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What European funding to support tomorrow’s mobility (Juncker Plan)

By Ambroise FAYOLLE, Vice President of the European Investment Bank

Financing innovation is one of the four priorities of the European Investment Bank along with financing SME’s, infrastructure and climate change.

As a result, we are clearly engaged, since many years, in funding the investments for tomorrow’s mobility.

The mobility sector is currently undergoing profound transformations.

Digitalisation, artificial intelligence and automation, connectivity and powertrain electrification are transforming the transport system and challenging its traditional features.

Socio-economic trends, like the increasing urbanisation, the shared economy and the intense “digital lifestyle” of younger generations, as well as new entrants from the technology sector are contributing to accelerate the innovation and transformation of mobility and the automotive industry.

The automotive industry itself is at the centre of a convergence of initiatives involving electrified powertrain technologies, autonomous and automated driving technologies, increased digitalisation and vehicle connectivity enabling enhanced localisation and communication opportunities for vehicles and their users.

This convergence is favouring the emergence of new business models to deliver improved and higher value added services to travellers with reduced emission costs and improved journey time (e.g. better use of commuting time within an autonomously-driven and connected vehicle).

In parallel to higher investments in electrified powertrains (mild, hybrid and full electric vehicles), automotive original equipment manufacturers are stepping up investments in the field of automated and autonomous vehicle systems and new mobility business models relying on advanced connectivity and digitalisation technologies. In the medium- long term, this could lead to a paradigm shift from “the car as a product”, as we know it today, to “mobility as a service”.

Mobility operators (e.g. public transport operators and authorities) are also embracing more convincingly new powertrain technologies and introducing electric- and fuel-cell powered buses in their fleets.

Other mobility operators (car-sharing companies or ride- hailing ones) and private fleet operators are stepping up the adoption of electric vehicles and in some cases considering the opportunity to adopt automated vehicles when regulation will make it possible.

But it is not a straight path.

Though governments, the industry and consumers more widely agree that vehicle electrification is necessary to achieve the lower and lower carbon dioxide emission targets and reduce local emissions levels, particularly in metropolitan areas, there is still some uncertainty about the timing and level of adoption of electric vehicles in different regions, particularly by individuals and families.

Consumers do not buy electrified vehicles just because OEMs introduce them in their offering.

In the short term, electric vehicle sales have shown to depend on government incentives and subsidies.

In the long-term their market penetration will be mostly dependent on the investments for deploying an integrated and wide recharging infrastructure and on the investments in and evolution of battery technology

Similarly, assessing the future deployment and adoption of autonomous vehicles is ambitious because of the legal, regulatory, technology and customer acceptance issues still to be overcome.

According to some research studies, registrations of vehicles with higher levels of automation (SAE levels 4 and beyond) could account for about 4 million units per year by 2030 (3-5% of new registrations), but this number could significantly increase to over 8 million vehicles in a scenario of accelerated adoption or decrease to some 2 million units in a scenario of constrained adoption by technological, commercial and regulatory barriers.

This is a challenging context for us, with its share of uncertainty and risk. Still we can play a role and address suboptimal investment situations and market failures.

The EIB can contribute, along with other public and commercial banks as well as investors, to support tomorrow’s mobility: accelerate the development of innovative technologies, support the transformation of the industry (including the adoption of advanced and more energy- efficient manufacturing technologies, the upgrade of competences and skills) and the deployment of a more efficient, safer and sustainable European transport system.

As a public investment bank owned by the EU member states, the EIB must keep the best rating possible so as to benefit from the lower financing costs but it is also clearly committed to long term investment to stimulate European growth and jobs creation.

This is why we are working on two sides: we are on the one hand lending to established manufacturers, suppliers and mobility operators  to support the industry transformation and employment in Europe and we are also on the other hand financing new players, which are bringing more innovative and riskier technologies to market and piloting the adoption of new business approaches to address the emerging needs of the population and business actors.

The focus of EIB lending to support tomorrow’s mobility, has in the last years mainly been on RDI, notably in the areas of electrification and alternative fuels, safety, light weighting technologies and innovative materials as well as on innovative technologies enabling improved vehicle connectivity, interaction with the infrastructure, automated and autonomous driving with the intent to sustain the shift towards a greener and safer mobility system.

By way of example, the Bank’s lending for projects linked to battery technology development and deployment accounted for over EUR 4.5 billions in the period 2010-2018. It included support to investments in energy storage technologies, advanced materials electrification and charging infrastructure, battery cells and systems, electric bus deployment.

In particular, the European Commission has declared the development and production of batteries a strategic imperative for Europe for the clean energy transition and the competitiveness of the automotive sector.

