Adopting electric-vehicles


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Adopting electric-vehicles

  1. 1. October 2009Adopting electric vehicles: The role of technology and investmentAt a glanceThe electrification of the Battery systems can add $10K Electric vehicles areautomobile represents a to upwards of $20K to a vehicle price expected to have a minimalpotentially revolutionary step in tag and supporting infrastructure will volume impact in the short-increasing vehicle efficiencies require a large scale investment. to mid-term pwc
  2. 2. Adopting electric vehicles Electric vehicles (EVs) have garnered increased attention recently as the automotive industry begins to show signs of stabilization and recovery. While there remains little doubt that this technology will have a significant impact on the industry moving forward, several factors will determine just how quickly and deeply EVs will penetrate the market and whether or not it will become a sustainable market segment. The drive for change critics have protested that the new high polluting coal power plants. standard is too lenient. However, This has drawn attention to the Climate change and the negative imposing such regulations in the need to invest in a clean energy impact that various human activities midst of a massive market downturn, infrastructure. EVs are grouped can have on our ecosystem are while R&D funding is under duress, into two main categories; plug-in among the inescapable challenges is a sign to automakers that hybrid electric vehicles (PHEV) world leaders are facing. While fundamental changes must begin to and pure electric vehicles (PEV). A the issue of global warming take place. PHEV is powered by an electric remains highly debated, there is motor and an internal combustion increasing evidence to support the The European Union, widely seen engine (ICE) that functions as a environmental impact of carbon as a leader in reducing automotive generator to recharge the batteries. emissions. It is estimated that the carbon emissions, has taken PEVs do not have an engine or a automotive industry is responsible additional steps in setting a limit generator and are therefore subject for roughly 15% of global carbon of 130g/km of carbon emissions to more limited driving ranges. emissions, equating to roughly by 2015, with 65% of new vehicles Both PHEVs and PEVs benefit the eight billion metric tons per year. required to meet the standard environment in terms of lowered Although environmental protection by 2012. While other developed carbon emissions, but also provide has been cited as the primary driver markets such as Japan are also dramatic fuel economy savings for for change, other factors such as enforcing tough emission standards, consumers already dealing with the price volatility of fossil fuels and developing markets that have long continually high pump prices. While energy independence also have lagged other regions in terms of EVs are undoubtedly more efficient helped perpetuate a shift towards enforcement are beginning to catch than their gasoline fueled counter- alternative and renewable up and are adopting increasingly parts, the EPA is still working on energy sources. stringent emission regulations. a standard in which to accurately Accordingly, many governments measure these gains. Developing a EVs are seen as one possible have implemented a wide array fair and comparable methodology solution automakers can focus of policies aimed at reducing is seen as vital in the promotion of on to meet increasingly stringent carbon emissions, some of which EVs. Perhaps most important, EVs emission regulations around specifically target the automotive are seen as a way of decreasing, if the world, since they release no industry. In the U.S., the recently not eliminating, U.S. dependence carbon emissions while running proposed changes to the Corporate on foreign oil. The Obama on electric power. However, some Average Fuel Economy (CAFE) Administration has included EVs question whether EVs are truly standard, announced by President as part of its energy plan, setting a “clean vehicles” because in some Obama, mandate a 30% reduction goal of one million PHEVs on the cases, the electricity used to in carbon emissions by 2016. Some road by 2015. power the vehicles is produced by2 PricewaterhouseCoopers
  3. 3. Adopting electric vehicles Electrifying the industry Resources previously allocated to gaining incremental or evolutionary As vehicle electrification continues to efficiencies could be repositioned emerge, significant changes within to accelerate the development of the industry are likely to happen this technology, which is seen as concurrently with this rollout. In revolutionary. Within this context, addition to the need for a network some EV manufacturers are beginning of recharging stations, fundamental to capitalise on this opportunity, and changes to the traditional business new entrants that offer EVs have also model of automobile ownership begun to emerge. should be considered as well. For example, some have proposed a Now that the automotive battery swap program in lieu of manufacturer playing field has waiting for a battery to charge. This expanded, no traditional automaker brings into question the issue of has a significant advantage over battery ownership, which may open another in regards to EV technology,“We recognize that pursuing electrification as one of our technology paths presents unique challenges for commercialization of the vehicles... It requires us to collaborate with new partners, define new business models, connect to a new infrastructure for the vehicles and meet new customer expectations around the globe.” – Sue Cischke, Ford’s group vice president of Sustainability, Environment and Safety Engineering1 which enables new entrants to the door to business models based compete. Additionally, suppliers of on fixed-price leases for batteries lithium-ion batteries and systems are and/or entire vehicles. As the initial expected to be in high demand as a rollout of large scale EVs seems large portion of current production likely to be initiated through public capacity is allocated to supplying and private fleets, corresponding non-automotive sectors such as the large-scale leasing