Supercharging the future - How to rethink EV supply chain to achieve net zero goal?

Strategic Context: The Greater Bay Area (GBA) and our net zero goals

We have heard about famous innovation and commercial hubs such as the San Francisco Bay Area and the Tokyo Bay Area. Quickly joining these icons is China’s Greater Bay Area (GBA) which is home to a new generation of global innovators and to soon over 100 million residents, greatly increasing the projected energy demand by 2035.

The GBA is set to expand rapidly and is embracing opportunities to create smart cities, greater workforce mobility and the electrification of its transportation.

However, this explosion of economic growth in conjunction with technological development has not excluded the GBA from the environmental challenges it also brings. With the GBA aligned to the goals of the Chinese government, striving to reach carbon neutrality by 2060, 80% of energy in the GBA will have to be generated from clean sources by 2035, to achieve this.

Sourced Online - The Greater Bay Area cities and GDP projection

Since the transport sector is one of the main contributors of carbon emissions, a phased approach is designed to achieving these goals.?Taking Hong Kong as an example, one of the measures taken by the city will be to stop the registration of traditional fuel private cars by 2035. Hong Kong in particular, is an interesting case within the GBA in the context of transportation, not only due to its geography and landscape, but also its historical and political context.

The Hong Kong Special Administrative Region (SAR) just celebrated its 25th anniversary of handover to China, which technically also marks the halfway point of the 50 years “One Country, Two Systems” policy.

As the end of this transition period is slowly approaching, it is of crucial importance for Hong Kong to play an important and integral part within the GBA. Free movement of people and goods between Hong Kong and other GBA cities will be crucial to ensure an efficient and responsive supply chain.

Given the environmental concerns I described in my previous article “Can EV adoption really make a difference in reducing carbon emissions?”, a solid green transportation infrastructure should be one of the key elements when developing Hong Kong and GBA’s future roadmap.

EVs as of now pose the greatest opportunity for Hong Kong and GBA to achieve its green transportation ambition so it is worth for the government and related stakeholders to rethink the EV supply chain now.

The elements of a EV supply chain ecosystem

The green transportation ambition is a complex endeavor with multiple dynamically moving parts. To solve the jigsaw, core elements of the puzzle will have to be developed in parallel.

• Various EV stakeholders will have to invest and facilitate the process to ensure that the overall context of EV infrastructure development is connected with the transition towards green energy.
• EV production and its supply chain processes should leverage renewable energy sources and also green and clean practices across its operations (planning, manufacturing, procurement, logistics, etc).
• Moreover, to ensure EVs are clean from an emissions perspective, the energy leakage during EV usage should also be minimized. The charging infrastructure must be both sufficiently robust and integrated with the grid to meet the daily operational requirements of EV users.
• The grid will also have to withstand the newly increased intensive electron demands for EV-based transportation. For the EV operations, it is also crucial that technical and physical interoperability, data, and standards are maintained for an effective use of the EV infrastructure.
• Finally, repair and maintenance and EV battery recycling will also need to have sustainability embedded in its practices.?

Source: Designed by Nelson Chow and Brandon Choi; Illustrated by Natalie Wong

In this article 1, I will focus on analyzing the first 3 elements of the EV supply chain ecosystem diagram depicted above:

1. Transition towards Green Energy source

2. EV Manufacturing

3. EV Operations

This will be followed by article 2, where I will investigate the remaining parts of the EV supply chain ecosystem. To close this mini-series on eMobility, my last article 3 will focus on an important aspect of EVs that could potentially significantly extend EV uptake beyond private vehicles, i.e., what can be done to increase the penetration of EVs in the commercial vehicles market.

1.??????Transition towards Green Energy sources

To truly achieve a green transportation ambition, a key component is to ensure that our EVs in Hong Kong are powered by clean energy sources.

Globally, Norway is at the forefront of deploying renewables within its energy mix. The country at the vanguard recorded as much as 99% of electricity production coming from renewable energy sources, with hydropower being the most popular, followed by wind and thermal energy.

The Norwegian government also emphasized the need for flexibility in power production, so the Scandinavian country can export and import power to neighboring countries through interconnectors, further maximizing its energy efficiency. However, despite its domestic energy use coming almost entirely from renewables, Norway still has a significant energy reliance on fossil fuels. This is because electricity is a subset of total energy consumption, as energy consumption also includes energy used for heating and transportation.

