Metzler meets Fraunhofer
Electrification on Europe’s Roads – Status Quo and Perspectives
Electromobility (e-mobility) is gaining importance worldwide – and has the potential to shake up the sectors and business models of well-established companies. In December 2016, Prof. Dr. Martin Wietschel, Head of Energy at Fraunhofer Institute for System and Innovation Research ISI, and Dr. Johannes Reich, personally liable partner of Metzler Bank responsible for the divisions Corporate Finance and Information Technology, spoke at the joint event “Metzler meets Fraunhofer“ on the subject of “Electrification on Europe’s Roads”.
Can you give a brief definition of e-mobility?
Wietschel: Strictly speaking, e-mobility refers to passenger cars and commercial vehicles that are powered either entirely or partially by electricity and can be charged from the mains supply. This includes purely battery-powered vehicles as well as plug-in hybrid and range extender vehicles that have a combustion engine in addition to a battery in order to extend their range.
Reich: In my opinion, e-mobility can be defined as the sum of measures aimed at replacing private transport based on combustion engines with transport based on electric power yet to be spelled out in greater detail.
Wietschel: And in a broader sense, fuel cell vehicles operated with hydrogen fuel and other vehicle classes like electric bikes and mopeds or electric trucks can also be added to the e-mobility list.
Prof. Dr. rer. pol. Martin Wietschel received a doctorate in industrial engineering and qualification as a professor from the Fridericiana University of Karlsruhe in Germany. He has been working since 2002 as a research associate and project manager at the Energy Policy and Energy Systems Competence Center at the Fraunhofer Institute for System and Innovation Research (FhG-ISI). In 2007, he became head of their business unit for the energy sector. In 2005 Mr. Wietschel accepted a teaching assignment at the ETH Zurich in Switzerland, and in 2008 he was awarded an extraordinary professorship at the University of Karlsruhe (now KIT). He has also been deputy head of the Energy Technology and Energy Systems Competence Center at the FhG-ISI since 2011.
Mr. Wietschel’s main responsibilities lie in the energy sector, modeling of energy systems, analyzing and assessing climate policy tools, assessing innovative energy technologies as well as new fuels and drive systems for the auto industry.
Dr. Johannes Reich is personally liable partner of the bank B. Metzler seel. Sohn & Co. KGaA and a member of the Partners’ Committee B. Metzler seel. Sohn & Co. Holding AG. He is responsible for the business area Corporate Finance and for the departments Corporate Communications, Legal and Information Systems. He began his banking career at the Hamburg-based bank M.M. Warburg & Co. Later he worked at Morgan Stanley in London and Frankfurt/Main.
Dr. Reich graduated from Karlsruhe University with a master’s degree in business administration and engineering and received his doctorate from Bamberg University. He worked as a scientific assistant at Bamberg University and RWTH Technical University in Aachen.
So far, customers seem hesitant to buy electric vehicles due to limited range, insufficient charging station infrastructure and high purchasing prices. What do you think the key to mass success is?
Reich: The overall ecological balance of an electric car, including battery production and disposal, as well as the everyday feasibility of an electric car, especially its operational safety and functionality in every respect, must be up to scratch and convincingly demonstrated.
Wietschel: Vehicle prices are largely determined by the car battery, which is why battery prices must be lowered further despite the significant reductions already achieved. At the same time, battery capacity must be increased, even though this stands in conflict with vehicle prices. Furthermore, a network of quick charging stations must be established in order to extend range.
Reich: If the theoretical range of an electric car is to be, let’s say, about 400 kilometers and this is reduced to about 250 kilometers when conditions are not ideal or even further in winter and if, at the same time, around 30 minutes are needed to quick-charge a battery, then we may need ten to twenty times as many “fueling stations” on German motorways as we have today – assuming we don’t intend to enforce other traffic concepts like car sharing with car changing as was the practice for horse changing of the pony express in 19th century USA.
Wietschel: Our studies show that practical everyday experience with e-cars can help reduce barriers even further. After extended e-car use, consumer acceptance is much higher and the range issue becomes less relevant.
Emission-free driving is often defined as proactive environmental protection. But what is the overall energy and environmental footprint of an electric car compared to a car with a combustion engine?
Wietschel: In order to meet stringent climate protection targets, electric cars will be inevitable in the medium and long term. We must therefore embark on this technology today.
Reich: I believe this is a very complex question and, in order to draw any clear conclusions, more intensive, highly accurate and precise research is required.
Wietschel: Calculations ranging from the charging process to the vehicle wheel indicate that electric cars are three times more energy efficient than conventional cars. However, e-cars require more energy in the manufacturing process than conventional cars. Also, if they are charged using energy from the German public power mix, they demonstrate hardly any emission benefits in their output of greenhouse gases. This is likely to change quickly, though, as advancements are made to expand renewable energies in order to achieve a transition to clean power.
E-mobility is often seen as a megatrend and seems to have the potential to turn sectors and existing business models upside down. Where do you see the most potential for change?
