We have now everything in place for a technology shift which can create Next Big Thing and investment opportunity of the century. Next Big Thing - is a Green Mobility Revolution based on electric cars. It will affect everybody on social and economic level. Electrification will make Right for personal mobility and driving possible without further damage to environment and we will be able continue to enjoy Freedom of Personal Choice even with depleting Oil reserves. Add to this mix Electric beauties like Fisker Karma Sunset above and chart comparison of energy consumption below and you have the receipt for the Next Big Thing in action. Now throw a dash of China, words like Lithium, REE and Energy Security - you can be sure this will lead to excitement and "pockets of explosive growth" even in the very slow economy in general.
Pike Research has put out a very good research paper which we can use as a matrix to analyse investment opportunities of all value chain involved in the market of Electric cars.
We came to the conclusion that our approach with investing in Lithium and REE as strategic commodities for the future and Green Mobility revolution has another confirmation from findings in this report.
We have discussed Lithium and REE investment opportunity with the Big Picture investment approach in our Macro View for Micro Caps. Now we would like to make a model of EV Value chain and analyse the investment potential of its different parts.
Our value matrix is based on the following integral parts of EV's market:
1. EV Electric cars and Hybrids Production cycle.
Auto makers.
Here we will be looking for a newcomers into the sector which could provide an explosive growth in revenues from low base and respective valuation. We will be restricted to public companies. New coming IPOs could provide opportunities: like Tesla Motors. Asian connected players could provide another opportunity of a double valuation drive: growing markets and electrification shift. Chinese BYD will be the most famous example. We will note Tata Motors as well in this upcoming sector - problem here will be whether they will be able to overcome auto brand recognition and safety perceptions. Both companies are definitely well positioned in their respective markets, but conquering the West could be difficult and lead to the question whether they are going to make money or struggle fighting for the market share. This question will shadow all auto makers sector. In developed markets Nissan and Renault are the most active now in Plug-in space following by hopes for GM Volt. Toyota in the long run could actually have a problem with its soft hybrid focus: in our opinion all automakers will be in the price driven market trying to establish themselves as leaders in new promising sector: margins will be low and only few players will be able to maintain profitable business model based on producing electric cars. Toyota will be struggling fighting new comers in soft hybrid markets from all fronts notably Korean and Chinese producers. Soft hybrids are actually more expensive than CVs and EVs including Hard hybrids, if we will exclude cost for the batteries. Soft hybrid has a double powertrain: CV and EV combined. Toyota has got the initial traction with Prius before advanced Lithium batteries were developed, but in the future we expect to see cost of ownership for EVs including Hard hybrids like GM Volt going down and putting soft hybrid makers under further pressure. You have to be very selective on every company in this sector: Majors will be still driven by CV sales and even meaningful growth in EVs' part of the business will be diluted in share performance. These automakers can actually decide to be very aggressive with EVs business model: they can lease batteries with a very attractive terms and accommodate pricing in order to squeeze all newcomers into the sector to gain a market share. National governments will make this process even more destructive for margins: they will support by all means national automakers and once success for EVs will be apparent moves in the affordability could be very dramatic. It will be extremely positive for our Next Big Thing and development of EVs' Value Chain as a whole, but shareholders in these companies could wait for a long time to be actually rewarded. Brands which can position itself with pricing power could be the answer: Tesla and Fisker once public could be an example, but they will not be able to achieve economy of scale on the other hand. Once initial excitement for EVs will be settled and sales and profits will matter again you will have to do a very good homework in order to separate winners from the losers. Warren Buffett is a good example here: he has invested 250 million into BYD in Fall of 2008 and his stake was at 1 billion by Summer 2009. Another note for consideration there were more than 3000 automakers in the beginning of 20th century in U.S. alone, how many has left in the game you know from all bailout news this year. If you are not Warren Buffett with need to park a few hundred million dollars for a play you can get a better bang for your buck in our opinion in other parts of EVs' value chain at this moment.
Auto Parts makers.
Asia rules the game here and low cost base will be the rule of the game, margins will be low - it is not our place to search for investment opportunity.
Auto Part makers specific for EVs.
This is where we will start to pay attention: while Toyotas, BMWs and Nissans will be fighting for consumer with billions in R&D cost for every car model, liabilities for safety and durability and never ending game of battles for the best design affordable for the announced price - in some sleeping town people could actually make money by producing something which all of them need in order to fill our streets with new beautiful electric cars.
Batteries.
It will be the obvious first thought. We can make it sound more complicated and put here Energy Storage Systems, but batteries will be the right message.
Number one, we will not discuss in depth Fuel Cells here. Cheapest car we saw is above 200,000 dollars and there is no Hydrogen infrastructure or even something close to its development. You will continue to hear about it as billions were spent and something was done with it. With our investments in Ballard Power Systems, Plug Power and Fuel Cells we could write couple of books on this technology, but it is not what support our exercise here. More on Electric vs Hydrogen can be found here. Last important note: Fuel Cell is producing electricity and is not an Energy Storage system - Mercedes Blue Zero Fuel Cell concept uses Lithium-ion battery as well.
