Hart Energy Consulting Future Prospects and Potential Impacts The Electrification of Transportation in the US:

Hart Energy Consulting

Future Prospects and Potential Impacts

The Electrification of Transportation in the US:


Structure of the Presentation

1. The Impact of Oil Prices, CO2 Emissions & Fuel Economy Regulations

2. Technical & Economic Feasibility of Vehicle Electrification

3. The Current HEV Market Landscape4. Future Potential of Vehicle

Electrification in the US5. Key Takeaways


Growth of US vehicle stock has slowed in recently years, but there are still nearly 250 million light-duty vehicles out on the road today.

Sources: NHWA, DOT, R.L. Polk, HEC estimates

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The industrial sector and utilities have cut back on oil consumption, but the transportation sector has not => its share of of total US oil consumption continues to grow.

Source: EIA

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16,000Oil Consumption by US TransportationSector (000 bpd, right scale)Share of Total US Oil Consumption (line,left scale)



Oil and gasoline prices reached historical highs in 2008, and still remain relatively high ($75/barrel) despite a sharp economic slowdown.

Sources: API, EIA

Source: EIA

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Avg. Gasoline Price in US, USD/gallon (right scale)



In the 1970s, OEMs improved fuel economy by reducing weight and horsepower, but since the early 1980s fuel economy (acc. to EPA method) has remained stagnant.

Source: HEC, based on EPA data

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Thanks to cheap gasoline, consumers found it affordable to purchase bigger vehicles like pickups and SUVs—but high oil prices and the recession have changed that.

Source: Ward’s Auto

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US CO2 emissions—especially those of the transportation sector—must come down if global CO2 emissions targets are to be met.


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32CO2 Concentration - Siple Dome (ppm, left scale)CO2 Concentration - Law Dome (ppm, left scale)CO2 Concentration - Mauna Loa (ppm, left scale)Global CO2 Emissions (million tons, right scale)

Sources: Oak Ridge National Laboratory, IEA


Corporate Average Fuel Economy (CAFE) standards changed little in the 1980s and 1990s, but that was before age of high oil prices and global warming. CAFE wll increase through 2016 and beyond.

Sources: NHTSA, EPA

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CAFE Std., CarsCAFE Std., Light TrucksFleetwide Avg., CarsFleetwide Avg. Light Trucks



To meet the IPCC’s CO2 emission reductions, fuel economy in the US might need to increase by over 50% => ICE engine improvements alone are unlikely to be enough.

Source: IEA

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Industry BuildingsOther Veh. Fleet CO2 Intensity



Vehicle electrification can help meet fuel economy and CO2 emissions goals, but in the short term they are not cost competitive.


Technology% CO2

ReductionCost

Cost per 1% CO2

ReductionReducing Mechanical Friction of

Components3.0% 50$ 17$

Electric Steering 5.0% 120$ 24$

Low Rolling Resistance Tires 3.0% 150$ 50$

Light Weighting 10.0% 750$ 75$ Variable valve lift and timing 4.9% 410$ 84$

Cylinder deactivation 3.9% 415$ 106$ Gasoline direct injection 7.5% 825$ 110$

Turbocharging 6.9% 800$ 116$ Mild Hybrid 12.0% 1,400$ 117$

Start-stop system 3.9% 470$ 121$ Moderate Hybrid 18.0% 2,200$ 122$

HCCI 12.2% 1,800$ 148$ Full Hybrid 35.0% 6,000$ 171$

Source: HEC, based on Deutsche Bank, BCG, Edmunds, Anderman (2007) data


Because of the high cost of hybrids today, their payback period is relatively long => their ability to gain market share has been limited.

Source: HEC, based on Edmunds, EPA, EIA data

Make & ModelModel Year

Trim Engine PricePrice

Premium

EPA Combined

MPG

Payback at $3.30/g (i.e.

2008 avg. US price (years)

Payback at $2.61/g (i.e.