Wietschel: The auto industry will be impacted the most by e-mobility. Thus, this sector is facing momentous change just like the energy industry a few years ago. Electric driving is the megatrend of the auto industry, along with autonomous and inter-linked driving.
Reich: Assuming car producers will be directly affected first, I expect that auto suppliers, especially engine manufacturers, are likely to experience the greatest immediate change.
Wietschel: The energy industry will be affected by heightened electricity sales and the establishment of charging station infrastructure. E-mobility will also offer the IT industry new business models that might include, for example, reservations for charging stations or computer-controlled, intelligent e-car charging.
Reich: And transitional change is therefore expected for the insurance industry, the software industry (especially network technology), and the optronics and photosensor industry as well.
In your opinion, why is the Chinese government placing such strong industrial-policy emphasis on e-mobility?
Wietschel: One reason is called “leapfrogging”. Until now, China has hardly been able to keep pace with leading countries like Japan and Germany in the field of combustion engines. To now quickly concentrate on battery-powered vehicles instead could bring China to the front of the class in this technology. With electric scooters, this strategy has already proven to work well.
Reich: Yes, they can kill two birds with one stone. They can convert a relative disadvantage to foreign competition in the domestic Chinese automotive industry into a substantial relative (tempo) advantage simply by changing the rules and allowing the normative power of the Chinese masses to take effect. At the same time, China can stress environmental protection aimed at reducing smog and air pollution in congested Chinese metropolitan areas.
Wietschel: In addition to reducing air pollution in Chinese megacities, it is also important for China to reduce its dependence on oil imports and achieve its climate policy goals.
An electric engine requires far fewer components than a combustion engine. Where will the value added path lead?
Reich: I believe that substantial electrification of transport will lead to an inevitable shift of value added away from auto manufacturing towards the software, IT and telecommunications industries.
Wietschel: Today, 40% of value added achieved by passenger car manufacturers stems from the combustion engine. This will disappear in future. Power electronics and the electric engine will become key, alongside the battery. Establishment of a charging station infrastructure will continue to play an important economic role, as will IT solutions e.g. for intelligent charging of e-vehicles in accordance with economical necessity. In major cities, e-car sharing concepts could become significantly more attractive.
Reich: But careful! This is not a matter of expanding value added within one product category or within one sector. It’s about shifting value added and know-how to a different level – from one sector to another, from one country to another, from one innovation level to another, from one form of system or society to another.
During negotiations on the new savings plan in October of 2016, the VW works council demanded own battery production facilities to help replace at least some of the jobs lost to e-mobility. Do you agree with this? Can establishment of battery production in Germany be successful?
Wietschel: The battery cell is the most valuable component for battery-powered vehicles. Today they come mainly from Japan or Korea, and in future they’re likely to also come from the USA and maybe even China. Moreover, research on new battery cell types is ongoing and further breakthroughs can be expected. Germany’s R&D of battery cells has recently gained significant ground and now ranks among the best worldwide. It is therefore easy to understand why one might want to take the next step and establish own cell production in Germany in order to create value domestically.
Reich: Generally speaking, battery production in Germany can and would likely succeed if economically viable.
Heavy commercial vehicles and electric engines have been considered incompatible for a long time. What is the current state of electrification, e.g. for public transportation or for truck transport?
Reich: In the so-called “Material Handling” sector, there are certainly some commercial vehicles that have been battery powered for quite some time now. However, these sometimes large and heavy forklift trucks are required to master only very short distances. A battery-powered truck in the Australian Outback or the open expanses of Siberia is a stretch of my imagination at this point.
Wietschel: Running heavy, long-distance commercial vehicles on battery alone is inconceivable for the foreseeable future due to the battery’s low energy density. The fuel cell is an interesting alternative. It competes with the hybrid catenary truck, for which heavily trafficked stretches of motorway are equipped with overhead wires so the truck can recharge via a pantograph. First public test routes are currently in the planning stage in Germany, while they are already under construction in other countries such as the USA and Sweden. Hybrid catenary lines would be worth considering for inner-city bus routes as well, but battery-powered vehicles that can be quick-charged at road stops are certainly also an interesting option here.
How do you feel about the German Bundesrat’s suggestion to lay the fiscal and tax foundation for a de facto, EU-wide ban on new registrations of vehicles with a combustion engine by the year 2030?
Wietschel: Ambitious national and international environmental protection targets can only be achieved if overland transport, i.e. passenger cars, commercial vehicles and railway, is completely decarbonized. In fact, if environmental issues are taken seriously, passenger cars with combustion engines should no longer be sold in Germany after 2030. I think it makes the most sense to set strict CO2 fleet targets at the political level and monitor real operations but to leave technology open, thus allowing the industry to search for the best solutions.
Reich: Let‘s put it this way: great deeds of great men and great women demand grand action and ultimately also most noble sacrifice. It will be interesting to see how these plans measure up to democratic standards in the next 13 years.