Second, very important confirmation from Pike Research: Ultra Capacitors will not substitute the batteries, they will be used as a part of Energy Storage System to optimise its performance. Trend here will be in developing more advanced Lithium-ion batteries with range enough to cure "Range Anxiety". Nissan is talking now about developing lithium battery with storage capacity enough for EV with range of 300 km.
Investment opportunities here will be connected to your ability to identify the technological winners in the end in function price/performance for the battery. Lithium batteries has became an industry choice, but particular chemistry and technological process of manufacturing will separate winners from losers. Pike Research expecting this market to grow exponentially from 800 million in sales to 8 billion by 2015. This is the place where money will be made, but who will make it? A123 or EnerDell? NEC or Panasonic after buying Sanyo? BYD or Sony? You got it right - we are at the mercy of technology here: who will be the Google of Lithium Batteries. For our game winner we need something new to make it big, not Sony where profit from batteries will be spread all over the revenues. But who will be able to compete with Nissan and NEC collaboration with 5.5 billion invested in developing Electric cars and 17 years spent on refining lithium technology? Who will take on Panasonic or Chinese BYD with low cost base and potential scale just in its location? But who will confirm that BYD will be safe and durable ...and who can do it today?
Components and Metals used in batteries.
You already have a sense of our investment logic. We call it "Dragon Approach (TM)". What will become the Next Oil for Electric cars in its meaning that most Electric cars will need regardless of their particular auto brand and even battery maker? Electricity will be an obvious answer and we will deal with it later. Second one will be, according to all industrial information at the moment, Lithium - as a metal chosen for base of EVs Battery's Chemistry by the industry. As we have mentioned in our Macro View on Micro Caps - total market value of annual Lithium Carbonate sales is 800 million dollars with usage for batteries a little bit over 20%. There is no Electric Cars' batteries in this amount as there is no EVs on the streets in any meaningful number yet. This is the place where growth will be explosive should our scenario for EV mobility revolution materialise. Driving force will be consolidation between auto makers and battery makers with rising Lithium prices to secure supply. Price of Lithium content in the battery cost is below 3-4%, it can rise 2-3 times before affecting the cost structure. We are interested here in a highly leveraged focused junior mining Lithium exploration and development plays. Majors like SQM, FMC and ROC are presenting only part of the compelling investment story with high market caps and only part of the revenue connected to Lithium. Rapid expansion will happen with aggressive juniors engaged in Lithium Exploration and Development play and new focused plays will get part of excitement here. We are looking here for the areas driven by Big Investment Trend, but to be small enough, so that money will be squeezed in among a few small aggressive players.
Here is our first investment bottleneck: 190,000,000 Market Cap of Top 5 Canadian Lithium exploration companies.
We do not provide an investment advise here, but you can find ideas for your DD on this blog.
Electric motors.
Components and Metals used in electric motors.
It is our second investment bottleneck. This investment area could have even more potential then very exciting Lithium opportunity itself. If in Lithium space resources are presented in more or less available form even in a tightly controlled market, REE market is controlled by China with over 95% of the market under its influence.
"If we decided to drive electric cars and charge their Lithium battery with wind, solar and other green power generated energy - time is study Rare Earth Elements. Every time you click on your Blackberry, iPhone or use your PowerBook you are at the mercy of all these elements.
There are Rare Metals like Lithium, Tantalum and Niobium among them and Rare Earth Elements:
"The REE group is considered to include the 15 lanthanide elements: lanthanum, cerium, praseodymium, promethium (does not occur naturally), neodymium, samarium, europium, gadolinium, terbium, dysprosium, holmium, erbium, thulium, ytterbium, and lutetium. The elements yttrium and scandium are also included as they have similar chemical properties, making 17 REEs in total."Rare Earth Elements Molycorp Video
Neodymium magnet is at the heart of Green Energy Revolution - strongest rare earth magnet available it allows to make a smaller lighter and more powerful electric motors used in hybrids, electric cars and wind turbines."
"The REE group is considered to include the 15 lanthanide elements: lanthanum, cerium, praseodymium, promethium (does not occur naturally), neodymium, samarium, europium, gadolinium, terbium, dysprosium, holmium, erbium, thulium, ytterbium, and lutetium. The elements yttrium and scandium are also included as they have similar chemical properties, making 17 REEs in total."Rare Earth Elements Molycorp Video
Neodymium magnet is at the heart of Green Energy Revolution - strongest rare earth magnet available it allows to make a smaller lighter and more powerful electric motors used in hybrids, electric cars and wind turbines."
Expansion of production value chain including Electric Motors will guarantee strong Demand in the future based on Green Energy: Electric Motors with REE magnets technology will be in any form of Hybrid, Electric or Fuel Cell car with one thing in common: the most efficient form of energy conversion from electricity stored or produced on board to the torque at the wheels of this vehicle.
2. EV's Infrastructure.
Charging infrastructure.
