When Americans elected Barack Obama president of the United States, they also signed their consent to undergo shock treatment.
As the nation’s dependence on foreign oil goes unabated and its fossil-fuel consumption rate continues to skyrocket, the White House has prescribed an attitude adjustment. To reverse these trends and ensure the U.S. remains a global economic power, the Obama Admin. is compelling auto makers to put 1 million electrified vehicles on the road by 2015.
Against this backdrop, wary industry observers and insiders give voice to an undercurrent as negative as the electrons that stream from a lithium-ion battery.
American consumers are hardwired to repel premium pricing, critics say. But the market assumption, which is polarizing the auto industry the way doctors are divided over the efficacy of shock therapy, suggests the public readily will embrace an expensive product that behaves like no other.
The Obama Admin. believes “deep-down, almost zealot-like, in changing the types of vehicles we drive,” says a source close to the workings of the president’s auto industry task force. “And they believe it’s for the best.”
In addition to the $25 billion loan program the Bush Admin. extended to auto makers and suppliers under the Advanced Technology Vehicle and Manufacturing Incentive Program, the Obama White House has amped up the pressure through the American Recovery and Reinvestment Act. It features:
- $2 billion in grants to fund advanced-battery manufacturing in the U.S.
- A $7,500 consumer tax credit for the purchase of an EV or plug-in hybrid.
- An $11 billion commitment to upgrade the nation’s power grid in anticipation of the EV rollout.
- A $15 million allocation to explore the purchase of alternative-powertrain vehicles, including EVs, for the General Services Admin. fleet.
And for some additional jolt, the president has his finger on the switch of cap-and-trade legislation to reduce the nation’s carbon footprint, as well as an aggressive new fuel-economy standard designed to further mitigate greenhouse-gas emissions.
For someone with big dreams, Elon Musk projects a pragmatic bluntness that both inspires and intimidates. As founder, chairman, CEO and product architect of Tesla Motors Inc., he has become a beacon of hope for EV proponents.
Musk also is a lightning rod for skeptics who claim the burgeoning EV market is no place for a startup. But he can boast 5-year-old Tesla is the only production auto maker in North America or Europe that sells highway-capable electric vehicles at retail. And even though they are roadsters that start at $101,500, it’s a track record impressive enough to enticeAG to take a 10% stake in the California-based company.
The two previously agreed in January that Tesla would supply battery packs for an electric version of the Smart Fortwo minicar.Fresh from a recent appearance on TV’s “Late Night with David Letterman,” during which the host mocked the planned Chevy Volt extended-range electric vehicle, Musk matter-of-factly outlines his case for transitioning the nation’s fleet to battery-powered propulsion.
“Gas prices are going to rise,” he tells Ward’s. “People should have absolutely no question about that. You’re talking about something that is a limited resource, where production is more or less constant and demand is rising like crazy.”
Musk points to growing throngs of consumers in India and China, already home to 40% of the world’s population. “And they barely have any cars,” he says.
A 2007 study featuring 2002 data and published in “The Energy Journal” showed the vehicle populations in China and India were 20.5 million and 17.4 million units, respectively. The U.S. ranked first with 233.9 million, followed by Japan, Germany and Italy, whose fleets ranged from 76.2 million to 37.7 million.
But by 2030, the study says, China’s vehicle population is expected to hit 390 million units, overtaking the U.S. for first place. The U.S. is expected to have a fleet of 314 million vehicles, while India is a projected third-place finisher at 156 million.
“And all those cars are going to use gasoline, or most of them,” Musk warns. “The demand on oil is going to be astronomical.”
By 2030, according to 2008 data from the U.S. Department of Energy’s Energy Information Admin., the world’s known oil reserves also are expected to be depleted by 55%.
If the transition to electric drive is left until then, Musk warns, there will be “massive wealth transfer” out of the U.S.
Charles Gassenheimer, CEO of U.S.-based lithium-ion battery producer Ener1 Inc., offers a more near-term outlook. While he supports the Obama Admin.’s electrification push, he warns of “rampant inflation” after the planned economic stimuli are implemented.
“And inflation speaks directly to commodities pricing,” Gassenheimer tells Ward’s, projecting per-barrel oil prices will more than double current levels within three years.
“So, we’ve got a 2- to 3-year window to get more fuel-efficient cars on the road before gas prices start spiking. I don’t want to be too negative about the American consumer, because I am one, but we’re living in a fantasyland if we think that pump prices will be $2 forever.”
Motor Co. Chairman Bill Ford tells Ward’s electrification is “absolutely the right way to go for society because at the vehicle level it’s clean technology without the use of oil.”
A committed environmentalist disparaged in some quarters when, years ago, he drove a battery-poweredRanger pickup, Bill Ford confesses to some vindication. “But more than that, I feel energized,” he says. “I’m really excited this is where we’re headed.”