If considering of total energy generation in Norway as of 2020, 70% of the country’s energy comes from renewables and 30% from fossil fuels. To cut its further reliance on non-renewables, the Norwegian government is pushing to electrify transport (private vehicles, public transport such as ferries and even commercial and construction equipment) and focusing on improving heating as well.

Norway is a leading country when it comes to EV and electrification of its transport sector.

They develop and implement efficient and effective solutions to improve their energy mix and should be a point of reference for all countries.

The country also has the largest EV fleet per capita in the world. As of early 2022, 32 in every 100 passenger cars were EVs, and since 2020 the country recorded more annual sales of EVs than Internal Combustion Engine (ICE) cars.

This is also thanks to government policies and incentives, making the purchase price of EVs competitive compared to ICEs. Such conditions create a self-fueling cycle (hopefully with clean fuel - obviously), as the country is now attracting EV automakers to roll out their sales of cars and other services (remember the “battery-as-a-service” by NIO in my previous article? This is also happening in Norway). But to be fair to other countries, we must acknowledge that Norway has a relatively small population and produces an excess of hydropower energy, which places this country in a favorable position when it comes to new frontiers, for example, green hydrogen.

Sourced Online from YouTube – Nas Daily - The Country of Teslas

If Hong Kong was to follow Norway’s footstep in electrifying its transport, the government should develop a holistic and long-term strategic plan to support the infrastructure development of the entire EV supply chain ecosystem, and not fragmented incentives.

When compared to Norway, Hong Kong doesn’t have the geographical advantages that the Scandinavian must mass construct hydropower stations. There is not enough land in Hong Kong to support renewables, as solar farms require lots of land and the wind resource in Hong Kong is not particularly good. Hong Kong is also not a large energy producer itself and relies on the import.

To make way for renewables, Hong Kong would have to come up with more creative and structural implementations.

Some may argue that Hong Kong could leverage its very advantageous geo-political position being at the center of the GBA and use its proximity with other GBA cities to encourage use of renewables. This could be achieved as there is a significant amount of hydro power in the West of China in Guangxi that could be imported to Hong Kong through the Chinese grid. The Peoples Republic of China (PRC) has also set out plans to build offshore wind farms along the coast that could provide a source of renewable energy to the GBA (including Hong Kong.)

Coal is currently the main source of energy supply in Asia-Pacific, causing environmental impact from coal-fired power generation and increasing overall emissions. According to Hong Kong’s Climate Action Plan 2050, the trend of switching to gas will continue, with Hong Kong reducing its coal usage from 48% coal in 2015 to 24% in 2020, most of which has been replaced by natural gas. However, replacing coal with gas only reduces emissions by 50%. To continue to transition away from non-renewable energy sources, local power company CLP is also exploring the feasibility of developing an offshore wind farm in Hong Kong waters. In the near to medium term, they are also planning to introduce more gas-fired generation and import more electricity from non-carbon emitting generators into its grid.?There are also nuclear which is also arguably the cleanest and most economic way to generate electricity as an option.

Sourced Online: CLP Blackpoint Power Station - a gas fired station

In the past, Hong Kong has implemented some renewable energy supportive measures such as feed-in tariffs (FiT), renewable energy certificates, appropriate adjustments to building-related regulations, tax incentives on procurement of renewable energy power systems and enhancement of public awareness of renewable energy technologies. The Government has also rolled out the Solar Harvest Scheme under which solar energy generation systems are installed at schools and social welfare organizations for free. The Government also approved over 130 projects aimed at boosting renewable usage, including the installation of solar energy generation systems at government offices, government quarters, schools, recreational grounds-cum-rest gardens, reservoirs, and pedestrian links, as well as the installation of waste-to-energy and hydropower systems at multiple sewage treatment plants. The projects are expected to generate a total of about 21 million kWh of electricity annually and reduce about 15,000 tons of CO2 emissions.

In short, there must be an action plan to use renewables and clean energy sources instead of fossil fuels. This is the only way to contribute GBA and Hong Kong net zero target by tackling the problem at its roots.

?2.??????EV manufacturing?