2009 avg. US price (years)

Honda Civic 2010 EX 1.8L $20,255 29Honda Insight 2010 EX 1.3L $21,300 41Toyota Corolla 2010 XLE 1.8L $17,750 29Toyota Prius 2010 I 1.8L $22,800 50Toyota Camry 2010 SE 2.5L $23,165 26Toyota Camry Hybrid 2010 Base 2.4L $26,450 34Ford Escape 2010 XLT (FWD) 2.5L $24,045 23Ford Escape Hybrid 2010 Base 2.5L $29,860 32Ford Fusion 2010 SE 2.5L $21,225 25Ford Fusion Hybrid 2010 Base 2.5L $27,950 39Chevrolet Malibu 2010 LT1 2.4L $22,715 26Chevrolet Malibu Hybrid 2009 Base 2.4L $25,555 29

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$3,285

$5,815

$1,045

$5,050

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8.8

$6,725

$2,840

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18.0



The main reason for the high cost of hybrids is the high cost of their batteries. New chemistries can lower cost and improve performance.

Source: Saft



As new battery technologies mature, more cost reductions can be expected: this has been the case with LCO batteries for laptops and cell phones.

Source: Brodd (2005)

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Cost, USD/kWh (right scale)



Hybrids still comprise a small part of the light-duty vehicle market—but their share is growing.Consumers associate hybrids with fuel economy, so they have favored strong HEVs over mild and moderate HEVs.

Source: HEC, based on Ward’s Auto data

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Strong HybridsModerate HybridsMild Hybrids

3. The Current HEV Market Landscape


Sales of the Prius have shown a strong correlation to their payback period => it is not enough for a HEV to be “green,” it has to offer good value.

Source: HEC, based on Ward’s Auto, Edmunds, Automotive News, EIA data

Note: Payback calculation is based on 12K mi/year of usage, and include the EPCAT and “Cash for Clunkers” incentives

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Correlation: -.84



MONTANA

WYOMING

IDAHO

WASHINGTON

OREGON

NEVADA

UTAH

CALIFORNIA

ARIZONA

NORTH DAKOTA

SOUTH DAKOTA

NEBRASKA

COLORADO

NEW MEXICO

TEXAS

OKLAHOMA

KANSAS

ARKANSAS

LOUISIANA

MISSOURI

IOWA

MINNESOTA

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KENTUCKY

TENNESSEE

MISS

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FLORIDA

SOUTHCAROLINA

NORTH CAROLINA

VIRGINIA

WV

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MICHIGANNEW YORK

PENN

MARYLAND

DELAWARE

NEWJERSEY

CONNRI

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MAINE

VT

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ALASKA

HAWAII

MONTANA

WYOMING

IDAHO

WASHINGTON

OREGON

NEVADA

UTAH

CALIFORNIA

ARIZONA

NORTH DAKOTA

SOUTH DAKOTA

NEBRASKA

COLORADO

NEW MEXICO

TEXAS

OKLAHOMA

KANSAS

ARKANSAS

LOUISIANA

MISSOURI

IOWA

MINNESOTA

WISCONSIN

ILLINOISINDIANA

KENTUCKY

TENNESSEE

MISS

ALABAMAGEORGIA

FLORIDA

SOUTHCAROLINA

NORTH CAROLINA

VIRGINIA

WV

OHIO

MICHIGANNEW YORK

PENN

MARYLAND

DELAWARE

NEWJERSEY

CONNRI

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ALASKA

HAWAII

Governments—federal, state, local—are providing incentives for buyers and manufacturers of HEVs, PHEVs and EVs.



• Dual-mode mild HEVs(Silverado, Yukon, Malibu) have been failures

• Volt series PHEV could be a winner

• IMA system (moderate HEV) is low-cost but has, for the most part, yielded disappointing sales

• CR-Z launch means more of the same—for the next few years, at least• Has been a cautious mover on Li-Ion

technology

• Tie-up between PEVE & Sanyo now gives it a potentially reliable battery supplier

• Prius PHEV & EV on the horizon

• Suddenly, Ghosn is betting big on EVs

• Lack of proprietary HEV technology is a significant liability

• Gradually weaning itself off reliance on Toyota’s HSD system: new Fusion HEV beats Camry HEV on fuel economy

• Taking a more cautious approach on PHEVs & EVs: small volumes of Transit Connect EV due out late this year

• Moving aggressively, but lack of large-scale manufacturing experience is a big concern





technology











technology







• Moving aggressively, but lack of large-scale manufacturing experience is a big concern

OEMs are approaching vehicle electrification in many different ways.



Sizing up the potential of electrification is complex: payback period is influenced by many relevant variables.