We agree with research report and do not see leveraged investment opportunities here. It will be the product of government investments and regulation, like in France at the moment - you have to incorporate charging points in any real estate development. Supermarkets and fast food chains will build it up to attract customers, utilities will provide it to comply with new regulations. better place - better think hard how to move in the value chain to stay in this game.
Smart grid applications for EVs.
It will be another technology game and big guys are moving into this space like GE, Google and Siemens. Place will be crowded. Whom will they be buying later?
After sale service for EVs.
This will be an area for a small business applications.
3. Electricity production cycle.
It will be the obvious area to benefit from wide accepted electrification of transpiration.
Nuclear - Uranium plays will be
back on the radar screens one day. Time to buy is when nobody cares.
Solar and Wind will have another comeback with new ability to integrate it into the Grid and Mobility applications. Time when you charge your Electric Car from your own Solar panel or community wind turbine will come.
Electric Vehicles: 10 Predictions for 2010 By John Gartner and Clint Wheelock (Pike Research)
25 de diciembre de 2009
A new era of electrified vehicles will soon be upon us. During the next decade, millions of vehicles that primarily run on electric power and are plugged in to be recharged will enter roadways.
During the next decade, millions of vehicles that primarily run on electric power and are plugged in to be recharged will enter roadways as the automotive industry slowly begins to wean itself from fossil fuels. While the transition will be slower than many individuals with concerns about climate change would like, the impact on auto manufacturers, battery makers, utilities, and smart grid companies will be profound.
Despite rapid growth in the sales of plug-in hybrid electric vehicles (PHEVs) and pure battery electric vehicles (EVs), the hybrid electric vehicle (HEV) market will continue to be the largest market for the foreseeable future. This combined market for electrified vehicles will represent just a small (2.5%) portion of the total vehicle market. Yet, it will require billions of dollars in investment in charging equipment and upgrades to the power grid to manage the additional load. In 2015, Pike Research forecasts that charging stations where drivers can plug in and recharge their vehicles will be available at more than 5.3 million locations around the globe.
Lithium ion (Li-ion) battery manufacturers are gearing up for the EV age by building new manufacturing plants and expanding capacity to provide the necessary millions of cells and packs. Pike Research anticipates that this expansion will create an $8 billion industry for batteries by 2015.
The EV revolution will have obvious impacts on the automotive industry and consumers. Deeper analysis reveals some trends that will influence the way vehicles are built and used. As such, Pike Research has identified 10 key trends to watch out for as the EV market takes shape.
1. The cost of owning and driving an electric vehicle is not likely to be cheaper than using gasoline.
Proponents of EVs suggest that driving on electric power will cost a fraction of using gasoline as fuel. The commonly quoted estimate is approximately 75 cents per gallon equivalent for electricity, or 3 cents a mile. Gasoline at $3.00 per gallon equals approximately 12 cents per mile.
However, these estimates do not include the premium paid for a PHEV/EV (and its batteries). The overwhelming majority (about 75% depending on miles driven) of the cost of driving on electric power is paid upfront in the form of the cost of the batteries and the electric drive train. These components can add up to 50% to the cost of the vehicle.
Driving on electric power can become cost-competitive or possibly offer some savings over gasoline driving only if consumers keep their PHEV/EVs for 7 years and nearly fully deplete and recharge their batteries daily. A sharp increase in the price of oil or levying of a significant gasoline tax could heavily weight the equation toward PHEVs/EVs. While the price of electricity is likely to grow only slightly during the next 5 to 6 years, the price of crude and gasoline in the coming years could rise sharply. Should gas stay above $5.00 per gallon for an extended period of time and the cost of vehicles drop, then electric driving power might become cheaper.
2. 2012 will be a critical year for the commercialization of EVs and plug-ins. The Obama administration and governments in Europe and Asia have provided significant financial support for the launch of mass market PHEVs and EVs. Billions of dollars in grants to automakers and battery companies to build or retrofit manufacturing plants have reduced the cost of the vehicles and have provided OEMs with greater flexibility in pricing.
Federal and state mandates to purchase electrified vehicles and consumer incentives of up to $7,500 will make purchases more palatable for early adopters. Historically, however, hybrid tax credits have had only a minor effect on increased market adoption.
The U.S. federal government’s commitment to avoiding the demise of the auto industry and developing green jobs in the United States is providing a temporary crutch. A reduction in this financial commitment could remove a vital safety net. By 2012, many of the consumers most interested in and able to purchase PHEV/EVs will have purchased vehicles.
The remaining group of consumers interested in driving on electric power is likely to require vehicles that are much more cost-competitive with conventional vehicles. At the same time, the impact of government subsidies and incentives on supply and demand is likely to begin declining. New or extended government support could depend on the recovery of the global economy and the political efficacy of additional government spending in an election year.
For these reasons, 2012 and into the following year could be a “make or break” period for the EV industry. Automakers are looking to EVs to jumpstart sales across their lineups by bringing customers into showrooms. They need to identify and convert consumers and fleet owners interested in electrified transportation. Thus, their focus should be on successfully marketing the EV driving experience – not on the cost of driving, which at that time is likely to favor gasoline.