Sustainable production of EVs should involve making a conscious effort to reduce environmental impacts and promote green practices. Whenever the topic of EV manufacturing is being brought up, the discussion tends to focus entirely on production of EV batteries. This is because EVs rely on rechargeable lithium-ion batteries made of cobalt, lithium, and rare-earth elements. The continual rise in demand for EVs is putting a huge strain on the environment, with more raw materials needing to be extracted. However, current extraction processes are typically?detrimental to the environments and require vast amounts of energy, water, and other resources to be carried out (see link below).?

The recycling and reusing of existing materials throughout the fleet would help to protect the local ecosystems that are damaged by raw material extraction. It could also make the manufacturing process more efficient, creating financial savings for car manufacturers which could be passed on to the consumers, making EV an even more appealing choice.

According to a recent sustainability report, as many as 75% of consumers consider sustainability an important factor in their purchasing decisions, while another report found that 66% of consumers would be willing to pay more for a sustainably produced product.

Whilst EVs already offer many eco-benefits, implementing green techniques during the manufacturing process could give one company a greater competitive advantage over rivals in the market.

Research has also indicated that as much as 65% of employees are happier to work for companies with stronger environmental ethics which could positively influence staff retention. Businesses at the forefront of these net zero carbon emission initiatives will automatically look more attractive to the typical consumer and investor.

China is surely at the forefront when it comes to car manufacturing, especially for EVs, from very expensive to extremely affordable.

See below a diagram mapping the popular ~50 Chinese EV models ranging from US$22,000 to US$58,000 in July 2022 (Y-axis is price in RMB; Y-axis is the driving range in KM). It is expected that only more EV models would be available in the market given the popularity. Apologize this graph is only in simplified Chinese but I guess you get the point - there will be a lot of EVs in the market and EV will become the mainstream.

Sourced online: XCX

The latest is particularly worth mentioning, the very basic but equally inexpensive Wuling Hong Guang MINI EV. This fully electric car has quickly become the best-selling EV in China, reaching over 650,000 units sold within the first two years. This result surpasses even sales of Tesla, the next in line among best-selling EVs in China.

The affordability is one thing, but this MINI EV is also impressively inexpensive when it comes to the running cost, apparently only around~USD0.76 every 100km and it also very popular among young generation where you can personalize your own EV to showcase your characters.

Despite the low price, it doesn’t mean their production should not adopt green concepts. The factory in Liuzhou is already taking advantage of AI technology and uses other EVs in the production process, i.e. the small autonomous Baojun vehicles are being used to carry components around the factory.

The XPeng Smart Auto Parts Industrial Park officially started construction in the Chinese city of Zhaoqing, one of the biggest industrial clusters, is creating great potential for GBA in establishing as an important EV production and operations center.

In the next 10-15 years, if GBA and Hong Kong do become an integrated living zone, cars will be able to commute with the Guangdong region and potentially by then EV’s will be the mainstream mode of transport.?

I believe all stakeholders in the EV supply chain can play an important role in making the manufacturing process greener.?From car importers to car dealers and its end-users (including government and big corporations having a considerable amount of purchasing power), all industry actors should influence car manufacturers by making more informed purchasing decisions.

These actors should uphold manufacturers to their highest standards and require improved supply chain traceability, reliability and sustainability for every part of the value chain.

Increased transparency can lead to increased trust and accountability, by ensuring standardization, appropriate certifications and labelling are in place.??

But at the same time, we must be honest, for car manufacturers to transform their production lines from fossil fueled cars to EVs and make such transformation a green one, is a lengthy and complex endeavor. Volkswagen is an example of a market leader in ICE that at the same time is still struggling to transition to EV production.

Despite huge investments, their goal of 50% of their annual car production to be EV by 2030, about 5 million, is still far from being achieved, having only about 450,000 delivered last year. Focus on training and resizing the workforce of EV factories, creating new supply chains with focus on sustainability, adapting the production workflows will be key for manufacturers to successfully shift towards EV manufacturing.

Simultaneously, to keep a leadership position among competitors, the automotive companies will have to bet more on technology and software development to differentiate themselves from others. All these elements must take into consideration, carefully assessed, and adequately addressed by companies while ensuring their new production lines are indeed greener and more environmentally friendly than ever.

3.???EV Operations

In general, EVs emit no tailpipe emissions. Moreover, EVs convert over 77% of their electrical energy from the grid to power their wheels. This is an impressive result when compared with ICE vehicles that convert only about 12-30% of the energy potential of gasoline. This means that the higher energy efficiency of EVs equates to lower engine and driveline losses, which in turn equates to better economic and environmental performance of EVs in comparison to ICE cars.???