Bill Ford, Musk andCorp. product advisor Bob Lutz are among an expanding list of high-profile auto executives who favor a gas-tax hike. They say the measure would put consumer buying patterns in sync with EV rollouts, thereby avoiding a scenario where the pricey products would sit unwanted on dealer lots.
A similar strategy was implemented in Europe in the 1970s. Fuel was highly taxed, but diesel less so than gasoline.
As a result, diesel-powered light vehicles, about 30% more fuel-efficient than conventional gasoline engines, today are a dominant presence in Europe, despite the fact diesel engines are inherently more expensive.
However, proposing such a tax hike in the U.S. surely would induce culture shock, industry observers warn.
“It’s not the American way,” says Brett Smith, director-automotive analysis at the Center for Automotive Research.
“Any politician who even breathes that would be committing political suicide,” offers John Wolkonowicz, a senior analyst with IHS Global Insight in Lexington, MA.
In February, Massachusetts Gov. Deval Patrick proposed a $0.19 state gasoline tax to raise money for road repair. “His popularity ratings just plummeted,” Wolkonowicz says.
Slightly less un-American is the expectation that consumers will pony up extra cash for a costly new technology designed to benefit the greater good, Smith claims.
Historically, when pump-price spikes forced car buyers to examine their consumption, Americans “have traditionally either downsized or right-sized,” he says. “They haven’t chosen the technology route to become more fuel efficient.”
Through April, despite continued buzz about the next jump in gasoline prices, hybrid-electric vehicle sales represented less than 2.5% of the total market, according to Ward’s data. That’s the same level recorded in August 2008, three weeks after regular-grade climbed to its all-time-per-gallon peak of $4.11.
Not even the current downward market trend seems to account for the malaise. While total light-vehicle sales were off 37.3% through April, compared with like-2008, HEV deliveries were down 40.3%, according to Ward’s.
Meanwhile, sales of small cars outperformed the market, falling 31.8% through the first four months of this year.
Even in the frenzied days before and after the July 17 gas-price milestone, there was no run on hybrid vehicles. Sales for the month dipped 16.3%, compared with like-2007. But deliveries of Lower Small cars, such as theYaris, as defined by Ward’s segmentation, soared 24.4%.
Complicating the case for electrification are recent trends in internal combustion engines. Ted Robertson, chief technical officer and executive vice president-new production creation at Magna International Inc., says efficiency improvements of 10% to 15% are on the horizon.
“We’re seeing diesel combustion compression ratios used in gasoline; we’re getting different spray patterns; we’re looking at reduction in friction, more efficient valvetrains,” Robertson notes. “You put a turbo or supercharger on them, compress the gas more so you can get higher efficiency.”
Onboard computers optimize engine performance no matter what the driver does, he adds. “The internal combustion engine has got all kinds of efficiency potential, and we’re just tapping that now.”
And there is no discernable hue and cry for EVs on the showroom floor.
“I have seen consumers making very conscious choices about their vehicles and more are considering and purchasing smaller vehicles,” says Annette Sykora, 2008 chairwoman of the National Automobile Dealers Assn. and proprietor of a Ford Motor Co. store in Lubbock, TX.
More disturbing for industry stakeholders, Sykora suggests, is a parallel trend that sees consumers attempting to ride out the storm.
“I think it is so important we continue to remind our regulators and elected officials that if consumers cannot purchase the type of vehicle they want or need, they will simply hold onto their old vehicle,” she tells Ward’s. “Mandating what our manufacturers must build without proper consideration of consumers intentions won’t help our economy.”
Only Hollywood generates more hype than the auto industry. In the heady days before 2008, when industry pundits envisioned annual U.S. sales volumes near 20 million units and per-gallon gas prices of $3 were unthinkable, auto makers dazzled the world with long-range visions of a hydrogen economy.
The Paris-based International Energy Agency forecast vehicles powered by hydrogen fuel cells could enter the retail stream by 2025. And by 2050, they could comprise 30% of the global vehicle population.
But doubts about the feasibility of developing a massive hydrogen refueling infrastructure have zapped fuel cells from the public consciousness for now. While Daimler,Motor Co. Ltd., Motor Corp. and Corp. press on with development programs, electrified vehicles – those powered solely by batteries as well as plug-in hybrids – are the new industry darlings.
Carlos Ghosn, chairman and CEO of the Renault SA/Motor Co. Ltd. alliance, has said EVs will make up 10% of the world vehicle market within the next decade.
By 2020, 50% of all the new vehicles sold in Japan will be electric, according to the Japanese Ministry of Land, Infrastructure, Transport and Tourism. Half a dozen time zones to the west, Spain plans to hit the million-EV mark in 2014, one year before the U.S.