Battery suppliers that expand manufacturing capacity during 2010-2011 in anticipation of a rapidly growing market will have to generate sufficient revenue to cover operating expenses. Overcapacity of battery production could drive down prices. This price decline would result in less expensive vehicles and spur sales, but could also impact the viability of U.S. battery manufacturers. If the EV market falters, battery manufacturers will likely expand sales to the grid storage sector, which has shown an interest in acquiring batteries with similar technology.
3. Despite the arrival of PHEVs, the hybrid market will continue to grow by adding a greater variety of subcategories, from micro hybrids to hybrids+.
The hybrid vehicle market will grow out in both directions by offering new levels of fuel efficiency. According to the Pike Research report, Hybrid Electric Vehicles for Fleet Markets, the hybrid market will surpass 1 million units in annual sales in 2014. Saving fuel by turning off the engine when the vehicle is stopped (known as “stop-start”) will be incorporated into dozens of new models, some of which will be classified as mild or micro hybrids and some as conventional vehicles. Among the technologies used for stop-start will be larger lead acid batteries and generators that are significantly less expensive than Li-ion batteries.
Ultracapacitors, which have a much greater power density and longer lifecycle than Li-ion batteries, will be introduced into hybrid vehicles. They will be used alongside Li-ion batteries due to their greater ability to store energy without building up heat and their more efficient storage of regenerative braking energy.
The low energy density of ultracapacitors excludes them from consideration as a primary energy storage solution for extending vehicle driving range. This can extend the life of the batteries by reducing the number of times the batteries must be accessed for short bursts of acceleration. Ultracapacitors will also be used in place of batteries in mild hybrid applications, which do not require extensive energy storage.
As the price and size of Li-ion batteries decrease, hybrid manufacturers are likely to add battery capacity to allow consumers to drive longer distances on battery power without plugging in. This development will eventually encroach on the market for PHEVs, but not for several years. Advances in Li-ion batteries in terms of power and reductions in cost will also benefit HEVs, which will begin to shift from Nickel Metal Hydride (NiMH) technology.
4. The plug-in hybrids of 2020 may not resemble the plug-ins of 2010.
A plug-in hybrid can be designed to provide sufficient battery storage to enable the majority of consumers to complete their daily driving on battery power alone on most days. Due to estimates that vehicle owners drive 13,000 miles per year, automakers designed many of the first wave of PHEVs with the ability to travel 30 miles or more on electric power only.
The Chevrolet Volt is a well-known example of a PHEV that seeks to satisfy the approximate 80% of drivers estimated to commute 33 miles per day or less. However, Pike Research believes that the assumption that PHEVs should be built to satisfy a very broad audience is likely flawed because the target audience represents a small percentage of vehicle buyers. The first wave of PHEVs requires a premium of $10,000 or more due to the expensive Li-ion batteries. According to a recent consumer survey conducted by Pike Research, just 17% of consumers would be willing to pay a premium of 20% or more for a PHEV.
If a significant consumer audience fails to embrace the initial class of PHEVs because of the cost, it is likely that automotive OEMs may shift to designing vehicles with a shorter all-electric range and smaller, less costly battery packs. These vehicles would be priced more competitively against today’s hybrids and they would enable drivers to significantly reduce the number of refueling trips.
For example, a PHEV with a 10 or 20 mile range would enable nearly 60% of all drivers to complete their daily journeys without accessing the gas tank, according to our research. “Right-sizing” the battery packs would also require less space, giving engineers more flexibility in designing the vehicles. EVs provide even more flexibility in the design phase because there’s no engine. When the consumer tax credits for the purchase of PHEVs (based on the size of the pack) passed in 2008 are exhausted, OEMs will have less incentive to create PHEVs with larger battery packs.
5. The Li-ion batteries sold with the first EVs may have little to no resale value.
Automakers agree that for PHEV/EVs to become mass market transportation, the cost of batteries must rapidly fall to $300 per kWh or less. But a quick decline in the cost of energy storage will hamper the ability to resell batteries sold in 2010-2011 at the end of their useful life. Pike Research estimates that the cost of Li-ion batteries will fall by more than half to $470 per kWh by 2015. By then, auto OEMs will be able to price plug-in vehicles more competitively with conventional models.
This steep decline in the cost of new batteries in future years will equally depreciate the residual value of EV batteries, which some companies have proposed could be sold to the stationary energy storage market. In addition, the ability of Li-ion batteries to store energy will degrade over time. The range of today’s PHEVs when new may be noticeably depending on how the batteries are cared for and how the vehicle is driven.
For automakers that lease EVs and PHEVs and the consumers who purchase them, the best time to resell the batteries might be never. Vehicle owners that would spend thousands of dollars for new batteries with a small increase in driving range would be making a poor investment. Attempting to sell the batteries at the end of their useful life is likely to yield only a small fraction of the original investment. Keeping the batteries until their performance is unacceptable or new batteries become relatively inexpensive may be the best option. Leasing vehicles (thereby avoiding the question of selling batteries) is a less risky alternative.
