Lessons from Norway – new strategic realities for our industry?
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Insight Research is assembling an industry group to assist the convenience & fuels industry develop more certainty around timescales and build new business models for the future. In this special feature, we report on our recent study visit to the Norwegian market and discuss some of the wider implications of the energy transition. If you’d like to know more about joining this group, please contact us.
Our starting point in Norway was to talk to the very knowledgeable and impressive Norwegian EV Association. I had a fascinating chat with Secretary General Christina Bu about the rapid EV growth Norway has experienced.
Regulatory Push and Consumer Pull Effects
The global car manufacturing and fuels convenience industry faces new strategic realities which combine powerful regulatory ‘push’ and consumer demand ‘pull’ effects towards an energy shift, creating a perfect storm of change.
The popularity of electric vehicles is growing exponentially, and its not expected to slow anytime soon. The latest Bloomberg Electric Vehicle Outlook Report predicts that the sales of electric vehicles will shoot from a record 1.1 million worldwide in 2017, to 11 million in 2025 and then 30 million in 2030.
European Governments are queuing up to set out visions, backed by tough regulation, for the eradication of the sale of new petrol and diesel cars as early as 2025 in Norway and the Netherlands and by 2040 in the UK and France.
As a consequence, European car manufacturers find themselves with little choice but to plan for an electric future. Within this wider context of mandated change, decisive regulatory policy measures at a national level within individual markets like Norway have made the country an outlier within Europe.
Norway is an EV test lab
Norway is now a ‘global test lab’ both for electric cars and also of course for the new consumer behaviours this transition creates. It has been clear for some time that for car producers, this is not just about regulatory pressure. In Norway it becomes apparent that consumers may in fact prefer electric vehicles once price parity has been achieved and that this could contribute a considerable ‘pull’ effect to the situation.
Recent years have certainly seen a considerable growth in EV/Hybrid market share. So far this year 26% of all new car sales in Norway are fully electric vehicles and if you add plug in hybrids, the total is 45%. More research needs to be done on this.
Challenges do however remain. One of the first findings of our group was the European automotive and fuels convenience industries may need to be given more time to adapt. And, that there remain significant uncertainties and broader strategic questions for Governments. There are in particular concerns that European carmakers may have waited too long versus counterparts in China and that they could lose out. There are certainly long waiting lists for new EVs in Norway and consumers are in some cases buying second hand and importing them.
At the heart of the debate is the CO2 emissions challenge. European carmakers are obliged to meet the European Commission’s mandatory regulation to reduce the CO2 emissions of their new cars to an average 95 gram co2/pr km by 2020*. If these targets aren’t met, carmakers face hundreds of millions of euros in potential fines for non-compliance.
According to a recent PA Consulting Group report, just four of the 11 big carmakers – Volvo, JLR, Toyota and Renault-Nissan are expected to meet their individual CO2 requirements. It claims fines in 2021 could range from a massive 1.36 billion for VW to 307 million for Ford and 126 million for Daimler. This could potentially put certain car producers out of business. The only way to solve the new standard is to sell a lot of zero emission cars.
Norway has always taxed petrol and diesel cars heavily. Import taxes currently equate to as much as 20-30% of a cars value and this historical situation has allowed the Norwegian Government to create incentives for EV buyers simply by not levying this tax and also by making electric vehicles VAT free. As our study group discovered, this is only one of a raft of measures which create the sense of two classes of driver in the country – EV versus the rest. Conventional (ICE) drivers find themselves road toll taxed for entering Oslo, leaving Oslo and in fact soon even for being in Oslo. EV drivers find they can park for free in municipal spaces. Bus lanes also beckon seductively but only as long as you’re driving an EV.
One of the key questions requiring further exploration are consumer preferences towards EVs once price parity has been reached. Evaluation of consumer behaviours in this respect is what makes the Norwegian market such a important test lab for both carmakers and fuel convenience operators. More research needs to be done on this but early indications are that, at least at current levels of EV use in Norway, consumers prefer electric cars.
Peer pressure may also be a factor. Despite being dependent on oil for its wealth, Norway is a very environmentally conscious and focused society. Thanks to considerable hydroelectric capacity, 100% of electricity produced in Norway is sustainable. This consciousness together with widespread and genuine concerns around air pollution on cold, still winter days means that peer group pressure allegedly makes it increasingly problematic to turn up at the school gate in a diesel car.