models could computing and telecom industries. As be tested via this scenario. Another a result of these developments, non- issue is the lifecycle of EV batteries. traditional suppliers that offer proven What happens to the battery when EV components are expected to it is no longer able to provide the emerge within the automotive industry. charge necessary for adequate driving ranges? Some utility The changing geography of the companies foresee extending the automotive industry also represents life of the batteries by serving to an opportunity for traditional players expand the capacity of the power in emerging markets. Chinese grid during peak usage. However, automakers, for example, understand once the batteries have reached it will behoove them to focus on the end of their lifecycle, safe and developing electric vehicles rather environmentally-friendly scrappage than committing major resources to protocols still need to be established. catching up on internal combustion engine standards. Product development also could be affected by the introduction of EVs. 1 CNBC, October 9, 2009. PricewaterhouseCoopers 3
  4. 4. Adopting electric vehicles “If we want to reduce our dependence on oil, put Americans back to work and reassert our manufacturing sector as one of the greatest in the world, we must produce the advanced, efficient vehicles of the future.” – President Barack Obama2 Roadblocks ahead Current CAFE Guidelines vs. Industy Average* 2000–2016 (miles per gallon)** Despite the aforementioned benefits electric vehicles provide, several 40 important challenges remain that may slow and/or impede the 35.5 mpg: Newly imposed 35 combined fleet average for 2016 penetration that these vehicles can achieve in the marketplace. 30%: Required increase 30 from current fleet average Lagging Battery Technology The first issue is related to the 25 technology surrounding EVs. The main components of an EV are the electric motor and the battery pack 20 that supplies power to the motor. For PEVs, the main drawback in 2000 2002 2004 2006 2008 2010 2012 2014 2016 this setup is limited driving range due to relatively short battery life. CAFE Standard Fleet Average (MY) In response to this limitation, more * Cafe: Corporate Average Fuel Economy MY: Model Year powerful and efficient batteries are ** 35.5 mpg target for 2016 includes expected emission reductions from HVAC improvements, now being developed. Lithium-ion actual on-road fuel economy target is 34.1 mpg has emerged as a leading battery Source: NHTSA/PwC AUTOFACTS Analysis. material for power, driving range, and price point considerations. Community Infrastructure an EV. The space required to place success, significant start-up costs Readiness charging stations, coupled with remain a central concern. Like any a suitable means for consumers new technology, there are several Inadequate infrastructure also will to pay for the electricity they use different production options being delay any significant shift to EVs. while charging their vehicles, are introduced in terms of battery The lack of an available network of open issues. Programs such as layouts and plug design. The plug charging stations restricts drivers to Project Better Place have provided design is of particular concern, as a short commutes, while it can take EV infrastructures in countries like universally accepted standard will up to several hours to fully recharge Israel and Denmark that allow EV likely need to be in place before drivers to quickly recharge or swap significant infrastructure investment 1 U.S. Department of Energy, out batteries. Despite the program’s can occur.4 PricewaterhouseCoopers
  5. 5. Adopting electric vehiclesThe burden on Power Grids Global EV Forecast: Pure Electric Vehicle (PEV) vs. Plug-in HybridAdditional concerns about the effect Electric Vehicle (PHEV)EVs will have on the nation’s power 2009–2015 (Thousands)grid also remain. Experts disagreeon what the actual drain on the 2015nation’s power grid will be. Somehave argued that no additional 2014capacity will be needed if vehiclesare charged during off peak hours, 2013while others have claimed thata significant investment will be 2012required to sustain any large Represents roughly .65%number of EVs. of global light vehicle 2011 assembly in 2015.Shortage of Investment CapitalBecause the concept of mass 2010vehicle electrification is fairly newto the automotive sector, continued 2009R&D funding is necessary toincrease efficiencies and decrease 0 100 200 300 400 500 600consumer cost. Major automakers PHEV PEVand suppliers typically allocatebetween 1.5-6% of revenue to R&D Source: PwC AUTOFACTS Analysis.expenditures. Financial constraintsbrought about by the currentrecessionary trends will make itlikely that automakers could make by consumers purchasing EVs different things for different industrybudgetary decisions that negatively compared with vehicles powered participants. For suppliers whoimpact EV development, and favor by a traditional internal combustion are at the forefront of lithium-iontraditional and less costly vehicle engine. The cost differential can battery production, demand isprograms that require less R&D range from $10,000 to $20,000 and expected to remain strong. Evenspend and bring quicker payoffs in up depending on the type of vehicle if automotive demand beginsthe short term. under consideration. Most of this to level off, lithium-ion systems premium is directly attributable to remain marketable across multipleHigher Initial Vehicle Cost the raw materials that comprise industries (commercial, construction, the vehicle’s battery. The extraction telecommunications, etc.), soWith relatively new technology of the active battery components a diversification of a supplier’sand low sales volumes, significantly such as lithium and graphite, as well customer base is likely to support ahigher costs will be incurred as the manufacturing and recycling positive outlook. process, contribute to a large1M portion of the cost. An appeal For automakers, who must to consumers is that the cost continually balance R&D spending savings realized from using on a variety of new technologies, electricity rather than gasoline will increased sharing and collaboration allow a partial payoff of the higher with competitors will likely continue transaction price. to occur. Consumers should expect to see a number of technologyNumber of plug-in hybrids Proceed with caution, options in addition to electric(PHEVs) the Obama vehicles, including hybrid, clean or full speed ahead? diesel, and direct injection andAdministration hopes to The outlook for electric vehicle turbocharged engines that willhave on the road in the technology will, inevitably, mean increase automobile efficiencies . U.S. by 2015 PricewaterhouseCoopers 5
