SMARTER PERSPECTIVE: Challenges and Opportunities Along the Road to Electric Vehicle Proliferation By Keith Spacapan

An abbreviated version of this article Toyota and Honda to Mercedes, Audi Historical Perspective also appears in the June/July ‘21 and Ford, have introduced a host of The reluctance to commit is somewhat issue of SFNet. hybrids and Electric vehicles (EV’s). easier to understand when we consider has now announced the evolution of personal vehicles overall, In this first in a series of that it is making a $27 billion investment dating all the way back to the transition upcoming articles on the electric in electric and autonomous vehicles from horses to the first automobiles. With and has committed to introducing a advances in technology in the 1800s vehicle (EV) market, we take minimum of 30 EV models through came experimentation with not only a look at plans by global auto 2025. Volvo recently revealed its gasoline but steam and even electric manufacturers for continued, aggressive plans to transition to an powered engines. Steam was, in many aggressive expansion of their all EV company by the year 2030. ways, the most promising technology of electric offerings as well as the And Volkswagen has put a stake in the time because it was so widely used technologies that are competing the ground, publicly stating that its to power train locomotives, ocean-going mission is to become the world’s largest ships, mining and factory equipment. for dominance in the market. manufacturer of electric vehicles. While An engine powered by steam is, in fact, multiple automakers plan to eliminate widely believed to have propelled the Over 10 years ago, Nissan launched its new vehicles with gasoline and diesel world’s first “automobile” in the late 1800s. all electric Leaf automobile, becoming engines entirely in the next 15 years, it Steam engines, however, had a number the first automaker to mass produce is worth noting that many longstanding of drawbacks including the time needed such a vehicle. Since that time, a brands have yet to fully commit to an to warm up prior to use and their constant plethora of legacy manufacturers from EV platform-based future. need for water, which limited the distance they could travel in many circumstances. Electric cars of the time lacked many Ford F-150 pick-up truck to be badged Technological Crossroads of the issues that plagued steam and the Ford Lightning. Only five years ago, gasoline-propelled vehicles. They Ford used its iconic F-150 pick-up to Reducing emissions is a top priority didn’t make a lot of noise, they were make headline news when it jettisoned for most major automakers today, but comparatively simple to operate, and the rugged, conventional steel body determining how best to accomplish they did not generate excessive heat in favor of a light-weight, all-aluminum that task remains a topic of some or emissions. Some popular electric body. There is no better way for Ford significant debate. While hybrid electric models were actually produced as to demonstrate its commitment to the vehicles (HEVs) have paved the way for early as the late 1880s in Germany and cause than to introduce a zero-emission the industry since Toyota’s Prius debuted in England, where an entire fleet of variant of the most popular vehicle in nearly 25 years ago, their reliance electric taxicabs filled the streets. The America, the Ford F-150. on petroleum-driven combustion popularity of electric cars continued engines makes HEVs an unlikely to grow, particularly in urban areas, as The new car market in China is by far long-term candidate for survival in an more cities became electrified for the the largest in the world. According to increasingly environmentally conscious, first time and charging became a less estimates by global automotive firm sustainability-focused world. With this in arduous task. As a result, auto pioneers, LMC Automotive, China will produce mind, meeting consumer expectations notably Ferdinand Porsche, continued over eight million electric cars annually and achieving zero emissions - which to experiment with electric and even by the year 2028. Europe and the U.S. states including California have now early hybrid creations. Around this time will be hard pressed to ramp production mandated be accomplished by specific in the U.S., Thomas Edison was busy at anything approaching a competitive future dates - will require further developing vehicle batteries that could rate. Meanwhile, China’s projected rate refinement of two notably different deliver better performance. He and of growth for “new energy” vehicles in technologies: battery electric vehicles Henry Ford even partnered together in 2021 is 40%, with total sales expected and hydrogen fuel cell vehicles. an effort to develop a viable low-cost to climb to 1.8 million units, based on electrical car. Ultimately, however, many data from the China Association of While both harness electricity to generate consider the introduction of Ford’s own Automobile Manufacturers. vehicle propulsion, the way each stores $650 Model T in 1912—a credit to the that electricity is dramatically different. efficiencies of his innovative production At present, there are 22 EV makers In battery-electric cars, that power is line process—as the pivotal event that doing business in China. All but stored directly in a vehicle’s battery packs. stalled the future of electric vehicles of Tesla are home-grown China-based Storage is accomplished quite differently, the era and led to the meteoric rise of companies, including one which is however, in hydrogen fuel cell cars. Here, the combustion engine. In fact, it wasn’t joint venture with Volkswagen. While a car’s fuel cells store electricity in the until over 80 years later, in 1996, that U.S.-based Tesla is the only outlier, the form of gaseous hydrogen, which when the first production electric vehicle was company actually leads the market in released via a chemical reaction in those brought to market by General Motors. units shipped to-date. cells, generates propulsion. Toyota’s Prius hybrid was introduced the following year, and in 2004 Tesla motors was founded. Annual Production of Eletric Cars China is rapidly expanding annual production of eletric cars, and is on a pace to make The Modern Era more than eight million vehicles by 2028 as its companies race to build new factories.

