Market Insight

EU CO2 emission standard - New challenges ahead for automotive electric motor market

January 08, 2019

Joanne Goh Joanne Goh Analyst, Electric Motor Systems & Capital Equipment

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On 17 December 2018, the European Parliament and European Council reached an agreement on the next round of targets for carbon dioxide (CO2) emissions for passenger cars and light commercial vehicles (LCVs) in the European Union (EU), which set a target to reduce CO2 by 37.5% by 2030, from 2021 targets. For LCVs, the targeted reduction by 2030 has been set at 31%. Both types of vehicles will be subject to an interim CO2 reduction target of 15% by 2025.

There have been both positive and negative comments toward the recent agreement. The EU lobby group Transport & Environment (T&E) sees this as an opportunity for European automotive OEMs to shift up a gear in the race to produce zero-emission vehicles. On the other hand, the European Automobile Manufacturers' Association (Association des Constructeurs Européens d'Automobiles: ACEA) has voiced their concerns over the new target. It stated, “Delivering a 37.5% CO2 reduction might sound plausible but is totally unrealistic based on where we stand today. Industry deplores that this 2030 target is driven purely by political motives, without taking technological and socio-economic realities into account.” ACEA has also stressed to the European Commission that investment and infrastructure readiness are key to enabling and driving efforts to achieve such an aggressive goal, and it is seeking support to mitigate the negative impact of structural changes in the employment market.

The continuous focus on fuel-efficiency and CO2 emission targets in the automotive industry is having a significant impact on the entire automotive supply chain. For instance, shifting the process of certifying vehicles sold in the EU 28 market from the old New European Driving Cycle (NEDC) method to the new Worldwide Harmonized Light Vehicle Test Procedure (WLTP) negatively affected production results in the extreme near-term outlook during the second-half of 2018. As OEMs have moved to WLTP certification, they have experienced bottlenecks in getting vehicles certified, which has recently slowed down output. The recent backlog is slowing down demand from automotive applications, including demand for components like electric motors.

The new CO2 emission target of 37.5% by 2030 could create new challenges for automotive OEMs and tier 1 and other component suppliers. In the electric motor market, as electrification increases, vehicle manufacturers are seeking to enhance motor efficiency by improving torque and speed, which ultimately determine the energy consumption of vehicles. More investment is needed to research and develop ways to improve the efficiency and performance of electric motors, which is expected to lead to changes to motor designs and materials. IHS Markit expects this to drive up average selling prices of automotive electric motors over the long term.

In the short term, European governments are driving the adoption of electric vehicles in the region as an immediate action to reduce CO2 emissions. For instance, there is a tax exemption of five years for electric vehicles (purely electric or fuel-cell vehicles, not hybrid vehicles) in Germany for initial registrations from 1 January 2016 to 31 December 2020. After the exemption, the car tax will amount to 50% of EUR11.25 (up to 2,000 kg), EUR12.02 (up to 3,000 kg), or EUR12.78 (up to 3,500 kg) for each 100 cc or part thereof. The regional demand for electric motors is expected to be driven by the increased adoption of electric vehicles in the region. 

According to the recent IHS Markit Electric Motors for Automotive Applications Report, there were more than 890 million electric motors and traction motors shipped in 2017 to the EMEA region for automotive applications. These shipments are expected to increase by as much as 33% by 2022 based on the current economic recovery rate in the Eurozone. The world market for automotive electric motors is estimated to have been worth USD30 billion in 2017, with 3.3 billion units shipped. The value of the market for traction motors specifically used in EVs and HEVs was worth USD3.5 billion in 2017, with 6.2 million units shipped. Revenues from the overall market (including traction motors) are forecast to grow at a CAGR of 12.6% and reach an estimated USD54.5 billion by 2022. Revenues and unit shipments in the electric motor market are estimated to have grown 7.5% and 4.9% respectively in 2018. Electric motors in EVs and HEVs accounted for 18% of total revenues and 6% of the total unit shipments in 2017. IHS Markit projects that electric motors in EVs and HEVs will reach 56% of total revenues and 27% of unit shipments by 2022. IHS Markit will continue to watch this market as it develops and adjust the forecast when necessary

 

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