Sourced from www.epa.gov, estimate shown from GREET 2 2021 performed by Argonne National Laboratory

However, the environmental benefits of reduced emissions can only be realized if the energy mix used throughout the whole lifecycle of EVs is derived from clean sources. This is true not only for the energy being used to charge the batteries but also for the energy used during the manufacturing process and during its end-of-life. The production and disposal of batteries used in EVs is also shrouded in controversy. Some American studies demonstrated that the manufacturing process of EVs including the battery production and disposal emits more greenhouse gases (GHG) than the manufacturing and disposal of ICE cars when comparing emissions over the lifespan of a vehicle (i.e., GHG 55 gr/mile for EV vs. around GHG 40 gr/mile for an ICE car). However, the same study also demonstrated that the overall lifecycle GHG emissions of EVs are considerably lower (less than 50%) than those of ICE.??

The main controversy in studies looking at the emissions over vehicles lifecycle sits in the fact that EV producers provide a maximum of 8 years of warranty period on batteries and some critics argue that once the battery becomes depleted, the benefits of reduced GHG emissions would be nulled. Similarly, some studies in the EU assume a lifespan of a vehicle to be around 16 years and roughly 150,000 miles. Nevertheless, the research is still strongly demonstrating that the overall GHG emissions of EVs are substantially lower, making EVs a greener option.

As EV technology improves alongside production processes, eMobility will continue to solidify its position as the leading technology for green transportation.

Call for action

1. The EV adoption is inevitably accelerating in Hong Kong and China. EV stakeholders have their work cut out for them to improve the eMobility ecosystem for everyday users. Investments, collaboration amongst stakeholders and alleviating key pain points and bottlenecks will be key over the short and medium term to accelerate eMobility and the green transport ambition in Hong Kong with the context of GBA development.
2. China, and GBA in particular, are at the forefront when it comes to EV manufacturing. The concept of ultra-affordable EVs have gained a lot of traction in China and contributed to fast uptake of EVs as it has become the preferred car option for moving around cities. This also reminds us that the end users of EVs can exercise their purchasing power to not only push car manufacturers to become more and more EV oriented. The purchasing power of end users worldwide can also be used to require improved and more sustainable manufacturing processes and consumers can hence express their preferences by purchasing from EV manufacturers that place sustainability at the forefront of their agenda.
3. Further improvements to energy mix, alongside the shift towards innovative and “green” solutions is also needed, given Hong Kong’s unique geographical and urban characteristics. All these interventions are needed to ensure the electrification of Hong Kong’s fleet can bring the desired effects of green transportation. It is also important to recognize that time is an important factor, as it took Norway more than 30 years to get to its current position of being the world’s leading country in EV and renewables. Although both Norway and Hong Kong possess their own unique characteristics; Norway having a small population and excess hydropower placing them in a strong position to explore use of green hydrogen whilst Hong Kong’s position in the GBA that can help it to leverage renewables from the Chinese grid, Hong Kong can certainly still emulate certain best practices of Norway and adapt accordingly based on its geographical constraints.

As such, it can be said that the journey towards green transportation is not overnight and the foundations of an EV supply chain ecosystem must be laid out today for the better tomorrow.

I will analyze the remaining elements of EY supply chain ecosystem framework in my subsequent articles of this mini future-back series on "Supercharging the future". So, do watch this space and share your comments!

The views reflected in this article are the views of the author and do not necessarily reflect the views of the global EY organization or its member firms.

References:

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2.??????https://www.epa.gov/greenvehicles/electric-vehicle-myths

3.??????https://www.autoexpress.co.uk/news/357817/new-green-ncap-emissions-ratings-cast-doubt-electric-cars-green-credentials

4.??????https://www.cnbc.com/2021/07/26/lifetime-emissions-of-evs-are-lower-than-gasoline-cars-experts-say.html

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23.??It’s time to get serious about recycling lithium-ion batteries (acs.org)

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28.??This Is How The Wuling Hongguang Mini EV Is Manufactured (insideevs.com)

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30. https://fortune.com/2022/01/28/wuling-mini-ev-car-specs-price-mini-electric-vehicle-tesla-china/