6. Asia will be the dominant supplier and consumer of EVs and batteries.
Asia is projected be the global leader in EV and battery production and consumption in the transportation industry during the next half decade and beyond. The governments of China and Japan have pledged to rapidly move their automotive industries toward electrified vehicles through aggressive goals for production, the creation of charging infrastructure, and incentives for consumer purchases.
More than 1 million electrified vehicles (including hybrids) will be sold in Asia during 2015. The Asian Li-ion battery market, powered by Japan, Korea, and China, is projected to surpass $4 billion in 2015, which will represent a 53% market share. China will be the largest player internationally, as the government has pledged to produce 500,000 electrified vehicles per year. The country’s expertise in cost-effective manufacturing will provide an advantage in ramping up domestic sales, as well as in selling internationally.
Since only a small percentage of EV owners in China will have access to vehicle charging at home, the ratio of charging stations to EVs will be higher than in other regions. The government's commitment to success is evident in its invitation to foreign companies to help build China’s charging network.
Asia will continue its leadership in Li-ion innovation and manufacturing. The companies that succeed with the second generation of battery technology are likely to secure a dominant position for the future
7. Battery swapping is not likely to be a significant industry.
Fully recharging depleted PHEV/EV batteries can take 2 to 8 hours depending on the type of charging equipment used and the size of the battery pack. Drivers looking to travel hundreds of miles may not want to wait that long before recharging. Better Place of Palo Alto, California is one of the few companies that envisions building battery swapping stations that avoid lengthy recharge times by exchanging batteries in about the same time it takes to fill a gas tank.
These stations could cost as much as $500,000 each for the machinery to automate the process. To facilitate a fast exchange of batteries, automotive OEMs would have to standardize the location and size of the battery packs so that they can be easily removed and installed. Such standardization is unlikely to happen because automakers want to customize their battery systems.
While several governments in Asia and the Middle East have expressed interest in the battery swap station concept, the high cost of the equipment prevents it from becoming widely adopted. The constraints it would impose on vehicle design and are too great to be adopted by many manufacturers, and the amount of return on the investment in hardware is too little. Auto industry executives have expressed strong reservations about battery swapping in the United States.
8. Operating commercial EV charging stations will not be a very significant or profitable industry.
The arrival of electric vehicles requires the construction of a network of geographically dispersed charging stations that will provide ready access to electricity and alleviate consumers’ “range anxiety” fears. EV owners are expected to recharge their vehicles primarily at their residence or workplace and rely on public and private charging stations as secondary resources when traveling on longer trips. The majority will purchase home charging stations due to the convenience of being able to plug in overnight.
Public charging stations operated by municipalities and parking garages will provide charging for free (to encourage environmentally sensitive “emissions-free” driving) or at minimal cost because the electricity consumed when recharging a vehicle is relatively cheap.
Recharging a PHEV would cost less than $1 in most states, while an EV would require approximately twice that amount. The expected availability of inexpensive and free charging will make it difficult to operate commercial charging stations profitably. Since standalone charging stations can cost from $2,000 to $40,000 to build, even very active charging stations that require a significant premium for charging would require many years to gain a return on the investment.
The majority of standalone charging stations will be publicly funded for environmental and economic development reasons, or built by retailers that give away the electricity to attract the more affluent EV owners. Most of the revenue for commercial stations will come from value-added services, such as point-of-contact marketing services.
Indirect revenue will result from transactions completed inside. Examples of locations expected to provide charging stations include restaurants, big box retailers, and movie theaters. Level 3, also known as rapid charging, will be relegated to a niche industry because the equipment can cost up to $50,000 per station. Moreover, rapid charging can negatively impact battery life.
9. The grid as a whole will accommodate and even benefit from EV charging, but some neighborhoods with multiple EVs could overwhelm transformers.
The additional demand for electricity from EVs is not likely to have an impact on the performance and reliability of the power grid as a whole. Even with 1 million vehicles plugging in every day, the amount of additional electricity consumed will be less than one-half of 1%. However, if actions are not taken to encourage off-peak charging, utilities may have to add resources during early evening hours to meet increased demand in some regions with high concentrations of EVs.
Most people will likely plug in their vehicles at the conclusion of their workday, usually between the hours of 4:00 and 8:00 p.m. Charging will take between 2 and 7 hours depending on the charging equipment and percentage of the battery that is depleted. This trend has the potential to add to the load during peak hours and extend peak demand later into the evening, possibly until midnight. Utilities are expected to develop incentives that would prompt most consumers to delay charging until 10:00 p.m., thus minimizing the impact of vehicle charging during peak times.
The weakest links in providing power to EVs today are the small transformers that provide power to three to five homes. Charging several vehicles simultaneously through a transformer can overwhelm it, causing it to fail. Most of the transformers in place do not automatically notify utilities of failure. Customers will have to report this type of power loss, which requires a service technician to replace the transformer.
