MILAN, June 17 (Class Editori) – "A big change is underway in the automotive market, not only in China, which can be compared to past innovations such as the use of steam, the railway or the computer. Moreover, quoting Rifkin, it is an entropic change because we are changing direction departing from a point of great confusion". Saro Capozzoli, strategic advisor as well as dealmaker, operating in China for thirty years with his company Jesa Capital, who assisted hundreds of European companies to enter that market, is closely following the Chinese manufacturers moves in the domestic market and abroad.
Question: China is developing quickly in the electric sector, the only fast-growing market segment. Which is the goal?
Answer: To find an alternative development way that may not depend on others and thus be able to influence the future development of the sector. The electric revolution was led by the need to overcome the pollution problem. Cities are clogged, also because in the past was made the big mistake – understood by the authorities – to copy the American automotive market development model, as if there were no limits. Chinese will is to become the first player in the world of the electric transport sector, by having also the control on the natural resources necessary for the production of batteries.
Q: Which is their method of operating?
A: There are two main aspects on which to focus. The first is the quick development of the electric system, because it is the one that will substitude the polluting cars more quickly. Therefore, all the investments are focusing on traditional electricity. The second aspect of development is also the possible Chinese expansion of models and technologies towards Western markets, which are currently lagging behind.
Q: Which consequences are these quick developments having?
A: There are about 1.5 million electric vehicles on the road that are creating a new situation in strong evolution, also taking into account the progressive reduction of incentives. As the technology grows, there is a normalization of the market. Until 5-6 years ago I still met Chinese investors who were trying to invest in Europe on suppliers of components for traditional engines, but suddenly there was a slowdown, just for the change of view on the market.
Q: What is happening?
A: Great changes are underway, still in progress, to reorganize the production chain and the components. When you change for the electric, there is a great simplification of the car as a whole, a thing that many European component manufacturers have not yet fully understood. The electric car is much easier to produce, repair and maintain than a thermal car – about 95% of the traditional components are not needed, it is a revolution in terms of technology and supply chain. Chinese would never have won the dispute against European anti-pollution regulations, but focusing on the electric, they overturned the situation in their favor.
D: What do European companies risk?
A: Many companies in the sector either reorganize themselves looking for alternatives, investing more in the R&D, or risk to close or reduce their business within a few years. It may happen that at the end of a supply contract, usually of five years, a manufacturer no longer needs that component and the contract will not be renewed. These are sudden changes and we need to be ready.
D: Chinese electric manufacturers continue to look to Europe a lot. Why?
A: They are interested in acquiring technologies, composite materials for ever lighter components, engines, to speed up the transition to the electric based on the model of engine powered with lithium battery, the one launched by Tesla, for example, which however have several problems.
D: Which ones in particular?
A: Disposal and safety. It is not yet clear what to do with old batteries that will soon pile up in the yards, but the real problem is about safety. Many sources documented fire risks due to the liquid electrolyte, that once comes out it is difficult to stop. A parallel business of special containers is also in progress, in which firefighters lock up the burning car to remove the oxygen. It is the only way to stop it, otherwise the fire can develop even for 36-40 hours.
D: Can these problems be overcome?
A: Some Chinese and Japanese companies, mainly, are trying to develop the next generation batteries, the so-called solid-state batteries, in which the electrolyte no longer exists and is replaced by a ceramic material, directly touching the metals.
Q: Which are the advantages?
A: By eliminating the electrolyte, ie the inflammable part, the fire risk is eliminated. From the production point of view this technology allows to continiulsy produce batteries, by unfolding and cutting coils. But above all, a solid-state battery has twice the electrical capacity, weighs 30% less and takes up half the space. It is a revolution in which Chinese and Americans are at the forefront.
Q: Where are we with field testing?
