TechNotes – Top 10 legal issues for EVs

Electric vehicles, or “EVs”, have reshaped the landscape of today’s automotive industry. The transition from internal combustion to sustainable propulsion is a paradigm shift that no business in the industry can afford to ignore. In this note we summarise the top 10 legal issues raised by EVs.

1. Insuretech and data protection issues

Data that vehicles collect can expose the way we live and provide valuable insight into our behaviour and actions. This could become a “golden rock” for an insurance industry with increasing attention on vehicle forensics: a digital forensic science focused on the identification, acquisition and analysis of automotive data. Whether gathered by a black box, electronic control units (ECUs) or other ancillary devices, this data is highly valuable to insurers for many purposes, including acquisitions, new products (eg, policies based on driver behaviour) and development of a monetisable proprietary database. All these data flows are and will be based on AI and the blockchain, but insurers still need to be aware of so-called “car hacking” and the risk of having the data set stolen or altered.

2. Charging and infrastructure

Germany, often the trendsetter in EV infrastructure and charging regulation, introduced their Fast Charging Act. Despite objections from private charging station operators (especially concerning proposed price caps for charging rates), the EU Commission recently approved the (slightly amended) scheme, releasing 1.8 billion euros of government support for EV fast charging infrastructure. The project was deemed to have been correctly notified, complied with EU state aid rules and contributed to the realisation of the objectives of the European Green Deal and the EU Commission's "Fit for 55" package. The scheme now provides for the installation of 8,500 fast charging points for charging EVs within 15 to 30 minutes in around 900 new locations in Germany. We expect other European countries will strive to follow Germany’s example in the year ahead.

3. ESG risk

EVs have wide reaching and complicated supply chains, which touch on a raft of ESG issues. The mineral extraction required for EV batteries, for example, can be notorious for environmental concerns regarding water pollution and high emissions to labour law violations. With the raft of ESG regulation being implemented in Europe and beyond, including in relations to disclosure and supply chain due diligence (eg the EU due diligence legislation), EV companies will need to map and monitor their supply chains carefully to protect against both legislative and reputational risk. Falling foul of these laws could also lead to litigation. In France, for example, third parties affected by a company’s breach of its ESG mitigation plan (which requires French companies to establish, publish and implement measures to identify risks and prevent abuses to human rights, fundamental freedoms, the health and safety of individuals, and the environment), will be able to sue in the French Courts under the French Duty of Vigilance Law.

4. Natural resources

As highlighted above, EVs can come under fire for their overall carbon and environmental impact, from the increased quantity of minerals they contain compared with conventional vehicles to the processes used to produce those minerals and the electricity required for charging. An important consideration for EV charging infrastructure operators is ensuring that electricity is from “low carbon sources”. Charging operators can draw on experience in corporate power purchase agreements (PPAs), and other methods of direct purchase of renewable energy by other energy consumers such as, data centre operators helping to ensure that they can provide green electricity to their customers. Producing EVs on a commercially viable basis to enable a mass market in affordable electric cars is another challenge faced by the industry. The US and Europe are also seeking to reduce supply chain and political risk vulnerability for EV production through proposed large capital spending, accompanied by policies to support domestic car, battery production, rare earths.

5. Corporate trends

Private M&A is trending towards greater supply chain integration and onshoring – particularly in the EV market. We see investment banks marketing to EV manufacturers as direct buyers of metals assets, as they may be willing to pay higher multiples given the value of such assets added in their supply chains. On the buy-side, see clients using M&A to consolidate EV manufacturing capabilities with unique and legacy brands to create value. On the public side, a significant number of EV and EV-related businesses have gone public in recent years to mixed success (eg Rivian Automotive’s huge (US$100bn+) Nasdaq IPO and EDF-backed PodPoint’s London IPO (both in 2021). Mining companies focused on battery metals have also been at the fore. Whilst manufacturers and related businesses was not spared from the early 2022 tech stock sell-off, and IPOs are likely to remain thin on the ground for the first half of this year, the outlook for later 2023 is brighter and, in the medium to longer term, the EV sector is generally considered a highly favourable area for IPOs and secondary equity capital raising, with many institutional investors focused on ESG opportunities. Refining, and increased battery recycling and alternative battery chemistries.

6. Tax

Until now, the UK tax system has incentivised EV adoption: EVs are not subject to road tax, companies benefit from enhanced capital allowance regimes for EV-related investments and electric company cars attract a much lower benefit-in-kind charge than conventional vehicles. But as EVs grow more popular, governments risk missing out on the revenues generated from the conventional motor industry (eg 20% VAT and 52.95p per litre of fuel duty currently charged on fuel at the pump). Tax change is, therefore, on the horizon: the road tax exemption will largely come to an end in 2025, signalling a possible wave of new policies aimed at taxing EVs more fairly. Since 30 June 2022, all home EV chargers have needed to be separately metered, presenting a clear opportunity for the future taxation of EV home charging at higher VAT rates than other domestic electricity. But there must be a balance between generating revenue and incentivising good behaviour – too much, too early could stop the EV rise in its tracks and leave net zero targets firmly in the rear-view mirror.

7. Competition

The main focus of competition authorities to date has been on potential foreclosure in the market for EV charging. The UK government has proposed a market-led approach to electrify road transport. However, the creation of a nation-wide public charge point installation infrastructure will be highly capital intensive, and private companies will require a degree of certainty in terms of exclusivity. The extent of the degree of exclusivity is key: although the CMA investigated the EV charging market in 2021 and found no major concerns, it nevertheless published an open letter to motorway service operators, and electric vehicle charge point operators last year, noting that long-term exclusive arrangements in this sector can be a barrier to investment.

8. Intellectual property

The expiration of key patents relating to lithium iron phosphate (LFP) chemistries in 2022 could lead to the increased production of cheaper and safer EV batteries. Whilst LFP cells tend to have lower energy densities than cells based on, for example, nickel cobalt aluminium (NCA), the reduced risk of explosion means that LFP batteries require less crash protection. In practice, this enables LFP batteries to have more kilowatt-hour capacity in the same physical space in an EV. US and Canadian researchers first developed and patented LFP cell technology and agreed exclusive patent licences with Chinese EV manufacturers. With the expiry of those patents, more EV makers are beginning to adopt LFP technology.

9. Product liability

Lithium-ion battery fires have been newsworthy and sometimes devastating in other sectors (tablets, electric bikes), despite the application of top-tier R&D and product testing prior to release, as real world use presents unforeseen vulnerabilities to batteries and related electrical components. Product liability risk also arises from a relatively undeveloped EV repair and servicing network, with traditional motor businesses ill-equipped to ‘turn their hand’ to servicing more complex EV components. Compounding this risk is the desire to promote a circular economy focused on component longevity and making parts modular and interchangeable (potentially even with third party products). Ironically, environmental concerns are increasing the
risk for a product intended to be more environmentally friendly. Litigation and insurance issues will also arise: should home or motor insurance cover a home EV charging fire? And does that insurer look to the vehicle producer, a component producer, or the producer or installer of the home charging network?

10. Immersive Technology

A fully developed vision of the Metaverse will require up to another ten years to bring to fruition. However, the underlying technologies today can (and are starting to) be used in automotive tech to increase consumer engagement, provide an immersive driving experience and improve design and manufacturing. For example, mobile applications like RelayCars use AR and VR to help customers get a realistic view of the vehicles without ever visiting a showroom. OEMs are also using the Metaverse to engage with consumers, setting up virtual showrooms (eg Fiat, Skodaverse), interactive experiences (eg car races) and NFT galleries. OEMs are also using AR tools and VR equipment (eg visors and headsets) to assist in the design process. These technologies are also being used to test the vehicle’s performance in different environments, settings and simulations earlier in the design process.

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