Automakers have come under tight scrutiny in the aftermath of the Diesel Emissions Affair. Governments around the world are increasingly introducing and enforcing stringent policies and federal emission targets, which OEMs must achieve to sustain their operations. The Worldwide Harmonised Light Vehicle Test Procedure (WLTP) and the Real Driving Emissions (RDE) norms, being enforced on all new vehicles, are expected to play a crucial role in determining propulsion strategies for all vehicle manufacturers.
The growing efforts toward electrification of powertrains, at mass-market and luxury vehicle manufacturers alike, highlight a strategic approach towards meeting these stringent emission targets. OEMs are turning to electric propulsion motors (e-motors), which either complement or replace the internal combustion engine (ICE) altogether. The application of e-motors in various hybrid and plug-in electric vehicles (PEVs) is forecast to grow at an exponential rate over the next 4-5 years as the world’s largest electric vehicle (EV) markets, such as China, North America, and Europe, continue to profess a paradigm shift in consumer buying patterns in favor of alternative propulsion solutions.
In EVs, an e-motor converts electrical energy supplied from the battery into mechanical energy in the form of torque, which propels the vehicle. Depending on the vehicle platform and vehicle segment, OEMs may use single or multiple motor configurations to achieve the desired performance characteristics. An e-motor consists of two main components: stator and rotor. The stator is the stationary part of the e-motor that generates a rotating magnetic field, and the rotor is the rotating part of the e-motor where the electromechanical energy conversion occurs.
The different types for e-motors are shown below:
This diverse range of motor options allows OEMs to make strategic decisions based on the purpose and performance goals of their EVs.
Sustainable acquisition of e-motor materials
According to IHS Markit forecast, the demand for e-motors is expected to grow at a compound annual growth rate (CAGR) of over 30% between 2018 and 2024. Amongst all motor types, IHS Markit forecasts the highest demand for permanent magnet synchronous motors (PMSM) by 2024; PMSMs are expected to grow at a CAGR of about 27% during the same period.
The image below highlights the penetration of permanent magnets in motor technologies.
The primary cost component and a major risk factor concerning e-motor production relate to the use of rare earth elements (REE). The scarcity of REEs and the growing demand for PMSMs is resulting in a highly volatile acquisition cost for these materials. Our interactions with Protean, an automotive technology firm, specializing in in-wheel motor technology, revealed that even with the high price volatility, permanent magnet (PM) motors are preferred by the vast majority of e-motor manufacturers, since they offer high torque density and can be built with compact dimensions and therefore high-power density. The company, however, is exploring alternatives to reduce dependence on REE by as much as 20%. While many OEMs are exploring alternative configurations to reduce REE content in their motors, Audi has taken a radical decision to switch entirely from PMSM to asynchronous (induction) motors in its e-tron lineup. Audi outlined the following advantages of induction motors over others that support this strategic switch.
- No REE supply risk since induction motors do not require any rare earths
- Induction motors do not have any drag loss while idling
- These motors are far more cost-effective than PMS motors
The graph below shows the volatility index for major REEs used in NdFeB magnets during 2018.
Neodymium is considered highly volatile and equally scarce, which is forcing OEMs to develop PM motor technologies that are less reliant on neodymium. Toyota has explored alternative solutions with lanthanum and cerium; however, these materials may not be sustainable solutions.
Understanding REE price volatility
According to IHS Markit Rare Earth Price Index, the major REE prices stabilized during the first quarter of 2019, and prices currently remain at the same levels seen at the end of 2018. Towards the end of 2018, REE producers were forced to reduce prices to attract buyers. This price reduction, coupled with the recent reduction in Chinese VAT from 16% to 13%, will improve REE demand, as buyers take advantage of the cost savings; this makes 2019 ideal for securing REE inventory.
However, since China holds 70% of the world’s REE reserves, the high volatility of REE prices depends largely on the policy frameworks of this one nation. For instance, the reduced new energy vehicle (NEV) production subsidies have already dampened demand for cerium and dysprosium. Similarly, as China-US trade tensions escalate, punitive actions by the US against Chinese imports could see China restricting REE exports to the US in retaliation; this may result in undue price inflation in REEs.
On the supply side, the environmental impact assessment of Chinese rare earth-smelting facilities is expected to give large REE miners higher bargaining leverage in price negotiations in 2019. For instance, as certain small to medium-sized Chinese smelters were requested to close until operations comply with higher environmental standards, the China Northern Rare Earth Group is demanding higher prices due to continuous operations.
The increasing REE prices are also expected to encourage non-Chinese investment in REE exploration and mine development. Projects in Tanzania and Burundi are underway with an annual production target of 5,000 tons of rare earth concentrates by 2019. IHS Markit forecasts REE demand to grow significantly in the short term due to the strategic shift towards alternative propulsion backed by the various federal economic incentives and subsidies.
The impact of copper
Copper is indispensable to the EV industry, and as electric cars become mainstream, the demand for this metal will increase manifold. Copper is used in designing electrical and electronic components due to its high electric conductivity, almost as high as silver, its ductility, and of course, its low acquisition cost. E-motor, and wiring harness. Battery packs also utilize significant quantities of copper. According to a teardown study of a VW Golf (ICE vehicle) and a Chevrolet Bolt (EV) by Visual Capitalist, 80% more copper was required by the latter and the primary demand came from e-motors. Copper.org states that while conventional passenger vehicles require about 8-22 kgs of copper, battery electric vehicles (BEV) require a little over 83 kgs. In terms of increase in demand in the short to medium term, the demand for copper is expected to be the sixth highest after materials such as lithium, cobalt, rare earths, graphite, and nickel, respectively.
IHS Markit believes that the copper market has revived in 2019 in terms of prices; however, consumption may remain sluggish until 2020. Weak mine production globally may increase prices as demand overtakes supply; IHS Markit forecasts only 1-2% growth in copper production this year. While the outlook for 2019 remains conservative, EV production plans of various OEMs are expected to provide significant impetus to global consumption.
Various other materials used by tier-1s and other sub-tier e-motor manufacturers are also expected to enter a phase of disruption. For instance, steel producers may witness a decline in steel usage in future vehicles owing to greater application of lightweight materials. However, steel, or rather, electrical steel, will witness an increase in demand due to its advantage of maintaining low core loss in electrical components. Aluminum, used in various components to achieve lightweighting goals, may witness increased application in e-motor manufacturing. Similarly, rotor lamination resins such as polybutylene terephthalate polyester and nylon will continue to be in demand.
The advent of EVs has placed undue strain on certain EV-specific raw materials like lithium for battery technologies and REEs for PM motors. Coincidentally, the majority of these crucial raw materials, through direct ownership or via subsidiaries, is under the control of one country, China. This element of monopoly makes the supply chain of these raw materials highly unpredictable. The auto industry, especially the EV sector, is extremely price sensitive, and with the increasing demand and controlled supply, price fluctuations in these components are inevitable.
Based on IHS Markit forecasts, the potential for REE shortage and price hikes is likely to be high in the short to medium-term. This unpredictability is being addressed by a systematic search for REE sources in countries such as Australia, Brazil, and Tanzania. Unless further technological advancements in e-motor technologies are made to reduce the use of REEs, induction motors like those deployed by Tesla Motors could be a likely alternative to mitigate the economic risk surrounding the supply of these materials. The elimination of REEs in induction motors makes it impervious to the supply risk of raw materials for the rotor. Audi, with four new, in-house designed electric drivetrains, is focusing on the application of induction motors in its e-tron vehicles. However, since PM motors offer higher torque and better scalability than induction motors, a shift towards induction motors by major OEMs is unlikely.