Authors: Céline Fornaro, Head of European Industrials Research, UBS Global Research
Patrick Hummel, Head of European and US Auto & Mobility Research, UBS Global Research
We believe the transportation sector can be almost fully decarbonized by 2040. Our forecast is that electric vehicles will account for 40% of global new car sales by 2030. While many industry players think that is too high, we think it could be too low. Rapidly decreasing technology costs, a benign global regulatory environment, government funds and the rising cost of carbon emissions will lead to a fully electric future, not only for cars and trucks.
Can the transport industry be decarbonized?
We believe the transportation sector can be almost entirely decarbonized by 2040. Why? New technologies have breakthroughs enabling them to start providing value at a reasonable cost, and saving energy has a feel good factor attached to it. If there is a favorable overarching regulatory framework, it unravels quickly, which is exactly what is happening in the transportation sector. Electric powertrains, long considered too expensive, too short-range, too heavy, and too limited in lifespan, are reaching cost parity with combustion engine technology first in cars, and later in trucks (road transport accounts for some 12% of global emissions), trains (0.4%) and ships (1.7%). Innovation in aviation (which accounts for some 2%–3% of carbon emissions) has always been aimed at lowering fuel costs (and thus carbon emissions) through weight reduction and engine performance. Hybrid /electric or hydrogen powered airplanes have an appealing future: in our view, small hybrid electric planes will be in service by 2023–25 and 70–80 seaters by around 2028. For the medium haul market, a hydrogen powered plane could be developed by 2035, achieving a zero carbon emission plane.
The UBS view on the aviation roadmap to green aviation
And at what pace?
Too often corporations think disruption follows a linear path. Many industry players and parts of the financial community like to think the transition to an electric future will happen in a gradual, evolutionary way, allowing corporations to plan and adjust their resources. Many automotive companies, for example, think that our forecast that electric vehicles will have a 40% share of global new car sales by 2030 is too high. If anything, we think it could be too low. And the financial community is starting to realize what is happening. Pure play electric car companies are valued much higher than any of the legacy car companies, despite producing only a small fraction of their volumes. Space travel with reusable rockets is another great example of how quickly disruption can happen and establish a new leader in end markets with high barriers to entry.
Factors that could accelerate the trend
Three key drivers will accelerate transport’s move toward a zero-emission future:
Battery technology: battery costs have dropped by more than 50% over the past five years, and full manufacturing cost parity with combustion engine cars should be reached by 2025, at the latest. The cost of ownership for trucks, at least for short haul trucks, should be lower than that of diesel trucks by then. Battery life is being extended to up to one million kilometers, charge times should be reduced to 15 minutes and infrastructure is growing quickly. More mature and powerful battery technology also has applications in the market for small airplanes (<20 seats), with more than 250 initiatives being explored currently. This could reinvigorate flights of <30–45 minutes making intercity or intra regional hops.
Fuel-cell technology: with a stronger than ever push for a hydrogen economy (e.g., the EU 2050 Green Deal) to decarbonize industries such as chemicals and steel, hydrogen infrastructure will also become available for the transportation sector. Hydrogen powered fuel-cell trucks could become the most cost efficient solution for long haul transportation. The technology could also replace diesel powered locomotives and could even be used in ships (e.g., ferries).
Regulatory framework: the EU and its Member States are, through the Green Deal, leading with regulations that reward low carbon technologies and increasingly penalize the ownership and use of combustion engine vehicles. The UK even plans to ban the sale of combustion engine vehicles in 2030, and aims for aviation net zero emissions by 2050. China has laid out a roadmap to carbon neutrality by 2060. California has pioneered the adoption of the electric car and penalizes heavily the use of non green carbon fuels. The certification of Europe’s first two-seater electric plane came in 2020.
Electric vehicle sales penetration by region (% of total passenger car sales)
What to watch?
We will track the sale of electric cars and trucks closely, and monitor battery and fuel cell cost curves with every new product. We will follow the investments in EV-charging, sustainable fuels and hydrogen infrastructure, which are crucial for the technology shift to happen. We regularly assess traveler appetite for disruptive transport means, as well as more carbon-friendly ones, such as high-speed trains. We also monitor patent filings in electric and hydrogen technologies across the aviation spectrum. The years 2021 and 2022 should see more hybrid / electric platforms being certified, as well as the first passengers flights (planes with <19 seats).
Lifting the potential road blocks
So, what are the reasons left for the transportation sector not achieving decarbonization by 2040? The sceptics frequently refer to: (1) the limitations of battery technology, which has proven to be progressing much faster than anticipated; and (2) the difficulties relating to producing environmentally friendly hydrogen and building the infrastructure around it. We would point out that Europe and China have been able to develop extensive high-speed train networks, and we should not underestimate the ability to develop infrastructure for hydrogen, given the strong government support.