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Considering the way plans for hydrogen power are evaporating – Ford recently confirmed to Ward’s it has diverted financial support away from fuel-cell development – is electrification a genuine trend?
“This is as real as it gets,” Gassenheimer says, having just cut the ribbon in May on an Ener1 plant. Located in Indiana, it is the first volume-production lithium-ion cell-and battery-pack assembly site in the U.S. The site has capacity to produce 15,000 EV packs annually, or 150,000 HEV batteries.
“The world is going to need more capacity,” says Gassenheimer, whose EV customers number 15, includingAutomotive Inc., which is considering Ener1 as a battery source for the Fisker Karma, due to debut in second-half 2010.
“Within the next 10 to 15 years, there could be a market as big as $100 billion for this product,” he adds. “We’re going to be capacity-constrained in this industry for a very long time.”
A Ward’s survey reveals more than 30 road-going EVs and plug-ins are proposed for distribution globally by 2012. Known prices range from $106,000 for the Karma to sub-$30,000 levels for theEV.
“Our goal is not to charge price premiums,” says Larry Dominique, Nissan North America Inc. vice president-product planning, The Americas. “Our expectation is that at the end of the life of owning this vehicle, it will cost you less to own and operate than an internal combustion vehicle.”
However, Ghosn “has been pretty emphatic that we need to be a profitable company and our goal is to make money,” Dominique adds.
“Our goal is to work on the engineering side, work on the cost structure. If you want electrification of vehicles to become popular, you’ve got to make it attainable to consumers. If you have a (Toyota) Prius-sized car that costs $45,000, who is going to buy it?”
While the players include startups from Aptera Motors to Zenn Motor Co., the major auto makers dominate the market.
The proposedLLC- Auto Group alliance promises one EV, likely a roadster, next year. But their plans, laid bare by an application for emergency aid from the Obama Admin., suggests four more could follow by 2015.
Toyota and Ford Motor Co. each have two in their respective pipelines, including a plug-in Toyota and a battery-powered Ford Transit Connect commercial vehicle. The Toyota is expected to debut this year in a test fleet, while the Transit – which will be available for purchase – will launch in 2010.
AG is sorting through prospective lessees for a 500-unit fleet of its Mini-E all electric prototype, with the first vehicle reportedly delivered to in Los Angeles May 23, while Nissan promises a no-compromise EV car late next year.
GM is expected to be first out of the chute in with a mass-market EV, the Volt sedan, which also arrives late next year.
Jon Bereisa, GM’s director-advanced engineering, powertrain and fuel-cell propulsion systems, is shepherding the Volt’s launch. He also was a key contributor to GM’s EV1 electric-car program.
“I like to say, ‘We’ve got the band back together, only this time we have an audience,’” he jokes. The EV1 was celebrated as a technological triumph and maligned as a market flop – a failure that led the auto maker to pull the plug in 2000 after recording just 1,101 deliveries during a 4-year run, Ward’s data shows.
“We made a conscious decision when we started out on the Volt pathway that we were not going to do what we did with the EV1, which is keep it a secret,” Bereisa says. “We would just let everybody in at different steps and stages of progress as we were making it and get a lot of information out there in a variety of media and ways. The whole notion is even the best products don’t sell themselves. You have to know it’s available.”
The EV1 was sold through Saturn-brand stores, even though it was not badged as a Saturn.
“Nobody even understood that,” Bereisa says. “It was convenient for us, logistically. From a customer perspective, we blew the awareness.”
GM learned other lessons from the EV1, which is why Bereisa has doubts about the chances of success for EV startups. Actually, the EV1 never really went away, he says.
Using a crew of about 125 people, the auto maker continued to revisit the program.
“Their task was to, every two years, take half the parts and half the cost out of power electronics and motors,” Bereisa says.
The Volt benefited from these advancements. Startups lack the institutional knowledge that comes from “building, making mistakes and fixing them,” he says.
“From capitalization and engineering resources, always the incumbents have an advantage. The trick is for the incumbents to have their own technology department and not kill it.”
To jump-start the EV market on the road to profitability, other industry insiders say the trick is to satisfy the consumer.
“First thing you need is enough energy onboard,” says Magna's Robertson.
Magna is a key supplier to Ford’s planned Focus EV program, set for launch in 2011. And Robertson knows a thing or two about energy, having engineered five Indy 500 pace cars and a pair for the Daytona 500.
Li-ion batteries are the hands-down technology of choice to power today’s EVs, Robertson says.
“Second thing is you need to have the right technology that is safe and durable and will meet customer expectations. Those technologies are evolving, and we do have technologies now that will provide those attributes.
“The third aspect is going to be cost.” Robertson says. “Right now, at the volumes of production, this Li-ion battery technology is expensive, just like flat-screen TVs, or any new technology. That is still an issue that we would need help on.”