Cost parity – when will it happen and the importance of China?
Predictions seem to indicate that cost parity for electric vehicles over ICE cars is coming fast. According to PA Consulting, most car makers are planning for price parity between conventional diesel and electric cars by 2020 and between petrol and electric by 2027. If this is true, given the popularity of high tech electric vehicles amongst customers who love the user and maintenance experience, rapid market growth outside of Norway may come sooner than we think and we need to prepare for it.
China is certainly committed to making the most of this energy revolution. The world’s largest car market is fast tracking vehicle electrification and sees it as an opportunity to steal a march on European, US, South Korean car manufacturers. One of China’s most successful carmakers, Hangzhou based Geely Automotive owns carmaker Volvo and it is noteworthy that this trusted European based brand has recently announced it will stop producing vehicles with only internal combustion engines by 2019.
One of the questions we heard raised in Norway was – we are not sure the European car makers will be ready for a mass market. After all, although EV ownership has grown rapidly in Norway, it could well have grown even faster if it were not for significant waiting lists for all types of electric vehicles (a painful reality). As Peugeot maker PSA Group’s Chief Executive Carlos Tavares has pointed out, Chinese buyers could step in with their own electric vehicle technology if European companies are crippled by fines. Will China step in to fill the latent demand?
Geo-political bumps in the road ahead; jobs and raw materials
European Governments may re-assess some of the geo-political realities of their decisions going forward. Some appear signed up to a rapid shift to electric vehicles without considering the impact, not only upon forecourt and oil industries which have provided the basis of transport infrastructure for the last 100 years, but the risks inherent for motor manufacturing in an over rapid abandonment of leads in petrol and diesel engine manufacturing know how and technology. After all, the auto-industry employs 12.6m workers in Europe. Jaguar Land Rover’s recent move to a three day week was at least in part a consequence of Government mis-handling of diesel regulation.
In a move as significant as the shift from coal based power at the turn of the 19th century, one other reflection might be whether Government re-considers the possible geo-political implications of its decisions. Europe won’t want to lose high value manufacturing jobs. And, just as the shift to oil caused a geographical shift of focus to resource rich geographies like the Middle East, European Governments will also consider the power politics of sources of supply for lithium and cobalt for lithium-ion battery production.
Congo is home to nearly half of the World’s Cobalt reserves and supplies 50-60% of the global supply of Cobalt currently. The Chinese saw it early and made a massive $6B ‘minerals for infrastructure’ deal in 2007 in the Congo. But investing in one of Africa’s most chaotic countries is a messy and frustrating business, no matter who you are.
Keep an eye on Hydrogen
It seems clear that some Governments have considered the question more than others. Hydrogen fuel cell technologies are being taken much more seriously in markets like Japan and South Korea with a history of concerns around access to rare raw materials. Hydrogen certainly still figures in the mosaic of fuels leading fuels suppliers plan to offer in the long term and it was interesting to see how straightforward the refuelling procedure has become now when we visited an UNO X Hydrogen site in Oslo and tested a Toyota Mirai hydrogen fuel cell car.
What is clear however is that certain countries are moving much faster than others. Japanese Government has made massive investments and is aiming to have 40,000 fuel cell cars on the road by 2020. South Korea also recently announced substantial government intervention, planning 18,000 hydrogen power vehicles soon too. These decisions can probably only be understood in the context of wider geo-political concerns.
For our part, Insight Research is helping our industry prepare for a future which features a continued shake up of the global fuel industry.
We are helping clients understand the EV experience in global test labs for electrification like Norway. We are working on creating a cross-industry EV Research initiative, conducting consumer research to track changing behaviours and working out new business models.
In our work with Bona Design Lab and Liquid Barcodes we are assisting retailers in future proofing their business by strengthening retail offers, creating an elevated retail experience and building digital ‘live loyalty’ connections with customers. And we will help make sure that our customers and our industry is as ready as it can be.
*The European commission aims to curb greenhouse gases from transport as part of a drive to cut emissions by at least 40% below 1990 levels by 2030. The current EU-mandated average is 130g/km.