Fuel for Thought: CERAWeek - An increasingly fragile mobility and energy transition

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With the upcoming S&P Global CERAWeek and Innovation Agora event in Houston (TX), it's good to remind ourselves of the rich history of this high-level event in terms of automotive and mobility sector leaders' participation; especially in an era where the mobility and energy transition is warranting a more prominent centre stage role. Over the last few years, our audience has benefitted from insights shared by thought leaders such as Bill Ford (Ford Motor Company), Mary Barra (General Motors), Jim Farley (Ford Motor Company), RJ Scaringe (Rivian), JB Straubel (Tesla/Redwood) and Henrik Fisker (Fisker). Perhaps not surprisingly, most of them have been discussing the challenge of moving the industry on a trajectory of electrification and all the associated benefits, along with the inevitable hurdles this transition will bring to light.

In the context of today's challenging global landscape, particularly in geopolitical terms, with voters in 60-plus countries heading to polls in national or local elections this year - representing more than half the world's population - the potential ramifications for electric vehicle (EV) adoption could be substantial.

Similarly, global supply chain disruptions could also impact the mobility and energy transition which appears to lose the customer interest across selected global markets. Outside of China, questions are swirling about the near-term prospects for EV consumer acceptance beyond earlier adopters. Effectively, the gap between the prices of EVs and comparable ICE vehicles remains wide in the United States and Europe—and a recent flurry of news reports have reinforced that the EV public charging experience on both sides of the Atlantic leaves much to be desired. And the upcoming S&P Global CERAWeek and Innovation Agora event poses the ideal platform to explore this situation further in the presence of relevant industry leaders.

The year ahead promises to be precarious for the automotive and mobility sector. According to the S&P Global Mobility "New EV Players Monitor", the year 2023 witnessed the most EV start-up player failures since the inception of this dedicated research service, with around 41% of new EV start-up players who made it into volume production now no longer operating, and we expect this number to rise to 50% by 2025. Effectively, the average lifespan of now defunct new EV start-ups, that made it to start of volume production, remains at only 4 years. And all this following an estimated combined capital inflow of more than US$80 billion invested in new EV start-ups since 2005.

Could this be the beginning of a wave of electrification stakeholder consolidation, and possible more investment failures? Already over the last six years the mobility industry has witnessed a culling of a variety of forms of shared mobility, starting with the infamous Chinese shared bicycles schemes after their boom years, and now we observe similar indications in the car-sharing sector after several major original equipment manufacturers (OEMs) and investors suffered significant losses due to reduced demand and high operational costs.

While growing climate pressure (as well as sustainability factors) will increasingly manifest themselves across the automotive and mobility sector, hence the energy transition - effectively forms of electric propulsion - will eventually come to the fore, but at the current rate this still seems a long way out.

Once the electrification technology becomes more mainstream, dependable, and more economical there will be a major case to be made for multi-modal mobility solutions, and perhaps a new wave of start-up communities to foster innovative ideas. Without a doubt, artificial intelligence (AI) might even further revolutionise the whole so-called "New-Mobility" sector and could unlock a future mobility market which could see much less dependency upon personally owned vehicles, and more on-demand vehicles such as robotaxi and/or purpose build vehicles (PBV).

Objectively, electrification of the world's vehicles (light and heavy vehicles) is gaining momentum, yet progress for now remains concentrated in selected markets. And while the automotive sector leads in decarbonization efforts, the heavy truck sector lags approximately a decade behind and varies across different applications. Successfully meeting climate goals requires reducing oil consumption, which necessitates addressing transportation fuel demand. Currently, the electrification of the automotive fleet stands out as the most advanced initiative within the transportation sector, with one in every three light vehicles sold in China being electric. However, the adoption of EVs by American consumers remains lackluster, and the development of EV heavy trucks lags significantly behind EV passenger vehicles. Despite these challenges, the trajectory is clear: EVs are steadily entering key markets, while oil demand is approaching its peak. Encouragingly, evolving trends in fuel economy within the on-road sector play a pivotal role in shaping S&P Global's perspective that oil demand is poised to reach its peak within the next five years.

Policy and infrastructure will continue to play crucial roles in shaping the trajectory of EV adoption. While three of the largest markets—China, Europe, and the US—have established longstanding government policies, regulations and incentives to support EV sales and manufacturing. Moreover, China and Europe have made comparatively greater investments in public charging infrastructure, which continues to hold back greater EV sales adoption in the US. According to a recent S&P Global Mobility survey, after the vehicle purchase price, the lack of a charging station availability is the largest reason for buyers not to consider an EV with about half of those survey respondents raising the issue. Concerningly, there are signs that EVs are encountering challenges attracting buyers beyond early adopters. For example, despite price reductions, Tesla has indicated that their sales growth for the year may see a notable decline, while other automakers have also cautioned about slower EV sales growth and are temporarily scaling back investments in EV production capacity, particularly in the US, but also in other markets.

The view from the automotive suppliers is that they understand they too will eventually have to invest, but they also know they can't allocate too much of their capital too early as this could cost them dearly. From their perspective it's all about flexibility and adaptation, ultimately to keep the right level of balance and make sure they are prepared when the EV market grows in earnest.

While consumer apathy towards EVs persists, policy initiatives continue to forge ahead - such as the European Union's de facto ban on new light ICE vehicle sales from 2035. For now, a tension between government regulations and consumer EV adoption is likely to persist in many key markets, until EVs narrow the price gap with ICE vehicles and public EV chargers become more ubiquitous. The outcome of this tug-of-war holds significant implications for automotive manufacturers, technology suppliers, and fuel refiners alike.

Ultimately, the path to decarbonization for each vehicle manufacturer varies as that path is influenced by factors such as carbon footprint, global operations and the target year selected to reach net-zero. Holistically, looking out to 2050 and beyond, it is increasingly evident that (1) electrification of the automotive industry alone may not be sufficient to meet the Paris Agreement decarbonization goals overall. As a result, the automotive industry may have to explore additional sustainable pathways, including (2) net carbon-neutral production, (3) sustainable supplier transformation, and (4) material reuse and recycling. Understanding how these four pathways can work together is arguably the biggest challenge ahead yet, it's clear we're in it for long-haul.

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This article was published by S&P Global Mobility and not by S&P Global Ratings, which is a separately managed division of S&P Global.