Source: IEA

Customer Choice

OEM Choice

Market Segmentation

Desired Vehicle

Attributes

Driver Behavior (i.e. VMT, degradation

factor)

Gov’tChoice

Price of Gasoline v. Price of Electricity

Gasoline & Carbon Taxes

Cost Premium of HEVs, PHEVs &

BEVs

Fuel Economy & Emissions

Regulations

Cost/Benefit of Electric

Powertrains v. ICE

Improvements

Battery Suppliers’

Production Capacity

Grants/Loans to Suppliers &

OEMs

Vehicle Mileage Taxes, Congestion

Pricing

Clean Vehicle

Incentives

Payback Period of Electric Vehicles

Customer Choice

OEM Choice

Market Segmentation

Desired Vehicle

Attributes

Driver Behavior (i.e. VMT, degradation

factor)

Gov’tChoice

Price of Gasoline v. Price of Electricity

Gasoline & Carbon Taxes

Cost Premium of HEVs, PHEVs &

BEVs

Fuel Economy & Emissions

Regulations

Cost/Benefit of Electric

Powertrains v. ICE

Improvements

Battery Suppliers’

Production Capacity

Grants/Loans to Suppliers &

OEMs

Vehicle Mileage Taxes, Congestion

Pricing

Clean Vehicle

Incentives

Payback Period of Electric Vehicles

4. Future Potential of Vehicle Electrification in the US


•


Base Case (i.e. 2009 WRFS)

"Green Renaissance" Scenario

"Realpolitik" Scenario

RationaleTest impact of "green" government policies on

electrification

Test impact of resource nationalism and trade

barriers on electrification

Fuel pricesGrow moderately and

gradually

Gov't introduces $4/gallon floor in 2011,

and raises it to $5 in 2020

High

CAFE StandardsRise to 35.5 mpg by

2020; grow moderately thereafter

Rise to 42.5mpg by 2020; grow moderately

thereafter

Rise to 35.5 mpg by 2016; grow moderately

thereafterGovernment

incentives for PHEVs & EVs

Are short-lived Last until 2020 None

Battery costs Decline moderately Decline quickly Very little decline

OEM and battery manufacturer

capacityRises moderately

Rises moderately to 2020, and grows quickly

thereafterRises slowly

Parameters

Due to complexity and uncertainty, it is best to analyse a variety of possible scenarios.


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In the Base Case, penetration of vehicle electrification in the light-duty vehicle market grows moderately.


Source: HEC


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In “Green Renaissance,” the gasoline price floor, vehicle incentives and battery cost reductions combine to spur high levels of penetration after 2020.


Source: HEC


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In “Realpolitik,” vehicle electrification penetration is modest. Total light-duty vehicle sales also stagnate.


Source: HEC


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Green Renaissance (mn gallons, left scale)Baseline (mn gallons, left scale)Change v. Baseline

In “Green Renaissance,” aggressive fuel economy standards and vehicle electrification combine to lower liquid fuels consumption by about 9% compared to the Base Case.


Source: HEC


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Realpolitik (mn gallons, left scale)Baseline (mn gallons, left scale)Change v. Baseline (%, right scale)

In “Realpolitik,” liquid fuels consumption also declines relative to the Base Case—mostly because lower new vehicle sales lead to fewer total light-duty vehicles in operation.


Source: HEC


5. Key Takeaways

Vehicle electrification in the US today suffers from high battery costs and relatively low fuel prices, but:

Government policies will be necessary to help make HEVs, PHEVs and EVs more affordable until economies of scale push battery costs down further.

Future fuel economy and criteria pollutant emission regulations will make future ICEs more costly.

Vehicle electrification has significant upside—but only after 2020.

Vehicle electrification also depends on the continuation of open trade: resource nationalism and trade barriers could limit OEMs’ and battery producers’ ability to capitalize on global economies of scale.


Thank you!!

Raphael Hudson

[email protected]


The transportation sector—and light-duty vehicles in particular— are also a significant source of CO2 emissions in the US.


Source: EPA

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Medium- and heavy-duty vehicle GHG emissionsLight-duty vehicle GHG emissionsAll other US GHG emissions from fossil fuel combustion

Documents

Hart Energy Consulting Future Prospects and Potential Impacts The Electrification of Transportation in the US: