Plug your car in
The electric car industry is in takeoff mode. Professor Robert Burgelman of Stanford’s Graduate School of Business has developed a case describing the situation and challenges in the sector
Global warming and fuel price inflation (up to mid 2008) have given new impetus to the electric car industry. While the US had 40,000 electric vehicles in 2008, most of these were used for fleet applications, with a top speed under 25 mph and a range of just 20 miles. China meanwhile had production capacity for only about 2000 electric vehicles but was gearing up to produce 500,000 a year by 2011.
The upcoming generation of electric cars will be plug-in hybrids (PHEV) or all electric vehicles (EV). The PHEV differentiates itself from the traditional hybrid by its large battery which gives its electric motor a much greater range. And unlike the EV, the PHEV has an internal combustion engine that switches on when the battery is depleted, so it is not a zero emissions vehicle.
A number of hurdles need to be surmounted before the roads of the world become quieter thanks to electric cars. First automakers, be they startups or incumbents, need to manufacture the vehicles in sufficient quantity at an acceptable price. A key component of the electric car will be batteries and battery manufacturers are only now solving the technological problems associated with large lithium-ion batteries as well as gearing up the capacity.
Both the American and Chinese governments have launched programs to help surmount some of these hurdles (see box on government). Debra Schifrin, who wrote the case with Professor Burgelman, notes that students bring up the motives for government involvement: “The students bring up three objectives they believe the U.S. government should adopt: becoming a champion in a 21st century mode of transport, reducing dependence on foreign energy sources, and leading the way in emissions reductions, all without going broke.”
One important variable in the equation is range per charge. The vast majority of miles driven in the US is devoted to relatively short trips. 80% of people in the US drive less than 50 miles per day, 50% drive less than 25 miles (see chart below) – most electric cars have ranges superior to that 50 mile threshold. However, for electric cars to be used for longer trips (vacation, visits to friends or relatives), an infrastructure for recharging or swapping batteries needs to be built up. And of course, batteries will need to be recharged which means that utility companies need to be brought into the equation so enough electricity is available at a reasonable price (see box on infrastructure).
The automakers
A number of startups have entered the field. Perhaps the most visible is San Carlos-based Tesla Motors. As of August 2009 Tesla had delivered 700 of its swift and sporty Roadsters which have a range of 220 miles but cost over $100,000. The importance of the Tesla is attested through a question that former Intel CEO and Chairman of the Board Andy Grove, who co-teaches the course with Professor Burgelman, puts to the Californian class: Who has done more to advance the cause of the electric car, Tesla or Toyota via the Prius?
Another American firm, Aptera is producing a three wheeler which gets 220 miles per charge and was to range in price from $25,000 to $40,000. Fisker Automotive is developing a plug-in hybrid called the Karma, with a range of 50 miles per charge. The production plan targets 15,000 units per year. A last notable startup is TH!NK. This project started out at Ford as FordTH!NK but is now based in Norway. The TH!NK City is an urban two-seater with a range of 125 miles and a price of $32,000. The Norwegian company differentiates itself in two ways: it does not sell the battery but leases it ($150 per month currently) and customers will be able to tailor and buy the car on-line (no showrooms in a dell-like sales model).
Most of the incumbents have PHEV or EV projects in the works (see table below). Two exceptions are Honda and Toyota which are sticking, for the time being at least, to incremental improvements of their current hybrid models. The most ballyhooed incumbent project is the Chevrolet Volt. Due to come out in late 2010 at a production rate of 10,000 units per year, this PHEV has a range of 40 miles and should cost between $35,000 and $45,000. Debra Schifrin summarizes the class discussion on the Volt: “Students like to point out that it is not obvious whether a convalescent GM will have the financial resources and patience to make the Volt succeed. After all, the sticker price is well above the American $28,000 average. But most students argue that GM must take the risk and rebuild itself through the Volt.”
Another leader is the Renault-Nissan alliance. Nissan unveiled its 100-mile-range Leaf in August 2009. American production at Nissan’s Tennessee plant should begin in 2011 with a capacity of 100,000 cars per year. Nissan and Renault are also partnering with Better Place (see box on infrastructure) and the Israeli and Danish governments to bring electric cars to these countries. The small size of these nations makes them particularly suitable for electric cars. Furthermore, Israel wants to make its transportation system oil-independent by 2020 while Denmark has the wind power to generate the energy for its electric vehicles.
In China, the world’s largest battery maker BYD (short for Build Your Dream) is entering the electric car market. It has a plug-in hybrid, the F36DM with a range of 60 miles and is planning an all electric car, the E6, for 2010. Among the many Chinese projects, two of the more advanced are Chery’s S18 (range of 90 miles and a price tag of less than $15,000) and Zotye’s SUV (range of 185 miles, priced at $16,000).
Batteries
Whereas the first generation of hybrid vehicles used nickel-metal hybrid batteries, the next generation of PHEVs and EVs will be calling upon lithium-ion batteries. These offer higher energy density at a lower weight. In battery production, thanks to their experience with smaller lithium-ion batteries for consumer electronic devices, the Asian manufacturers have a substantial headstart over their Western counterparts. Korea’s LG Chem was one of the suppliers for the Chevy Volt development. The world’s second largest battery company BYD is putting its know-how to work in its own models. Last but not least, a number of Japanese manufacturers are gearing up to supply Japanese and foreign producers (see chart below).
It is only in the last ten years that Americans have re-engaged in this sector. A123, EnerDel and Johnson Controls (in a joint venture with the French firm Saft) all are gearing up plants in the US. Two of those plants are in Michigan so perhaps battery manufacturing will take up some the car manufacturing slack. Debra Schifrin points out that students see the lithium-ion battery situation as illustrating something of an American pattern: “Students note that American firms invented the lithium-ion technology but it was Asian companies that manufactured the batteries on a large scale.” Or as Professor Burgelman and Andy Grove summarize it: there are three stages in the product life curve: invention, scaling and standardization. American organizations are outstanding at invention, good at standardization but poor in scaling, and often lose out when the scaling process starts. Regarding the lithium-ion battery, American organizations invented it, Asian organizations scaled it, the future question is who will standardize it?
So the global electric race is on. Asians, Europeans and Americans are all involved in projects. Professor Burgelman’s class discussion brings up one final interesting question about the Chinese player. The Chinese are latecomers to the gasoline-powered car - to what extent might they just jump to electric cars somewhat like many African countries abandoned land lines and jumped to mobile telephones?
Reference:
SM-175
“The Global Car Industry in 2009”
Professor Robert Burgelman, Andy Grove, Debra Schifrin
Stanford University
Published October 2009
