Our latest episode of Metal Movers invites a special guest to talk about the role of technology in driving the automotive industry to a greener future.
Join Caroline Messecar, Senior Reporter, Rare Earths/Electronic Metals as she quizzes Dave OudeNijeweme, Head of technology trends at Advanced Propulsion Centre, a non-profit organisation that facilitates funding to UK-based research and development projects developing low-carbon emission powertrain technologies. Our speakers explore the viability of EVs in the context of the power electronics supply chain and how it might impact traditional business models.
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Caroline: Hello and welcome to this podcast brought to you by Argus Media, a leading independent provider of energy and commodity pricing information. In this episode of "Metal Movers," we will be talking about electric cars. Might I introduce myself, My name is Caroline Messecar and I am the senior reporter for rare earth and electronic metals. And I'd like to introduce our guest today, Dave OudeNijeweme, who is head of technology trends at the Advanced Propulsion Centre UK and they are the funding arm of the automotive program of the UK Department for Business, Energy, and Industrial Strategy. Dave has a very interesting background for an electric vehicle expert, he started out as an engineer specializing in computational fluid dynamics, which is very useful for internal combustion engines, and he worked for several large carmakers, and about 10 years ago made the switch to electric, looking at electric mobility. So, welcome, Dave.
Dave: Thank you very much, Caroline.
Caroline: I'm going to start with, I'm sorry, quite a difficult question but I think it's an important one to ask. I think among the sort of wider public, there's quite a lot of people feel a lot of skepticism about the electric revolution. We've got economic uncertainty, a lot of inflation, and at the same time, we've got a lot of some very, very ambitious targets from governments around the world on phasing out ICE vehicles and at COP26, a lot of governments around the world are now pledging to ban the sale of emission vehicles by 2035. Is this really going to happen?
Dave: Yes, I think it is largely. You know, as a combustion systems engineer, I was a little bit skeptical for startups as well. I mean, we're always focused on lowering the carbon footprint but I think things are now changing. Net-zero is...you know, getting to net-zero is one of those. There are a number of ways of getting to net-zero and net-zero is not the same as zero tailpipe emissions, but some battery-electric vehicles but also fuel cells are one way of getting some of the way there and then we can see it happening. It's happening much quicker than most people, you know, had expected. The thing is they are expensive now and they are meant to come down...
Caroline: That was my next question, can we afford it?
Dave: Oh, yes. Well, yeah, can we afford it? Well, I think...well, at the moment, they are a bit more expensive. There are ways of making it more affordable and if the automotive industry is good at anything, it is taking cost out of cars, really taking the cost out of technology, scaling them up in volume, and getting them to the market at a very competitive price point and stuff at a point that people are willing and can pay. I mean, an interesting statistic that I always find interesting is that Ford Model T, the car hasn't actually increased in price in real terms. And I don't know if you know what a Ford Model Two T is, it is four wheels, a steering wheel, and an engine and that's about it and it comes in the color black. And these days, I mean, you have more monochromes on a car than most people have in their houses.
Caroline: So, it really costs the same after adjusting for inflation, it's the same cost?
Dave: Yes, I mean, there is some really good information available from...I think it's from one of the American universities that have looked at that house and it's surprising, it really is amazing stuff.
Caroline: That sort of brings me rather neatly to sort of the automotive industry in general and sort of the pressures and strains it's under. How do you think the business model might change under EVs?
Dave: I think it's already been changing quite a lot but I think what's really important to see is that the automotive industry is now invested and really the pressure comes from having to go to zero tailpipe, not necessarily zero but zero tailpipe and there's pressures that are coming from the European Union and we see them here in the UK with bans. And they just need to move quite swiftly and what we now see is in the next 10 years, a 20-fold increase in those cars come in and the batteries that go with it and all the components in there, a 20-fold increase is what we need to look at. And with that, it changes the business model because the value in the vehicle of those electrified components is in the order of like 30% to 40%. So, you're rewiring, physically rewiring about 30% to 40% of the supply chain and therefore, you know, 30% to 40% of the economy that is the automotive industry. So, some of them saw that supply chain, basically, that means the end of the road or a significant transformation, but for the OEM, the business model is also changing from the point of view that they will need to start thinking about making money in a different way because more of the value they have in a vehicle, more of that transfers to their supply chain. So, they need to start thinking about different ways of making money.
Caroline: Okay, just on that point, how do they make money now? How does the business model work now?
Dave: Well, as you know, they make cars and they make a little bit of money on that. And sometimes, on certain cars, very little money, sometimes not even money. And really by increasing the specifications on the car, so a car with electric seats or electric heating in the seats, you know, some different colors, sports package, all that sort of stuff, that's all add on. And as most people might know, if you have a car with all the spec on, then quite quickly, it doubles the price. It doesn't cost them twice as much but the price goes up twice as much. So, that's where they start making some money, on the additionality. But really, the majority of the money is typically made by the banks, so through leasing schemes. And that's really where, the financing side of things is where they make most of the money and typically, and that's what's in the financial crisis expose them quite badly.
Caroline: So, just going back to the supply chain, so 30% to 40% of it change. Sort of coming off shipping crisis, logistics problems, that seems like an enormous challenge for the industry?
Dave: Yes, it is, I think it is a significant challenge and, you know, a very significant challenge and that's what you now see in Europe, where we...well, you've seen it in China or you still see it in China already. But in Europe, as I've said, I mean, you know, the number of what people call Giga factories, so large battery cell manufacturing plants that are needed to be built there to supply these vehicles, I mean, they didn't exist until, you know, about 10 years ago. The first one in Europe was actually in Sunderland making Nissan LEAFs. And all the ones that...all the Nissan LEAFs that are made in Europe are all produced...all the batteries are produced in a factory next door in Sunderland. And that is in the order of like 1.9 gigawatt hours at the moment, and we call it gigawatt-hours by the amount of energy that's kept in the battery per year. That's the capacity, and we need significantly more than that. You know, currently, I think we're at about...we need about 40 gigawatt hours to supply the demand that's currently in existence in Europe and we expect that to go up by about, you know, 15 to 20 times by 2030.
Caroline: So, this is going to happen very fast or it has to happen very fast.
Dave: Extremely fast. I mean, people call it an electrified revolution or green revolution, it really is like that. It goes very, very quickly. So, yeah, I heard it described to me as, you know, you're either at the table or you will be on the menu.
Caroline: Wow. Okay. So, it's an extraordinarily competitive space.
Dave: It is. It is, yes.
Caroline: Well, and just to sort of pile on the problems amongst all the things that EVs need, they also need very expensive chips to make the power electronics to modify the electricity to run a motor. Can you tell us a bit about that and about some of the changes we're seeing there?
Dave: Yes, so I think semiconductors and all of that is very much in the news at the moment because of the supply chain issue shortages that there are. But these are truly the semiconductors for high voltage or high power applications and that's a slightly different thing. But from our roadmap, you can certainly see that these things are changing. So far, they've been mainly based on silicon technology and it will go to what people call wide-bandgap materials, so probably silicon carbide and gallium nitride. And that means that that supply chain is also changing quite significantly and significant investment is required in those areas. So, more and more vehicles are coming out with that technology, the voltage and the power just keep going up, the efficiency of the motors and all the power electronics is increasing and needs to be increased because it directly impacts the range of the vehicle with the size of the battery that you have in a car. And that's why there's a strong move to silicon carbide and gallium nitride.
Caroline: So, the automotive industry has just come out of a situation where semiconductor shortages have caused a lot of pain and unfortunately, still are. So, how are they going to feel about our brand new supply chain? Is that going to make them far more proactive, I mean, presumably because they really want to secure that supply now?
Dave: Yeah, we do see that and we see that in some of our projects, where the OEM, as in the car maker but also some of its supply chain, gets really involved in the supply chain because they have to. Not just from supply issues but if you really want to get a good end product, you need to get involved early upstream to really design out some of the issues and design the features that you want. So, we can see more and more of that coming. But I think supply constraints are a real issue at the moment and that's also at the forefront of their minds. You could see...I mean, this has not been a new thing. But the thing is if one component doesn't turn up, you don't make the car, and it can be a very simple thing.
Caroline: It could be like a one-pound chip could stop the whole production line.
Dave: Well, it could be even 10p, you're not making the car. I think there was an instance with Ford where door locks didn't turn up because of a dispute. You're not making the car. Toyota and Honda and Nissan, it's a while back when the Fukushima disaster happened and one of their airflow meter plants in Japan was wiped out, that made all the airflow meters for all of their cars around the world or most of the cars around the world, and they were on stop. And every time you stop one of those big volume plans, you're losing tens of millions of pounds in lost revenue, so it is really quite painful. So, you can see that those companies seem to weather this semiconductor shortage slightly better because they have had a quite deep and detailed look at their supply chain and understand where their issues lie.
