The Future of Energy TechnologyRetaining Manufacturing Competitiveness

NAM Conference

March 2010

Copyright © 2010 Deloitte Development LLC. All rights reserved.2

CHANGE is complicated in a complex society

Copyright © 2010 Deloitte Development LLC. All rights reserved.3

Three Fundamentals Driving Change

Policy

Markets Technology

Energy

• Scalable• Economic• Sustainable• Reliable

Enablers & incentives to support investment

• Consumer acceptance and education

• Consumer willingness to buy

• Price and ownership cost

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The Process of Change has Two Pathways

Evolutionary

Change that is driven by government incentives and policies

‒ Regulatory• CAFÉ standards• CO2 emissions targets• Clean subsidies and loan guarantees• Consumer tax credits

Change that is driven by innovation‒ Technology advancements

• Automobile• Internet• Light bulbs• Radio / Television

Revolutionary

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Source: Felton, Nicholas. “Consumption Spreads Faster Today.” New York Times. February 2008.

Market Diffusion Takes TimeP

erce

nt o

f U.S

. H

ouse

hold

s

Energy Specific ExampleAutomobile Industry

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Automobile Industry – Current State

• U.S. light vehicle production was 5.61 million in 20091

•More than 195 million cars and light trucks are on the road today2

• Average length of ownership of a new car or truck in 2008 was more than 4.5 years (56.3 months)3

•10 million new cars and light trucks sold in 2009– In 2008, U.S. light vehicle sales volume declined 18 percent from the year before, driven by slowing demand amid a

tight credit environment and a severe economic downturn.

– 1.55 million gas-electric vehicles on U.S. roads today4

1Source: CSM Worldwide2Source: EPA3Source: R.L. Polk & Co.4 Source: J.D. power & Associates

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The Automobile Industry: The Implications of Change

• Policy

• Consumer Opinion

• Energy prices

• Vehicle Technology

• OEMs with light/small vehicle portfolios

• Auto suppliers and manufacturers with portfolios that include components for light/small vehicles

• Emissions control component manufacturers

• Conventional Oil & Gas Producers

• Refiners

• OEMs with vehicle portfolios dominated by large/heavy vehicles

• Auto suppliers and manufacturers with portfolios dominated by components for large vehicles

What Needed To Change Winners Losers

Time

Fuel Standards: Evolutionary Change Driver

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025115.00

117.00

119.00

121.00

123.00

125.00

127.00

Policy as a Driver of Change

Co

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on

(B

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of

Ga

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s

pe

r y

ea

r)

Fuel standards change from 17mpg to 35mpg

Source: EIA AEO 2009

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• Conventional Oil & Gas Producers

• Refining

• Oil & Gas Delivery

• Pipelines

• Shipping (tankers)

• Gas Station Retail Stores

• Lead Acid Car Battery Manufacturers

• Consumer Opinion

• Performance, Range and Reliability

• Vehicle Price

• Battery Cost

What needs to change

• Lithium Ion Battery Manufacturers

• Battery Cell Raw Material Providers

• OEMs with Established Brand Presence in the Hybrid Space

Winners Losers

• Conventional Oil & Gas Producers

• Refining

• Oil & Gas Delivery

• Pipelines

• Shipping (tankers)

• Gas Station Retail Stores

• Biofuel/Ethanol Producers

• Electric Infrastructure

• Additional Generation Capacity

• Charging Stations

• Advances in Battery Technology

• Battery Cost

• Performance, Range and Reliability

• Battery Recycling Infrastructure

What needs to change

• Battery Manufacturers

• Battery Recycling Operations

• Electric Power Generators

• Smart Grid Technology suppliers

• Charging Infrastructure Installers

Winners Losers

The Automobile Industry: The Implications of ChangeHybrid Vehicles: Evolutionary Change Driver

Electric Vehicles: Revolutionary Change Driver

2007 2010 2020 2030100

105

110

115

120

125

130

Impact of Hybrid and EVs on Petroleum Consumption

Slow Technology Case

Reference Case

Rapid Technology Case

Co

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)

In the low technology case, the characteristics ofconventional technologies, advanced technologies,and alternative-fuel LDVs, heavy-dutyvehicles, and aircraft reflect more pessimisticassumptions about cost and efficiency improvementsachieved over the projection. More pessimisticassumptions for fuel efficiency improvementare also reflected in the rail and shippingsectors. High technology case is the opposite, respectively.

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• Today in the US, capacity is currently in place to produce an estimated 30,000 EVs per year, less than 1% of total vehicle production capacity1

• Limited lithium ion battery recycling infrastructure is in existence today

• Manufacturing & recycling capacity must increase substantially to meet Obama’s goal of 1mm EVs on the road by 2015

EV Adoption Curve1 Manufacturing Perspective

1Source: National Highway Traffic Administration, Citigroup Global Markets, Deloitte Interviews and Analysis2 Source: Deutsche Bank estimates

Automobile Industry – EV Transition and Change

• Price matters – EV prices are high due to the high cost of lithium ion batteries today

• Where will I plug in? How long will it take? What will it cost?

• Performance and range anxiety

Consumer Perspective

• Electric Infrastructure

• How will we generate more electricity to support EV-related demand? Coal vs. renewables

Supply Side Perspective

Early Adopter Early Majority

2010 2020

0

1,100K

Traffic Safety Administration (750K)

Citi (1,050K)

Credit Suisse(335K)

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Which industries are under threat?

Automobile Industry—EV Considerations for the Future

How do companies change their game?

How do you capture the new technologies?

How do companies prepare for change?

• Conventional Oil & Gas Companies

• Pipelines

• Gas Station Convenience Stores

• Keep eyes on the horizon

• Be flexible; have a plan B

• Take advantage of government incentives

• Retool existing operations

• Diversify production/portfolio

• Training

• Leverage synergies & strengths

• Collaborate with universities, labs, governments, other companies to shape and develop emerging technologies

• Listen to customers

• Shiping industry (tankers)

• Lead acid battery manufacturers

• Think outside the box

• Apply existing strengths to new opportunities

• Continuous research on emerging trends and technologies

• Take an active role in shaping the future

• Explore opportunities in supporting technologies

-Widgets, wires, transformers, etc.

Questions

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