10. Vehicle to Grid services will be minimal in 2015 and beyond.
The concept of Vehicle to Grid (V2G) power interaction is one in which EVs complement the grid by becoming distributed energy resources. Vehicle batteries act as temporary storage devices that can provide power to the grid during times of peak demand. They can also store surplus energy from wind and solar power. While several pilot projects are now underway, V2G installations will remain niche applications. Such installations will be limited primarily to centrally charged vehicle fleets for the foreseeable future.
Utilities are not prepared to manage the thousands of batteries that would be required to meaningfully impact peak demand. Tracking mobile power resources distributed throughout a service territory will require creating new applications and the installation of communications services. Most utilities are currently unwilling to invest the money and resources needed to manage V2G services.
In addition, automotive OEMs are reluctant to allow batteries to be used for anything besides powering vehicles. The impact of the additional charge cycles on Li-ion batteries is not fully understood today. Since automotive OEMs would not receive any financial benefit from secondary uses, they are unlikely to cover any V2G application under the warranty."
Lithium ion (Li-ion) battery manufacturers are gearing up for the EV age by building new manufacturing plants and expanding capacity to provide the necessary millions of cells and packs. Pike Research anticipates that this expansion will create an $8 billion industry for batteries by 2015.
The EV revolution will have obvious impacts on the automotive industry and consumers. Deeper analysis reveals some trends that will influence the way vehicles are built and used. As such, Pike Research has identified 10 key trends to watch out for as the EV market takes shape.
1. The cost of owning and driving an electric vehicle is not likely to be cheaper than using gasoline.
Proponents of EVs suggest that driving on electric power will cost a fraction of using gasoline as fuel. The commonly quoted estimate is approximately 75 cents per gallon equivalent for electricity, or 3 cents a mile. Gasoline at $3.00 per gallon equals approximately 12 cents per mile.
However, these estimates do not include the premium paid for a PHEV/EV (and its batteries). The overwhelming majority (about 75% depending on miles driven) of the cost of driving on electric power is paid upfront in the form of the cost of the batteries and the electric drive train. These components can add up to 50% to the cost of the vehicle.
Driving on electric power can become cost-competitive or possibly offer some savings over gasoline driving only if consumers keep their PHEV/EVs for 7 years and nearly fully deplete and recharge their batteries daily. A sharp increase in the price of oil or levying of a significant gasoline tax could heavily weight the equation toward PHEVs/EVs. While the price of electricity is likely to grow only slightly during the next 5 to 6 years, the price of crude and gasoline in the coming years could rise sharply. Should gas stay above $5.00 per gallon for an extended period of time and the cost of vehicles drop, then electric driving power might become cheaper.
2. 2012 will be a critical year for the commercialization of EVs and plug-ins. The Obama administration and governments in Europe and Asia have provided significant financial support for the launch of mass market PHEVs and EVs. Billions of dollars in grants to automakers and battery companies to build or retrofit manufacturing plants have reduced the cost of the vehicles and have provided OEMs with greater flexibility in pricing.
Federal and state mandates to purchase electrified vehicles and consumer incentives of up to $7,500 will make purchases more palatable for early adopters. Historically, however, hybrid tax credits have had only a minor effect on increased market adoption.
The U.S. federal government’s commitment to avoiding the demise of the auto industry and developing green jobs in the United States is providing a temporary crutch. A reduction in this financial commitment could remove a vital safety net. By 2012, many of the consumers most interested in and able to purchase PHEV/EVs will have purchased vehicles.
The remaining group of consumers interested in driving on electric power is likely to require vehicles that are much more cost-competitive with conventional vehicles. At the same time, the impact of government subsidies and incentives on supply and demand is likely to begin declining. New or extended government support could depend on the recovery of the global economy and the political efficacy of additional government spending in an election year.
For these reasons, 2012 and into the following year could be a “make or break” period for the EV industry. Automakers are looking to EVs to jumpstart sales across their lineups by bringing customers into showrooms. They need to identify and convert consumers and fleet owners interested in electrified transportation. Thus, their focus should be on successfully marketing the EV driving experience – not on the cost of driving, which at that time is likely to favor gasoline.
Battery suppliers that expand manufacturing capacity during 2010-2011 in anticipation of a rapidly growing market will have to generate sufficient revenue to cover operating expenses. Overcapacity of battery production could drive down prices. This price decline would result in less expensive vehicles and spur sales, but could also impact the viability of U.S. battery manufacturers. If the EV market falters, battery manufacturers will likely expand sales to the grid storage sector, which has shown an interest in acquiring batteries with similar technology.
3. Despite the arrival of PHEVs, the hybrid market will continue to grow by adding a greater variety of subcategories, from micro hybrids to hybrids+.
The hybrid vehicle market will grow out in both directions by offering new levels of fuel efficiency. According to the Pike Research report, Hybrid Electric Vehicles for Fleet Markets, the hybrid market will surpass 1 million units in annual sales in 2014. Saving fuel by turning off the engine when the vehicle is stopped (known as “stop-start”) will be incorporated into dozens of new models, some of which will be classified as mild or micro hybrids and some as conventional vehicles. Among the technologies used for stop-start will be larger lead acid batteries and generators that are significantly less expensive than Li-ion batteries.