Caroline: But actually just brings it back to something that I remember we discussed previously about silicon carbide that at the moment, a lot of the industry is relying on one source and even one plant for silicon carbide, so presumably that isn't going to stay that way or it's unlikely to.
Dave: Yeah, you're right, I think, you know, with strong growth come growing pains, and growing pains are with us for some time. So, they suffered in batteries but as you say very rightly, most silicon carbide at the moment comes out of the one plant in New Jersey. So, that might well mean that there are going to be some issues at some point potentially. It also means that is a real focus and drive from quite a number of companies, car companies and supply companies to diversify their supply quite swiftly. And I think that's exactly where in the UK...you know, the UK has a real opportunity there and a real role to play. And I've said it before, some of the APC projects that we have are doing exactly that, bringing, you know, the car manufacturers and suppliers together with the rest of the supply chain so they can start working much closer together and get themselves the materials they need, the supplies they need, in the format they needed and ideally, of course, at a price point they needed that. But I think coming back to that UK opportunity, I mean, the UK is very rich in terms of...you know, in this area. At the moment...
Caroline: We have a lot of fabs certainly, actually.
Dave: Well, correct. Yeah, there's lots of fabs, there's lots of skills around as well, and real deep know-how in R&D in this area and even some of the machinery that's used in fabs are also being produced here. So, just that ecosystem means it is very rich. Those fabs tend to be all on...or predominately on silicon at the moment, six to eight-inch, where actually at volume, they would be much larger sizes. But six to eight inches is actually what you're trying to...what you need at the moment for silicon carbide. So, I'm not saying it's easy to convert those silicon plants or fabs to silicon carbide, but at least they have some of the right infrastructure and skills and R&D facilities and infrastructure to make that happen. So, what I'm trying to say is that that, yeah, there is significantly less investment required than a new site to do it in the UK in something that already exists. The question is there is still significant investment required and that will be predominantly private investment. Significantly less than if you start from scratch but still, you need to need quite a lot of money still, this is not, you know, for the faint-hearted.
Caroline: So, I can imagine it'd be an awful lot cheaper than building a fab than to use one that's already there. But do you think the biggest problem is they're not looking forward enough that they're not taking action now? Or do you think there's just so many other pressures on automotive that it's hard for them to focus on everything at once? What do you think of the barriers to this moving forward?
Dave: Well, I think the barrier to entry for automotive suppliers is that it's a world they don't really fully understand. Obviously, there is a one-off investment that they're hoping that their suppliers, their tier one suppliers will lead on. Yeah, so I think those are some of the main barriers but I can't really talk for them too much. I think, you know, some of them will become more interested in this and some will probably take more of a backseat role.
Caroline: And do you think sort of as things develop...I mean, I've heard cars described as...EVs as mobile phones on wheels, do you think ultimately the automotive industry might be more like the semiconductor industry or that part of semiconductor be more like the automotive industry? How do you think that could play out?
Dave: Well, it's all coming back to the business model. So, if there is that much electronic content in the car and growing very rapidly, then you can see how you might be able to tailor the experience for the customer to what they might want and might be willing to pay for at any moment in time. So, you know, through software changes or just through switching things on and off, you can see how you can make a better or not such a nice experience in the car, or at least upgrade their experience in the car. And that, of course, just like, you know, in-app payments, for example, you can see a similar thing happening in cars to a large degree. The switching on functionality would happen through additional electronic and software content in the vehicle, but that is very quickly being built-in.
Caroline: And just going back to the potential of the UK, do you think, bear in mind the infrastructure that we do have, that we have the potential not only to supply our manufacturers here but actually become, you know, a reasonably sized player on the global stage?
Dave: Well, I think you would like to think that with the skills and the background that it could be...that the UK could be a significant player. I mean, semiconductors are a global market, it's very easy, you know, to ship these things across the world as indeed we do now and you can do a certain volume. So, I think with the right investment by the right players and the right support...you know, and for some of this, we do have some R&D and capital support as part of the Advanced Propulsion offering. So, yeah, with the right support, that might well happen. And you would think that any player wouldn't just produce it for the UK but certainly would try and do this for the European/global market.
Caroline: Well, listen, it's absolutely fascinating to talk about chips and cars and this enormous change that we're all about to witness and I'd like to thank you very much for agreeing to come and talk about it. And we'll be closely following developments and hopefully, you'll come back and talk about it again in the future. If you enjoyed this podcast, please tune in to our other episodes to learn about the metals market. For more information about electric vehicles, please visit our website, argusmedia.com.