In so doing, Taiwan can expect to take advantage of its well-integrated automotive electronics supply chain and, with the likes of TEEMA and V-Team joining forces together to face the global EV manufacturing market, Taiwan’s future is undoubtedly bright.
