null Mellon Mobility Innovation: An Electric Revolution
Manager Insights

Mellon Mobility Innovation: An Electric Revolution

Manager Insights Article Thematic Equity
May 2020
Mellon Mobility Innovation: An Electric Revolution

With much of the world focused on climate change post the 2015 Paris Agreement, motor vehicle electrification is one of the key solutions toward achieving the long-term goal of lower and, eventually, zero emissions. We are seeing the impact from climate change with rising air temperatures, rising water levels and extreme weather events. As a result, many governments throughout the world are mandating fuel economy and emissions standards for passenger vehicles, which is a key reason why the automotive industry is moving forward with increasing vehicle electrification penetration of the fleet. 

2020 began with rising anticipation for strong growth in electric vehicles (EV) as it is the first year that auto manufacturers need to comply with the European Union’s (EU) new mandated targets for carbon emissions. While we still expect promising long-term growth prospects, we see the potential for more subdued EV growth in 2020 due to rising macro concerns stemming from the COVID-19 pandemic. However, EV growth is not just a 2020 story, but a long-term one. In Europe, mandated emission requirements target 37.5% CO2 cuts in 2030 from 2021 levels. At the midway point in 2025, the emission reduction target calls for a 15% reduction from 2021. It appears that the only realistic way to achieve the set targets is through selling more EV models. EV adoption is in its early stages at just 2% globally, allowing for what we believe will be significant growth over the next several years due to changing regulations and increased demand for environmentally conscious options. 

Source: Bloomberg New Energy Finance, Electric Vehicle Outlook. As of May 15, 2019. 

As all auto OEMs develop and launch new EV models over the next few years, the market will start to see EV models expand materially, giving consumers a larger selection from which to choose. Importantly, the major EU countries will work in partnership with the auto industry to support EV demand. This means incentives for consumers to purchase electronic vehicles such as subsidies and lower taxes. EU governments are committed to transitioning away from internal combustion engine powered cars to electric powered ones. For instance, to support a quick pace in the broad adoption of sustainable mobility and in hopes of having 10 million EVs on the road by 2030, the German government has subsidies in place. It and the country’s automotive industry association (Verband der Automobilindustrie) have recently raised subsidies by 50% for consumers buying EVs costing up to €40,000.1

The increasing penetration of EVs will also continue in China. China is the world’s largest EV market with approximately 1.1 million units sold in 2019. Based on our fundamental research, we see the prospects for continued long-term growth even as the industry navigates a challenging macro environment this year. Increasing the penetration of EV is one of the government’s main tools over the mid- to long term to achieve energy security while also reducing air pollution. The government views energy security as a national issue as the country is a large importer of fossil fuels. Furthermore, as China has industrialized and urbanized over the past several decades, pollution has become a major health concern.  

The Chinese government has a mandated EV policy whereby each auto OEM will be required to meet certain annual EV credit requirements based on their annual production. Failure to meet these requirements will result in auto OEMs having to buy EV credits in the market in order to avoid fines. In 2019, OEMs were required to accumulate credits equal to 10% of their annual production. This requirement will increase each year through 2023 – 12% in 2020, 14% in 2021, 16% in 2022 and 18% in 2023. The value of the EV credits is determined by the electric driving range and energy consumption of the vehicle. We expect consumer choice to grow significantly starting in 2020 and 2021 and thereafter as all auto OEMs operating in China will launch new EV models as they transition from traditional internal combustion engine powered vehicles to ones powered by electricity. 

We expect a significant number of companies will benefit from this latest revolution in mobility. New legislation and consumer demand for sustainable solutions will not only drive adoption rates but will also force auto manufacturers to deliver a broad range of options, providing them and their supply chains with ample opportunity for growth.


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1 Germany raises purchase subsidy for EVs’, November 19, 2019.

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