It has launched in 2017 the “European Battery Alliance” cooperation platform, with which the EIB has also engaged, aiming at putting Europe on a path towards leadership in the lithium-ion battery industry.

In this industry, Europe is lagging behind Asia and starts from a smaller manufacturing basis. However, it is not necessarily at structural disadvantage versus Asia.

The main factors of competitiveness are linked to access to raw and active materials, cost of financing, the right choice of lithium- ion battery chemistry mix and the mastering and optimization of highly complex process steps.

The challenge for the European players is therefore to seize now the window of opportunity to step into large-scale battery manufacturing for the EV sector, before Asian suppliers occupy the market entirely, and at same time continue the technology development both on enhanced lithium-ion technology generations and on game-changing technologies, like solid-state.

Three lending operations offer a perfect example of the Bank’s commitment and support to tomorrow’s mobility.

The first one, in 2017, is a venture loan of EUR 20 millions euro to Forsee Power SAS, a French small innovative company specialized in the design and making of battery systems for portable and mobile equipment and electric transport.

With the most comprehensive range of batteries on the transport markets, Forsee Power is very well positioned for the future; it has already signed major battery supply contracts with renowned scooter and bus manufacturers, including CNHI (Iveco, Heuliez), CaetanoBus in Portugal and Wrightbus in the United Kingdom.

In addition, the group is establishing strong positions in the industrial vehicles and railway markets. This financing will enable Forsee Power to increase its production capacity and launch the series production of smart battery systems in Europe and China, particularly for the transport markets (bus, railway, truck, boat, scooter).

The second project is Northvolt, to whom EIB has granted a EUR 52.5 million loan at the beginning of 2018 to support its investment for the setup of an innovative first-of-a-kind demonstration plant for the manufacturing of advanced Li-ion battery cells.

This is a crucial investment to support the establishment of an innovative supply chain for electromobility and to accompany the transformation of the automotive and mobility industry.

Europe is currently lagging behind in lithium-ion battery production, an industry dominated by Asian players, and this highly innovative and strategic project deserves support from the EU and the EIB in order to fill this gap.

The third project is Allego BV, a leading European operator of charging solutions for electric vehicles with significant expertise in e-mobility, including the creation of a network of multi-standard quick charging stations in Belgium, France, Germany, Luxembourg, the Netherlands, and the UK.

Allego collaborates with partners from various industries in the planning, construction and operation of charging stations. The company operates 12.000 charging points in urban areas and along the main European transport routes, supporting companies and drivers of electric vehicles via a cloud-based service platform.

The EIB has provided a EUR 40 million quasi-equity financing to support Allegos’ growth and expansion of charging stations in Europe.

This financing supports the upcoming investments in the extension of the normal, fast and high power charging infrastructure, installed and distributed over Allego’s countries of operation.

These are just three examples of risky investments supported by the Bank. There is an intrinsic risk associated with research, development and innovation investments, there is a lot of risk associated with developing, testing, validating and scaling up an innovative technology and there is even more risk asso- ciated with the uncertainty of market and customer acceptance.

Still, this is also where the European Fund for Strategic Investments (the “Juncker Plan”) plays a role.

EFSI has made possible increasing the Bank’s lending volumes to higher risk projects and has made possible for the EIB to finance projects, which without EFSI would not have been possible to finance.

One of EFSI’s primary objective was – and still is to stimulate investments, particularly from the private sector. By enabling us to take higher risk in a project, it narrows the gap between what private investors may consider economically viable and unviable.

In particular, thanks to EFSI, we have developed a dedicated product, which we name ‘Venture Debt’, (although it has unique features compared to the commercial venture debt).

This product enables the EIB to lend directly to companies that have an innovative product with good market prospects but can’t take the commercialization step, due to a lack of financing available for them.

As of now, under this program, close to 75 companies have benefitted from an EIB financing, representing a total €1.5bn of funds deployed.

Last, but not least, EIB is not only helping manufacturers to develop new technologies and introduce on the market new innovative vehicles.

The Bank is also helping to remove some of the constraints preventing the adoption of electro-mobility b , e.g. by supporting the deployment of recharging infrastructure or by increasing the availability of financing for the acquisition of safer and environmentally-friendly electric cars by SMEs and fleets.

This takes place also by working like in France with specialised commercial banks and by increasing lending availability for SMEs through dedicated credit lines.

This subject is absolutely critical to increase the awareness about the necessity of fighting climate change.

And it works !

We expect to have a lot of these operations during the next months.

A very concrete example on how we can support tomorrow’s mobility for everyone !