million As referenced above, the past several years 16 have featured numerous announcements by manufacturers across the globe 14 Forecast pertaining to their plans for EV rollouts. 12 Even under the restrictions of COVID-19 10 conditions, since the start of 2021 we have seen GM release its completely redesigned 8

2022 Bolt EV and a compact 6 sport utility variant badged the Bolt EUV. 4 Production is scheduled to begin later this fall on GMC ’s highly anticipated 2

EV. According to Stellantis, by year end 0 it plans to introduce up to 10 hybrid or 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 electric models across its brands, among —— China —— Europe —— North America —— Rest of World them a highly anticipated Jeep Wrangler plug-in. The latest front page news for Note: Data through April 22. Figures for 2021 and later are forecasts. Does not include plug-in gasoline-eletric electric vehicles is Ford’s introduction of hybrids and extended-range gasoline-eletric vehicles. an electric-powered version of the iconic Source: LMC Automotive. The New York Times Hydrogen and Electric Drive Efficiency rates in comparison using eco-friendly energy

Well-To-Tank Tank-To-Wheel

Electric Car Energy Transportation Electric battery E-engine and storage (high capacity)

100% ~70-90% Overall efficiency rate

Hydrogen Car Energy Electrolysis Compression & Transportion Fuel cell & Electric battery E-engine liquefaction and filling power generation (low capacity)

100% ~25-35% Overall efficiency rate Source: Volkswagen

In a recent self-funded study, comparative inefficiency. That said, techniques such as electrification of “Automotive Industry 2035 – Forecasts while current offerings from Volkswagen, mining operations and implementation for the Future”, management consultancy BMW and Ford underscore those of green initiatives. firm Horváth & Partners explored which manufacturers’ commitments to of these technologies is likely to become battery-electric cars, others including Some have expressed concern for most established in the years ahead. Hyundai, Toyota and Honda strongly the steel market as penetration Its findings indicated that based on support fuel cell technology, with each of electric vehicles continues to the specific model, a battery-powered presently offering such a vehicle in the advance. According to Ernst & Young, electric car is capable of achieving a California market where that fueling automotive sector demand for steel level of efficiency somewhere between infrastructure currently exists. can be expected to remain relatively 70% and 80% percent. This means that flat with the incremental volume of approximately three quarters of the total Commodities Impact EVs produced offsetting the reduced electricity generated by the car’s own volume of steel needed for each unit. grid is actually able to be applied to With the pace of electric vehicle A demand increase is also forecast for vehicle propulsion. adoption overall increasing at a rapid aluminum as the push to reduce vehicle rate, major implications lay ahead for weight continues. Both metals will be By comparison, the study found that industries that supply the automotive essential in the growth of the global losses are significantly more extensive in industry. This includes the mining and charging infrastructure and EV battery hydrogen-powered electric cars, which metals as well as the energy sectors. production. Copper demand is also are only capable of attaining an efficiency Demand for metals including lithium and expected to grow at a significant rate range between 25% to 35% percent. The cobalt can be expected to dramatically given that an EVs construction involves study also showed that when alternative increase as more widespread adoption approximately five times more of that fuels to hydrogen are burned, efficiency of electric vehicles takes place across the metal than an equivalent combustion drops even further. So, while hydrogen globe in the coming years. Furthermore, engine vehicle. Copper is also an and other fuel cell-based electric cars can as automakers are being regulated essential component in the expanding offer extended range, fast refueling and into reducing the emissions footprint EV charging infrastructure. Demand reduced weight over their battery-on- along their supply chains, the pressure for cobalt, graphite and nickel is also board counterparts, they would appear will be on for greater use of renewable expected to grow alongside the lithium to have one distinct disadvantage; their energy and sustainable manufacturing widely utilized in EV battery technology.