  6. 6. Adopting electric vehicles Overall, the focus on climate larger concern exists around • Overnight Charging change and environmental building a broader, public charging Most EVs charge up at night sustainability, as well as the need for infrastructure for EVs, much like when system wide demand reduced dependence on foreign oil, the role gas stations play in today’s for electricity is low. They tap will continue to drive automakers, market. Due to the finite range of existing generating capacity battery developers, scientists and EVs, public and private investment that is not fully used rather than urban planners toward pioneering in a network of charging stations will increasing demand for new efforts in alternative-fuel vehicle play a key role in giving consumers capacity. However, concerns still development and integration of the driving freedom they currently remain on the effect EVs will these new technologies into the enjoy with ICE (Internal Combustion have on the power grid as automotive landscape. On the Engine) vehicles. demand increases. other hand, EVs are expected to play an important role in driving Battery Technology • Reduced Oil Consumption technological advances and As development of lithium-ion Choosing EVs over combustion increased vehicle efficiencies in the technology progresses, costs will powered vehicles contributes to near term, not necessarily from a continue to decrease as quality reduced dumping of engine oils volume perspective, but rather in and safety metrics increase. Since into the environment and reduced terms of pushing development of the battery is the most expensive U.S. reliance on foreign oil, industry innovation. component in an EV, continued R&D which in turn has put a focus investment is needed in order for on providing clean and Factors that will drive automakers to create a solid, long- sustainable energy. success term business case. PricewaterhouseCoopers The extent to which EVs will be able Consumer Acceptance AUTOFACTS estimates that to penetrate the market in the near by 2015 EVs will comprise less Ultimately, consumers will determine than one percent of global light term remains somewhat unclear, as the success level of electric vehicles. automakers have been toying with vehicle output, or roughly 600,000 There has been an initial “sticker units annually. On the surface, this this industry segment with limited shock” by mainstream consumers degrees of success for the past 15 estimate might appear to have a toward current and upcoming minimal impact on worldwide sales years. While there is an increased EV models. In order to reach the focus on the environmental volumes, yet these numbers should masses, EVs must be priced at be understood in context to be fully advantages of electric vehicles, an attainable level. Economic and several key drivers are expected appreciated. While this is relatively environmental factors are seen as small volume in the short- to mid- to shape the future outlook the top reasons for considering for this technology in the term, the progress expected in electric-powered alternatives to infrastructure development and automotive industry: vehicles that run on conventional supporting technology represents fuels such as gasoline, propane Government Support a roadmap to future market growth. and diesel. Major benefits that Continued support from both consumers are likely to consider the public and private sectors before purchasing an electric will be needed to assist in the vehicle include: 11 development of EV technology and increase consumer appeal. This • “Green” Conscience can be achieved through grants, EVs emit no pollutants from the low interest loans and tax credits. tailpipe, so they are cleaner for Investment in network infrastructure the environment. The overall will also be needed in order to emissions associated with using provide convenient and easy to use EVs, even including the power charging stations. Number of announced EV plant emissions, are typically far less than the emissions produced introductions that will begin Network Infrastructure from their combustion-powered sales in the U.S. in 2010 While consumers will be able to counterparts. and 2011 plug-in their vehicles at home, a6 PricewaterhouseCoopers
  7. 7. Adopting electric vehiclesRecommended readingThe Impact of Electric Vehicles Global Automotive Perspectives: Electric Vehicles: Pluggingon the Energy Industry Capitalizing on Change into Tomorrows Vehicles The impact of electric vehicles on the energy industry This study is part of the Austrian Climate Research Programme PricewaterhouseCoopers 7
  8. 8. have a deeper conversation about any ofthe issues in this paper, please contact:Brandon MasonGlobal Powertrain Lead,PwC AUTOFACTSPricewaterhouseCoopers 394-6098Thomas E. McGuckinPricewaterhouseCoopers 394-6234Stephen D’ArcyCo-Global Automotive LeaderPricewaterhousecoopers 394-6755Rick HannaCo-Global Automotive LeaderPricewaterhouseCoopers 248-9211David BreenU.S. Auto Sector LeaderPricewaterhouseCoopers 394-6559This publication is printed on Finch PremiumBlend Recycled. It is a Sustainable ForestryInitiative® (SFI) certified stock using 30% post-consumer waste (PCW) fiber and manufacturedin a way that supports the long-term healthand sustainability of our forests.© 2009 PricewaterhouseCoopers LLP. All rights reserved. “PricewaterhouseCoopers” refers to PricewaterhouseCoopers LLPor, a Delaware limited liability partnership, as the context requires, the PricewaterhouseCoopers global network or other memberfi rms of the network, each of which is a separate and independent legal entity. This document is for general information purposesonly, and should not be used as a substitute for consultation with professional advisors. DT-10-0010