Many major automakers are developing plug-in electric vehicles, but there are a myriad of challenges standing in the way of their widespread take-up: battery prices, performance, charging infrastructure and consumer acceptance, just to name a few.
Below are excerpts from an interview conducted with Oliver Hazimeh, director and head of global management consulting firm PRTM’s global e-mobility practice, which looks at electric vehicles.
Your forecasts for electric vehicle penetration are 10% by 2020, is that right?
I think right now we’re looking at 10 per cent adoption by 2020; there are plug in hybrid vehicles like the GM Volt which are primarily driven by the battery, and the engine is just a generator for the battery. The number rises to 20 per cent if you add full hybrids or HEVs, like the Toyota Prius. Toyota and Honda have found success with traditional HEVs that are powered by an internal combustion engine (ICE), with support from electricity. Now, additional electricity-fueled cars are bering introduced.
For example, GM is introducing PHEVs like the Chevy Volt, which is electric motor driven, with an ICE to charge the battery. Pure EVs like the Nissan Leaf are also coming into the picture. We believe that the worldwide electric vehicle value chain will grow to approximately $300bn by 2020, creating more than 1m related jobs across the value chain — including energy providers, smart grid technology firms, battery and component suppliers, vehicle OEMs and service providers.
What needs to happen in the intervening years?
For this whole market to take off there are a few things that need to come together. We’re at a tipping point; fundamentally it’s not if, but how fast and to what extent electrification will happen. Fundamentals are there: reduced oil dependency is needed, technology is available. We see that with the OEMs [original equipment manufacturers] that are basically formalising their product plans, to incorporate electrification in the coming years.
For the consumers to accept electric vehicles, there needs to be an infrastructure; cost curves need to come down around the battery; prices need to be affordable to consumers. We believe the majority of battery cost reductions can be achieved simply through optimizing design and operations across areas including production/manufacturing, supply chain and product development, and we anticipate that battery costs will fall by 50 percent by 2020. Another challenge is the overall integration of what we would call an ecosystem. It’s not just about a car, but the car needs to plug into a grid. There need to be billing systems and regulatory preparation, and that doesn’t happen by itself.
How will that happen?
The difficulty is, because of the surrounding ecosystem, you can’t just build the whole infrastructure and wait for the cars to come. It’s not going to be done by free enterprise because nobody’s going to take that high of a risk. This raises the question of who will make the necessary investments-private investors, utilities, oil companies, governments, or a combination?
Doesn’t this chicken and egg problem, of cars and infrastructure, look insurmountable?
That has been the biggest problem. That’s where governments play a role to provide sufficient impetus and a framework for this ecosystem to work together. So OEMs, battery makers, utilities can work together. So customers feel they can purchase an electric vehicle because they feel comfortable that the infrastructure will be there and they won’t be stuck by the road.
So government support is essential?
Yes, but it becomes a public-private collaboration, in terms of customers coming in, and in terms of businesses saying ‘this is an opportunity’. If you look at the automotive industry, a lot of the profits have been made by the oil companies – the automakers have not always done so well.
If you look across the world — in China, which really has a strategic need to move towards electrification – they also struggle and will struggle. Right now they have 13 different cities and 13 different [electric vehicle] schemes.
Europe also has an advantage, because of how it responded to earlier oil price rises.
So the US is one of the least suitable countries?
The market that is probably the hardest is the US, because of a fragmented utilities and regulatory landscape. Plus oil prices are relatively low.
In the US, we see the natural break even point in 2018; in Europe that point is 2015. If you add in government incentives obviously you make it earlier- in Europe, 2011. Governments do not have unlimited funds so the industry also has to step in.
Despite the challenges, we’re confident that the adoption tipping point gets closer every day, and that our estimates of 10 per cent of PHEV/EV adoption and as much as 20 per cent mild/full-HEV adoption by 2020 are on track.
What about lithium supplies? Reserves are concentrated in a few countries and China, South Korea and Japan are moving quickly to secure future supplies
We don’t see it as a problem. A lot of people are claiming lithium is going to be the next dependency for raw materials. And while there are few places that have actively mined, when you look at the lithium in a battery,
from a cost perspective, it’s less than 1 per cent. Even if the price of lithium went up, it wouldn’t really affect battery costs. And second, when you look at the ramp up of production to 2030, there’s plenty of room.
Even then, we don’t see really a production shortfall on lithium. On the battery capacity side, we see quite a bit of imbalances there, and a strategic question for the regions – what role they want to play and whether they want to be in manufacturing rather than importing.
In consumer batteries, Japan and Korea have traditionally led the market. Consumer batteries are very very different from what is needed. The new vehicle battery cells are much smaller, and the cells are 70 to 80 per cent of the value of the battery. So people say let’s invest — it’s a little bit like a goldrush right now.
But again, you can’t have 50 battery makers. The battery costs have to come down and they will.
Do you think Better Place’s model of leasing batteries will work?
For every vehicle on the road, you need about 1.5 chargers available. In the early years, you may need a higher ratio. As the curves come up, people will make the required infrastructure investment.
Better Place, while we think it’s a very innovative construct, if you do calculations, look at the business model, it’s very difficult to think about it as a widespread business model across multiple OEMs, because that would only fly if you have a standardised battery. If you have too many different types of batteries it becomes very expensive. However we can see the concept working, for example for specific vehicles that have agreed to those specifications.
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