Ultracapacitors, which have a much greater power density and longer lifecycle than Li-ion batteries, will be introduced into hybrid vehicles. They will be used alongside Li-ion batteries due to their greater ability to store energy without building up heat and their more efficient storage of regenerative braking energy.
The low energy density of ultracapacitors excludes them from consideration as a primary energy storage solution for extending vehicle driving range. This can extend the life of the batteries by reducing the number of times the batteries must be accessed for short bursts of acceleration. Ultracapacitors will also be used in place of batteries in mild hybrid applications, which do not require extensive energy storage.
As the price and size of Li-ion batteries decrease, hybrid manufacturers are likely to add battery capacity to allow consumers to drive longer distances on battery power without plugging in. This development will eventually encroach on the market for PHEVs, but not for several years. Advances in Li-ion batteries in terms of power and reductions in cost will also benefit HEVs, which will begin to shift from Nickel Metal Hydride (NiMH) technology.
4. The plug-in hybrids of 2020 may not resemble the plug-ins of 2010.
A plug-in hybrid can be designed to provide sufficient battery storage to enable the majority of consumers to complete their daily driving on battery power alone on most days. Due to estimates that vehicle owners drive 13,000 miles per year, automakers designed many of the first wave of PHEVs with the ability to travel 30 miles or more on electric power only.
The Chevrolet Volt is a well-known example of a PHEV that seeks to satisfy the approximate 80% of drivers estimated to commute 33 miles per day or less. However, Pike Research believes that the assumption that PHEVs should be built to satisfy a very broad audience is likely flawed because the target audience represents a small percentage of vehicle buyers. The first wave of PHEVs requires a premium of $10,000 or more due to the expensive Li-ion batteries. According to a recent consumer survey conducted by Pike Research, just 17% of consumers would be willing to pay a premium of 20% or more for a PHEV.
If a significant consumer audience fails to embrace the initial class of PHEVs because of the cost, it is likely that automotive OEMs may shift to designing vehicles with a shorter all-electric range and smaller, less costly battery packs. These vehicles would be priced more competitively against today’s hybrids and they would enable drivers to significantly reduce the number of refueling trips.
For example, a PHEV with a 10 or 20 mile range would enable nearly 60% of all drivers to complete their daily journeys without accessing the gas tank, according to our research. “Right-sizing” the battery packs would also require less space, giving engineers more flexibility in designing the vehicles. EVs provide even more flexibility in the design phase because there’s no engine. When the consumer tax credits for the purchase of PHEVs (based on the size of the pack) passed in 2008 are exhausted, OEMs will have less incentive to create PHEVs with larger battery packs.
5. The Li-ion batteries sold with the first EVs may have little to no resale value.
Automakers agree that for PHEV/EVs to become mass market transportation, the cost of batteries must rapidly fall to $300 per kWh or less. But a quick decline in the cost of energy storage will hamper the ability to resell batteries sold in 2010-2011 at the end of their useful life. Pike Research estimates that the cost of Li-ion batteries will fall by more than half to $470 per kWh by 2015. By then, auto OEMs will be able to price plug-in vehicles more competitively with conventional models.
This steep decline in the cost of new batteries in future years will equally depreciate the residual value of EV batteries, which some companies have proposed could be sold to the stationary energy storage market. In addition, the ability of Li-ion batteries to store energy will degrade over time. The range of today’s PHEVs when new may be noticeably depending on how the batteries are cared for and how the vehicle is driven.
For automakers that lease EVs and PHEVs and the consumers who purchase them, the best time to resell the batteries might be never. Vehicle owners that would spend thousands of dollars for new batteries with a small increase in driving range would be making a poor investment. Attempting to sell the batteries at the end of their useful life is likely to yield only a small fraction of the original investment. Keeping the batteries until their performance is unacceptable or new batteries become relatively inexpensive may be the best option. Leasing vehicles (thereby avoiding the question of selling batteries) is a less risky alternative.
6. Asia will be the dominant supplier and consumer of EVs and batteries.
Asia is projected be the global leader in EV and battery production and consumption in the transportation industry during the next half decade and beyond. The governments of China and Japan have pledged to rapidly move their automotive industries toward electrified vehicles through aggressive goals for production, the creation of charging infrastructure, and incentives for consumer purchases.
More than 1 million electrified vehicles (including hybrids) will be sold in Asia during 2015. The Asian Li-ion battery market, powered by Japan, Korea, and China, is projected to surpass $4 billion in 2015, which will represent a 53% market share. China will be the largest player internationally, as the government has pledged to produce 500,000 electrified vehicles per year. The country’s expertise in cost-effective manufacturing will provide an advantage in ramping up domestic sales, as well as in selling internationally.
