Automotive electrification trend has passed the tipping point, concludes analysis

  • 06-Apr-2010 02:41 EDT
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Battery EV technology, exemplified here by Nissan's new Leaf, has already passed a crucial milestone on the long path toward commercialization, according to a top industry consultant.

“Some people have been asking recently if the electrification of the car is actually going to happen, or will there be another false-start like in the '90s with the [ill-fated] EV-1,” said Oliver Hazimeh, Director and head of the global e-Mobility practice at PRTM, a management consulting firm. “Working with companies as we do, we’re convinced that the tipping point for the adoption of electrically powered cars has already passed,” asserted the industry analyst, who will serve as a moderator at the "Smart Grid Technology: Are Electric Vehicles Part of the Problem or Part of the Solution?" FEV Powertrain Innovation Forum panel discussion April 13 during the SAE 2010 World Congress in Detroit, MI. “The basic indicators are there,” he contended. “It’s not a matter of if, but when.” The big questions now are: “How fast?” and “To what extent?” Suffice it to say that Hazimeh and his colleagues are bullish not only on electric cars but also on lithium-ion batteries.

Several factors indicate that momentum toward electrification of the powertrain is rising, Hazimeh argued, including stricter global emissions standards, growing foreign oil dependence, and considerable progress in electric drive train technology. Of the last issue, he said: “Twenty years of R&D on battery technology has brought significant advancements. It is no longer a stretch to expect that electrification will happen. Cost and technical issues still remain, of course, and we can argue about EV penetration rates, but it’s happening.”

It was only after last summer’s Frankfurt Auto Show that Hazimeh and his team became convinced of the change. Before then the only committed parties were firms such as Tesla and Nissan/Renault, but it seemed with new environmental regulations looming, European OEMs and others “looked at their product portfolios and realized that the only way to meet long-term cost targets was to go electric. We’ve since seen a lot more programs committed to developing EVs.” Add in the ongoing programs to develop range-extenders such as General Motors’ Volt, plug-in hybrids, and straight hybrids from full to mild, and the trend toward electrification is clear, he said.

Based on PRTM’s assessment of operational issues and market dynamics, the next critical point in automotive electrification will occur when customer demand for the technology begins to rise, which he predicted should start to occur late in this decade. By then—2016 in Europe and 2018 in the U.S.—the total cost of ownership of an all-electric drivetrain should equal that of a conventional internal-combustion power plant. This calculation considers such factors as the costs of fuel and maintenance, as well as government subsidies, and also figures in a reasonable improvement in the cost and performance of batteries and power electronics. “It will take time and a good deal of education,” Hazimeh advised, but when these factors kick in, consumer demand should grow “as drivers become comfortable with the new technology, just as they eventually did with the Prius and hybrid technology.”

Contrary to some recent studies by forecasters who warned of a possible oversupply bubble for large-format lithium-ion batteries (as much as 100% by 2015, according to Munich-based Roland Berger Strategy Consultants, for example), Hazimeh is sanguine about the prospects. First, he said, some analysts seem to be looking at the prototype or pilot-line prices for the advanced batteries when they predict initial production costs of $1000 per kilowatt-hour, whereas for multiple reasons “we think it’s more like $600/kW·h, with the ready prospect for half that ($300/kW·h) without radical advances in the technology.”

The PRTM team believes that the business of making lithium-ion batteries resembles that of the semiconductor industry with huge production efficiencies being achieved via similar methods. By fully exploiting modern product development and design techniques, modularization and automated manufacturing methods, supply chain optimization, and building to the best economic scale, it should be possible to cut battery prices significantly.

By 2020, the automotive battery market is estimated to hit $60 billion. Toyota should be installing lithium-ion batteries in several car models, as will Honda a few years afterward. Companies in Asia, the leading net exporters of automotive battery cells, are gearing up to supply the new technology. Hazimeh was especially insistent that the U.S. government should concentrate its forthcoming industrial promotion efforts toward building facilities to make the cell itself because it contains 70% of a battery’s value. Currently, the U.S. and Europe face a shortfall in cell manufacturing capacity—a rapidly increasing source of global competitive advantage and jobs, according to PRTM. “Stimulus funding should be allocated more clearly toward cell making vs. pack manufacture,” he noted. “If you focus on cells, the pack will follow naturally.”

Regarding fears of huge battery oversupply from production overcapacity due in part to government stimulus funding, Hazimeh was reassuring. If one adopts PRTM’s somewhat rosy market outlook—whereby EVs capture 10% of the market by 2020 due to forecast levels of infrastructure availability and government support—battery production capacity should ramp up well, he said. “From what we can see of the announced production capacity, there may be some over-capacity in the short term. In 2015, for instance, we are likely to be ahead of the demand, but looking at that one year doesn’t tell the whole story,” he explained. “The demand builds soon after that and then there’s a shortfall.” Fears of a bubble are largely unfounded as long as producers sensibly keep the net capital expenditures in line with demand growth.

Indeed, the rise in battery production capacity could in fact be delayed in the near term, Hazimeh concluded. “With the rush to develop lithium-ion battery technology, currently there’s an 18- to 24-month production bottleneck in certain key coating materials.” The few suppliers, such as Japan’s Toray Industries, are working overtime to fill the burgeoning orders. Tipping point or no, the transition to the electric vehicle will not be an easy one.

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