A: Last April we tried producing the first few prototypes, and we are already negotiating production in Germany and the UK. Chinese producers will be the first to industrialize this type of batteries. There are already billion-dollar investment projects running for this sector – I’ve heard of a 10-billion-dollar one under negotiations, even if the technology is only in the advanced start-up stage. The Chinese are very good at this, they try their hand and then correct eventual mistakes as they work. Becoming leaders in the sector is the most important thing for them.
Q: How much does it cost to produce these batteries?
A: Something small, like a 10 GW/h power source used for the production of around 220-250 thousand cars per year, costs around 1.3 billion dollars. There are some projects under way for 100 GW installations, requiring scaled investments. This is the type of power that China is unleashing over certain strategic sectors.
Q: While Japan and the US sit back and watch?
A: Toyota is investing a lot on hydrogen – it is the right direction, but it will take time to develop this segment – but they are 8 years behind China in terms of solid batteries. The US is 5 years behind. As for lithium batteries technology, all markets are at the same point.
Q: So, would you say the Tesla system is now outdated?
A: Yes, at least according to the Chinese, and even in spite of some Tesla-spinoff innovations, like those of the Northvolt Swedish company – counting the Italian Paolo Cerruti among its founders. Fact is, Northvolt is yet to start production.
Q: Then why is Toyota betting on hydrogen despite being a front-liner in automotive innovation?
A: On the whole, lithium and solid-state batteries are good for getting 2 or 4 wheel vehicles moving, but they are not enough for trucks or big industrial vehicles. Hydrogen has great potential, but raises a lot of safety concerns.
Q: Could you elaborate on that?
A: In order to bring it to the liquid state, thus reaching the ideal form for storage in enough quantities, it must sustain at least 700 bar of pressure. In Japan, Toyota is already circulating some cars – like the Mirai – storing a small hydrogen tank under the passenger seats. The down side is that there are not that many companies – despite including the Italian OMB Saleri – in the world capable of creating such pressure and keep it under ideal safety standards. Furthermore, producing hydrogen through hydrolysis requires energy, which should come from renewable sources. If not, what is the point?
Q: What do you mean by this?
A: It is known that in the Netherland, for example, there was a small energetic crisis occurring already back in 2016. As Tesla was opening a new plant there, the country realized that the wind turbines weren’t enough to meet the growing demand for electric mobility. Actually, demand is expected to grow up to 50% by 2030. So they built 3 new coal plants, two of which are in Rotterdam, in order to meet the more urgent needs of those people charging their car at night. Yet, there is another setback to hydrogen.
Q: Which one?
A: Distribution. High-pressurized hydrogen require a full network renovation, as the gas stations need to be equipped with particular structures and advance safety systems.
Q: So where are heading?
A: Toward the possibility of using hydrogen under atmospheric pressure. It could turn into a revolution. Some Japanese and Israeli companies are already developing a new fuel cell system, using hydrogen absorbed into a special fluid. This fluid. Through a 20-bar pressure innovative process, this liquid can absorb around 55-60 gr/L of hydrogen. This way, the liquid can be stored in any kind of tank at atmospheric pressure. I have already seen the first prototype, produced in Israel. The incredible advantage – other than the absorbing fluid’s low costs – is that current petrol storing and supplying systems (tankers, stations, etc.) do not need any upgrading in order to distribute it. Once used, the fluid can be transferred to a recycling tank, and replaced with new one. It is a fascinating outlook – right now, it is important to look at innovation with an open mind, because we are approaching a turning point for our car-based societies.
Q: What kind of criticalities are there?
A: These companies find it hard to receive important investments – much needed for developing industrial-level prototypes.
Q: Why is it so?
A: Those who have already invested billions in the high-pressure systems hold no interest for developing alternatives. First, they need to cushion against those big expenditures – not to mention the hostility put forward by those betting on the electric systems.
Q: So what conclusions can we draw?
A: It will take about 10-15 years before hydrogen can become competitive and cheap, but it is due to become the fuel of the future for everybody.
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