A change is sweeping through the automotive market. By 2030, battery electric vehicles (BEVs) and plug-in hybrid electric vehicles (PHEVs) will account for more than 55 percent of new vehicle production in China, Europe, and North America, and there will be 47 million units sold globally, seven times of 2021.
With mainstream OEMs (Original Equipment Manufacturers) now focused on EVs, adoption has surpassed start-ups. The forecast for EV penetration continues to sharpen, with more than 500 new EV programs to be launched between 2024 and 2026. Therefore, chemical manufacturing companies have a great window of opportunity to set the standard for future materials applications and define the architecture of vehicles.
Chemical industry's tempting future
EVs have been a hot topic in the chemicals industry for the right reason. As EVs become dream boats for car lovers, the reality remains that somebody must manufacture the working parts to make this dream come true.
A significant shift in automotive parts procurement has sweetened the deal for chemical manufacturers. Why? Because the unit-cost basis approach, a norm for the automotive industry, holds little value compared to the lifecycle benefits of chemical suppliers. So, savvy automotive OEMs and suppliers are moving from the outdated ‘unit-cost basis approach’ to the ‘system value approach’. Batteries, power electronics, and electric motors, all expensive parts, are widely recognized as areas where materials solutions can lower costs and improve reliability.
As an example, let’s consider a typical BEV powertrain. A BEV requires a reduction in vehicle costs to be widely adopted. An electric vehicle’s battery, inverter, and motor often cost more than $10,000, three to four times the price of a car with a combustion engine.
Using suitable thermal and insulation materials in the powertrain can increase system efficiency and reduce warranty costs by several hundred dollars per vehicle. By investing in these materials, OEMs can make significant savings.
OEMs can generate $200 per vehicle savings by switching from silicon oxide (Si) to silicon carbide (SiC) power modules in the inverter. SiC is more expensive than its Si counterparts due to its higher power efficiency (which reduces battery costs) and better cooling profile (which reduces thermal management costs). Therefore, OEMs can benefit significantly from materials innovations to enable cost reductions.
The most significant obstacles to boosting EV sales are the soaring prices of minerals essential for battery manufacturing and supply chain disruptions caused by Russia’s attack on Ukraine and the pandemic. (Ukraine supplies 20 percent of the global battery-grade nickel).
In May 2022, lithium prices were over seven times higher than at the start of 2021, and cobalt and nickel prices rose. Battery packs could become more expensive by 15 percent if the prices stay current.
EVs value pools for chemical players
Vehicle systems achieve their benefits primarily through meeting challenges associated with powertrains. By 2030, the industry for specialty materials in these applications could reach more than $20 billion, focusing on high-value challenges such as power efficiency, thermal management, and battery life.
Power Electronics: In addition to the transition from Si to SiC materials, OEMs can improve power efficiency further by using wide-bandgap electronics. As the EV industry shifts to more efficient, higher-temperature inverters, better thermal and isolation materials will be needed.
Motors and wiring: High-voltage (greater than 800 volts) systems have demonstrated superior EV performance for several OEMs. Improved electrical insulation and more reliable connector materials must be used to ensure the safety of a system; the value of higher system efficiency usually dwarfs the cost of high-performance materials.
Batteries: For EVs to become cost-effective, battery costs must drop dramatically – and battery safety assured. It may not be widely known, but progressive OEMs recognize that plastic, silicones, mica, and other thermal materials can be engineered to reduce system costs significantly.
A strategic approach
Chemical players should answer the following questions to determine where the most significant value creation lies:
- What are the growing value pools and fundamental problems to solve in EVs?
Through materials innovations, chemical companies will likely reap outsized benefits if they address power efficiency, thermal management, and warranty concerns.
- How can their materials portfolio enable them to create and capture value?
Chemical manufacturing companies must articulate value propositions based on the OEMs’ gain from solutions, employing a systems-based approach for cost reduction.
- Which ‘big bets’ could help them access more value pools?
The most critical problems of OEMs can be solved by prioritizing technologies that enable integrated solutions. It is also possible to use scenarios for evaluating investments in technologies with high levels of uncertainty, such as future cell formats and chemistry.
- What capabilities are needed to deliver solutions?
Creating a fact-based value proposition will require more profound application engineering with OEMs during the vehicle design stage, system-testing capabilities, and critical account and risk management. Since design decisions for future model platforms are being made, it is imperative to mobilize commercial and technology teams quickly.
- Who are the key customers, and what should be the suitable go-to-market model?
Besides tailoring value propositions for customers based on OEMs’ make-versus-buy strategies, chemical companies should consider value chain position trade-offs based on vehicle owners and customer preferences.
A significant advantage awaits chemical manufacturing companies, who must reevaluate their partnership with the EVs industry amidst the changing procurement dynamics. They must become catalysts for the automotive electrification transformation by addressing the cost challenges of OEMs, which will help them consolidate their position and contributions.