CO2 targets helping to bolster EV production amid chip crisis, conference hears
07 October 2021
Author: Sean Keywood
New car manufacturing problems may be indirectly incentivising carmakers to build a greater proportion of EVs, although supply is still set to be a continuing problem for fleets, it has been said.
The global semiconductor crisis and its impact on carmaking was one of the subjects discussed at today's BVRLA Fleets in Charge conference, covering issues relating to electrification in the fleet sector.
Among the speakers was Greg Archer, UK director of campaign group Transport and Environment, who explained that while the crisis had hit car manufacturing hard, a knock-on effect of it had been to indirectly incentivise carmakers to build more EVs than they might otherwise have done, thanks to the effects of EU legislation.
He said: "EVs are really benefitting indirectly from the chip shortage. What we are seeing is manufacturers prioritising putting the chips they do have into their high-margin vehicles.
"Those high-margin vehicles tend to be higher CO2, and as a result because of the European regulations on CO2, the manufacturers are also needing to increase their supply of EVs, in order to ensure they meet their CO2 targets.
"So, we're seeing a really good example of the way the European CO2 regulations are continuing to drive EVs into the European and indeed the UK markets. This is ultimately why we have seen the big increase in [electric] vehicles over the last couple of years, because of the regulations that have been put in place."
Despite this localised, indirect benefit for EVs, the conference also heard from Christoph Domke, senior director at FTI Consulting, that the overall semiconductor situation was not likely to improve any time soon.
He said: "I think [the semiconductor crisis] is probably more severe at the moment than it was at any time before. Looking forward, it's probably something that will stick around for the next one or two years, because there is such a significant demand in the sector for semiconductors.
"But we should not forget also that car makers are not at the front of the queue. A lot of other businesses which have need for much more advanced and more expensive chips, predominantly the technology and telecommunications sectors, so unfortunately you have to say the priority is not the car manufacturers.
"I would assume we will see this crisis happening at least until next year or 2023. A lot of people out there say 2024, which I doubt, but it will stick around."
Domke added that it was not only semiconductors that carmakers were having trouble sourcing.
He said: "If you look to the wider supply chain there is a shortage at the moment when you look at plastics, lithium, steels and other parts.
"So, I think it might be time to really look at updating wider supply chains, particularly looking at the sectors that are not fit for purpose."
Offering a UK fleet perspective on vehicle supply, Hitachi Capital Vehicle Solutions managing director Jon Lawes said it was the number one problem his company faced at the moment.
He said: "Supply in the market is a really big challenge. I would say that all fleet operators want EVs, they want to embrace EVs into their fleets.
"We are helping lots of fleet providers embracing their decarbonisation strategies, and there is no shortage [of demand] within the UK businesses, to adopt EVs.
"It's completely transformed in the last 18 months, and all leasing companies are helping their customers. The biggest problem is the shortage of supply.
"I think it's going to be a big challenge for all businesses and providers of vehicles in the next 12 to 18 months to really get hold of their vehicles. There is a shortage of supply and in my business it's our single biggest challenge."
Another speaker at the conference was Matt Freeman, managing consultant at vehicle values analyst Cap HPI, who was asked about the demand for EVs from the fleet sector, and what the implications of this might be for residual values.
He noted that demand for new EVs from fleets was very strong, accounting for around 80% of EV sales, and that similar numbers were also seen for plug-in hybrids, which could be attributed to the strong company car tax incentives offered by the UK Government for plug-in vehicles.
He continued: "The big question of course we have for our business, because as well as forecasting values we are looking at current values, is where are we going to be in three years' time when [fleet EVs] all start to come back.
"There's a bit of a conundrum here. If we want them to be affordable for used buyers, we don't necessarily want really strong residual values, because that makes them expensive in the used marketplace. For the new market, of course we want strong residual values, because that gives you that parity with ICE.
"I think as we go forward and because we are going to have more volume flowing through - we had 108,000 battery EVs registered last year, they are going to come back in three to four years' time - that's a lot of volume.
"It's a supply and demand equation. It is going to have an effect."
When asked if the supply problems had seen a big increase in used EV values in the same way as for petrol and diesel cars, Freeman said: "All the electrified technologies lagged behind ICE, but that has picked up in the last few months, and that is probably because of supply.
"All those old ICE vehicles, we've gone through them, and now it's a knock-on effect into the electrified vehicles as well."
The conference also addressed the question of when the government might look to remove EV incentives, as it looked to recover a revenue gap caused by drivers moving away from more heavily taxed petrol and diesel cars.
Commenting on this, Arval UK managing director Lakshmi Moorthy said: "Demand [for EVs] is growing, it's [been] on steroids for the last 12 to 18 months, [but] it's still fragile.
"I think what we need is not sudden changes. We need to phase them out gradually.
"I don't think it's time yet to pull the plug for subsidies and grants."