Since only a small percentage of EV owners in China will have access to vehicle charging at home, the ratio of charging stations to EVs will be higher than in other regions. The government's commitment to success is evident in its invitation to foreign companies to help build China’s charging network.
Asia will continue its leadership in Li-ion innovation and manufacturing. The companies that succeed with the second generation of battery technology are likely to secure a dominant position for the future
7. Battery swapping is not likely to be a significant industry.
Fully recharging depleted PHEV/EV batteries can take 2 to 8 hours depending on the type of charging equipment used and the size of the battery pack. Drivers looking to travel hundreds of miles may not want to wait that long before recharging. Better Place of Palo Alto, California is one of the few companies that envisions building battery swapping stations that avoid lengthy recharge times by exchanging batteries in about the same time it takes to fill a gas tank.
These stations could cost as much as $500,000 each for the machinery to automate the process. To facilitate a fast exchange of batteries, automotive OEMs would have to standardize the location and size of the battery packs so that they can be easily removed and installed. Such standardization is unlikely to happen because automakers want to customize their battery systems.
While several governments in Asia and the Middle East have expressed interest in the battery swap station concept, the high cost of the equipment prevents it from becoming widely adopted. The constraints it would impose on vehicle design and are too great to be adopted by many manufacturers, and the amount of return on the investment in hardware is too little. Auto industry executives have expressed strong reservations about battery swapping in the United States.
8. Operating commercial EV charging stations will not be a very significant or profitable industry.
The arrival of electric vehicles requires the construction of a network of geographically dispersed charging stations that will provide ready access to electricity and alleviate consumers’ “range anxiety” fears. EV owners are expected to recharge their vehicles primarily at their residence or workplace and rely on public and private charging stations as secondary resources when traveling on longer trips. The majority will purchase home charging stations due to the convenience of being able to plug in overnight.
Public charging stations operated by municipalities and parking garages will provide charging for free (to encourage environmentally sensitive “emissions-free” driving) or at minimal cost because the electricity consumed when recharging a vehicle is relatively cheap.
Recharging a PHEV would cost less than $1 in most states, while an EV would require approximately twice that amount. The expected availability of inexpensive and free charging will make it difficult to operate commercial charging stations profitably. Since standalone charging stations can cost from $2,000 to $40,000 to build, even very active charging stations that require a significant premium for charging would require many years to gain a return on the investment.
The majority of standalone charging stations will be publicly funded for environmental and economic development reasons, or built by retailers that give away the electricity to attract the more affluent EV owners. Most of the revenue for commercial stations will come from value-added services, such as point-of-contact marketing services.
Indirect revenue will result from transactions completed inside. Examples of locations expected to provide charging stations include restaurants, big box retailers, and movie theaters. Level 3, also known as rapid charging, will be relegated to a niche industry because the equipment can cost up to $50,000 per station. Moreover, rapid charging can negatively impact battery life.
9. The grid as a whole will accommodate and even benefit from EV charging, but some neighborhoods with multiple EVs could overwhelm transformers.
The additional demand for electricity from EVs is not likely to have an impact on the performance and reliability of the power grid as a whole. Even with 1 million vehicles plugging in every day, the amount of additional electricity consumed will be less than one-half of 1%. However, if actions are not taken to encourage off-peak charging, utilities may have to add resources during early evening hours to meet increased demand in some regions with high concentrations of EVs.
Most people will likely plug in their vehicles at the conclusion of their workday, usually between the hours of 4:00 and 8:00 p.m. Charging will take between 2 and 7 hours depending on the charging equipment and percentage of the battery that is depleted. This trend has the potential to add to the load during peak hours and extend peak demand later into the evening, possibly until midnight. Utilities are expected to develop incentives that would prompt most consumers to delay charging until 10:00 p.m., thus minimizing the impact of vehicle charging during peak times.
The weakest links in providing power to EVs today are the small transformers that provide power to three to five homes. Charging several vehicles simultaneously through a transformer can overwhelm it, causing it to fail. Most of the transformers in place do not automatically notify utilities of failure. Customers will have to report this type of power loss, which requires a service technician to replace the transformer.
10. Vehicle to Grid services will be minimal in 2015 and beyond.
The concept of Vehicle to Grid (V2G) power interaction is one in which EVs complement the grid by becoming distributed energy resources. Vehicle batteries act as temporary storage devices that can provide power to the grid during times of peak demand. They can also store surplus energy from wind and solar power. While several pilot projects are now underway, V2G installations will remain niche applications. Such installations will be limited primarily to centrally charged vehicle fleets for the foreseeable future.
Utilities are not prepared to manage the thousands of batteries that would be required to meaningfully impact peak demand. Tracking mobile power resources distributed throughout a service territory will require creating new applications and the installation of communications services. Most utilities are currently unwilling to invest the money and resources needed to manage V2G services.
In addition, automotive OEMs are reluctant to allow batteries to be used for anything besides powering vehicles. The impact of the additional charge cycles on Li-ion batteries is not fully understood today. Since automotive OEMs would not receive any financial benefit from secondary uses, they are unlikely to cover any V2G application under the warranty."