The standard thinking follows that volume production will bring cost down. But it’s not that simple, Bereisa says. “It would be a big misnomer for me to say (cost) is driven by volume,” he says.“It’s not. It’s really driven by material and design.”
Bereisa points to the evolution of fuel-cell technology as an example. “Our biggest challenge, when we started out, was platinum,” he says. Early designs called high-priced platinum in amounts that would make good paperweights. “People robbed trains for that in the old days.”
So fuel cells were designed to require less platinum to reduce cost. Batteries are no different, Bereisa says, noting nickel-metal-hydride batteries contain pricey materials such as cobalt, chromium and pure nickel.
“Li-ion has things like carbon, manganese, lithium salts, basically low-cost underlying materials. Now, if I can add low-cost underlying materials when I automate a process, I can get down to the materials floor.”
This critical mass can come when volumes hit 1,000. “In other cases, it may take as much as a million,” Bereisa says, adding Li-ion gains start to come when volume climbs into six figures.
Adds Gassenheimer: “Demand is not the issue here. If Obama wants to put 1 million electric cars on the road by 2015, which he does, the ability to supply these batteries is the critical issue.”
And also to charge them. Futurist and author Joel Barker agrees with the president’s vision and says the infrastructure shift required to support large numbers of EVs and plug-ins is less onerous than the proposed move to a world powered by hydrogen.
“The gas station of the 20th century is the electron station of the 21st century,” Barker says.
Gassenheimer goes one further, suggesting the number of gas stations might even dwindle and create opportunities for other retailers. Rapid-charge stations could be located in parking lots.
“I can envision a special lot within a Wal-Mart or a Costco or a Starbucks or a McDonald’s, where you pull in and you hook up and you go shopping or get your burger or go get your coffee,” he says. “How many retailers would love to know that a customer has an incentive to stay in their store for 20 minutes?”
Such stations already are popping up, even though the first-generation EVs are expected to have a range of at least 100 miles (160 km) and most motorist travel less than 40 miles (64 km) before returning home again.
Enter Better Place, a California-based supplier of electric-vehicle services.
With close ties to Renault-Nissan, Better Place already is setting up charge stations around the globe. In North America, they are located in San Francisco and Toronto, but Israel is really ground-zero, where the company plans to have hundreds of thousands of charge stations installed by 2011.
“Ours is a distinct model from that standpoint, because we think you need a ubiquitous network of charge spots, whether it’s at your home or the airport or a restaurant or a mall parking lot or work,” says Jeff Curry, product marketing director for Better Place.
And charge-station proliferation must begin now, not after EV rollouts begin.
“Instead of the chicken and the egg, we need both to arrive at the same point,” Curry tells Ward’s.
However, the work does not end with charge stations. Better Place anticipates next-generation EVs will feature common designs that will enable depleted batteries to be swapped for charged units at automated stations.
Better Place unveiled a prototype swap station in Yokohama in May. The process is designed to accommodate batteries located beneath the vehicles.
“When auto makers move from converting existing vehicles (into EVs) to designing platforms that are really for EVs and for ease of assembly as EVs, having this undermount battery is a really, nice, elegant solution for serviceability,” Curry says. “And because you can design the components – you’re not packaging an exhaust system; you’re not typically packaging a drive to the rear of the car – there’s a lot of things you can do.”
But what will consumers make of a vehicle that moves silently through the street? Will they miss the revving of an internal combustion engine?
“Sometimes the things you miss are not things you think you’re going to miss,” says Musk, whose first car was an E-Type Jaguar. “I’m sure some people said the same thing when we went from horses to cars: ‘Aren’t you going to miss the sound of clopping hooves?’”
Adds Robertson: “It’s fun in its own way. The initial acceleration is much stronger than a gasoline engine. It’s nice and smooth because you aren’t shifting gears. You can whip around corners quickly, because you’ve got a low center of gravity.”
Gassenheimer speaks in terms that can only be described as shock and awe.
“Let me tell you, my friend, having driven aM5 for a couple of years, the Fisker Karma, which is the size of a BMW 7-Series, is by far one of the most exciting cars I’ve ever driven,” he says. “Like you’re in a rocket ship.”
Gassenheimer sees the industry headed for prosperity, thanks to the Obama agenda.
“He’s on the right track,” Gassenheimer says of the president. “He wants to drive this industry, not just because he wants to get us off foreign oil, but because when we go back to $150 per barrel, he realizes that will cost the U.S. economy trillions and trillions of dollars.”
But Wolkonowicz maintains the American public is not really plugged in to saving the planet. Not yet.
“Except on the two looney-bin coasts – I happen to live on one of them – nobody cares,” he says. “People say, ‘Yeah, I’d like to help the environment.’ But ask them to pay one penny extra and they lose interest.”
– with Byron Pope and Christie Schweinsberg