Hilco Global is the Automotive Industry Smarter partner for your business. Infrastructure Consumer Acceptance data that enable us to deliver highly accurate valuations across automotive The new administration has prioritized With mounting legislation and regulation manufacturing and the associated supply a national EV charging network, with a worldwide supporting clean initiatives and chain. Whether you have a simple question goal of installing at least 500,000 devices the reversal of climate change, automobile or a more in-depth need, we encourage nationwide by the year 2030. Similar manufacturers have little choice but to you to reach out to our Automotive Practice efforts have been proposed, with some continue the acceleration of their efforts team. We are here to help! well underway in countries around the toward an EV-focused future for their world. This is an aggressive undertaking vehicle offerings. The risks, however, at ABLs and manufacturers alike have for the U.S. and one that clearly looks least in the near-term are very real. EV sales achieved a high level of success across toward the future of a carbon footprint- comprise under 2% of new vehicle sales in numerous industries in partnership with friendly roadway. With EVs and hybrid the U.S. and only 3% globally. While overall Hilco Valuation Services based upon our electric vehicles currently accounting awareness of EVs and their distinct benefits disciplined process, industry-leading bench for only about 2% of the new vehicles is high among consumers here in the U.S., strength, systematic and collaborative sold domestically in 2020, demand for a multiple studies indicate that current range approach. This success is a testament large network does not exist today. Yet, limitations, charging station scarcity and to our commitment to excellence. adding future capacity is clearly critical as expensive pricing continue to inhibit many By understanding past cycles and evidenced by a recent Consumer Reports from making the leap to EVs. As a result, performance, documenting historical data survey. Findings indicated that about half while a global production shift to EVs is points across the sectors and industries, of drivers would be interested in an EV all but certain over the course of the next and continuously exploring and assessing that could travel further than 300 miles decade, the rate of future adoption remains the path that is being paved ahead, between charges, yet most offerings on the more in question. Hilco Valuation Services consistently road today do not deliver that range. Less delivers reliable, accurate and actionable than half of those surveyed who indicated For more than a century, man has toyed valuations for our valued customers. that they definitely do not plan to obtain with the concept of electric vehicles. an EV as their next vehicle, indicate that an Ironically, electrification of the industry is inadequate charging infrastructure is a key anything but the flip of a switch. Swamy factor holding them back. 28% state that Kotagiri, the newly appointed chief they lack a place to charge an EV at home. executive of Magna International, likened the process to a marathon. All the work Not surprisingly, while automakers up until now should be viewed as training are heavily vested in evolving their EV for what now is the race. With that in KEITH SPACAPAN IS VICE PRESIDENT offerings to meet consumer expectations mind, Hilco urges lenders with current OF HILCO’S AUTOMOTIVE PRACTICE and government regulations, they are portfolio exposure to the industry to not as zealous about following the actively engage with their borrowers to Keith has been directly involved in the Tesla model of building out, owning or 1) ensure that a company’s strategic plan automotive industry for more than 30 operating their own charging networks. anticipates the continued emergence years, including 15 years with General As a result, most have entered into of EV technology; 2) assess the sense of Motors. Career highlights include partnerships with third-parties to provide urgency of a company’s leadership with Product Line Executive of the Big Block those capabilities. Companies such as respect to EV technology; 3) determine V8, Finance Director of Powertrain ChargePoint and EVgo have adopted the percentage of a company’s R&D Manufacturing, and Finance Director of distinct business models in building out budget that is related or dedicated to EV . Keith left General large charging networks, both of which Technology; 4) determine the percentage Motors to serve as the Chief Executive place the majority of the cost burden of a company’s capital expenditures that of a Tier II automotive supplier and on area businesses. While these and are related or dedicated to EV Technology has since worked with a wide range of other suppliers/operators have, to-date, and; 5) become as knowledgeable as original equipment manufacturers and concentrated on installations at highly possible about the details of the strategic suppliers. These dual perspectives: trafficked urban and suburban shopping partnerships that a company has formed finance & operations / original equipment and entertainment locations, we expect or is considering in the future. manufacturing & related suppliers, foster to see a growing number of fast charger a comprehensive understanding of the installations at intervals between major Throughout this pandemic period we dynamics which impact asset value. population areas to make longer trips have continued to work closely with our For more information, contact Keith more practical for EV owners and EV clients and contacts across the industry at [email protected] or ownership more appealing to the masses. and have amassed critical insights and 847.313.4722.

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