TODAY’S STUDY: THE EV THIS YEAR

Electric Vehicles: 10 Predictions for 2011
John Gartner and Clint Wheelock, 4Q 2010 (HybridCars.com and Pike Research)

(Analysts for Pike Research foresee these 10 trends this year in the battery electric vehicle sector: (1) The biggest portion of plug-in vehicle drivers won't be owners; (2) EV owners will express dissatisfaction about vehicle charging time; (3) The U.S. will see stop-start vehicles in small numbers; (4) EV charging stations will go under-utilized; (5) Small numbers of fuel cell vehicles will be sold to fleets and consumers; (6) An isolated bad EV experience will be over-hyped by the media; (7) M&A activity will heat up in the advanced battery sector; (8) Real "range anxiety" will be hard to find; (9) Four-wheeled EVs won't be the sector's best sellers; and (10) The charging equipment sector will shift toward becoming a commodity market. Details below.)

The electric car will get its revenge in 2011 (along with a movie sequel) as many of the world's largest automotive OEMs begin selling thousands of plug-in electric vehicles (PEVs) to consumers. Sales of charging infrastructure and PEVs, including both plug-in hybrids and battery electric vehicles, got off to a slower-than-anticipated start in 2010, with only a few vehicles being delivered at the end of December. Consequently, 2011 will be a year to make up for lost time. Rental fleets and car share programs will play an important role in providing many consumers with their first hands-on experience with a PEV.

Electric vehicle rollouts will receive considerable attention and scrutiny as the industry watches to see whether they meet up with consumer expectations. The PEVs' market performance will influence automakers' plans to introduce more models and to ramp up production. Any glitches in meeting production deadlines for vehicles or batteries and/or any negative consumer reaction will be magnified by the high level of interest.

Battery electric vehicles will serve as a secondary vehicle for most households, while plug-in hybrids, with their long driving range, can serve as the primary vehicle. The notion of range anxiety will be largely dispelled through a combination of driver education and the emergence of strategically placed charging spots. While charging stations were installed by the handful in pockets around the globe in 2010, 2011 will see the installation of hundreds of charging stations in cities such as London, Barcelona, San Francisco and Nashville.

While many of these charging stations are likely to be underutilized initially, by 2012 they will be in greater demand as owners begin to travel further with their vehicles and become more familiar with where and how often to charge.

Another electric vehicle category that will continue to develop is the fuel cell vehicle, which will remain on its slow drive toward a planned commercial launch in 2015 through larger fleet and consumer evaluations. Two-wheel electric vehicles will see strong growth globally, and the market in North America is expected to grow by 27% in 2011. Pike Research has identified 10 key trends that will steer the course of PEVs for the remainder of the decade.

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1. The majority of people who drive a plug-in vehicle won't own it.

There was much ado about the first sales of the Nissan Leaf and Chevrolet Volt to consumers in the United States in December. But thanks to car rental fleets, taxis, and car share programs, firsthand exposure to PEVs will ultimately be more influential than individual sales. During 2011, the number of Nissan Leafs, Chevrolet Volts, Mitsubishi i-MiEVs, and other PEVs will be limited as automakers ramp up manufacturing capacity.

While the industry builds the necessary infrastructure to grow PEVs from a niche to a mainstream market, rental and taxi programs will be key to enhancing the visibility of these vehicles and broadening consumer awareness. Avis, Hertz, and Enterprise are all incorporating PEVs into their fleets, while car sharing programs such as CuseCar.org, City Car Share, Google's Gfleet, France's Autolib, and Norway's Move About will put thousands of non-owners behind the wheel of an EV. Chevrolet will make the Volt available through friendly lease terms that are likely to influence consumers’ ownership decisions.

Thousands more will experience the quiet and quick acceleration of a PEV from the back seat of taxis in London, New York, Tokyo, San Francisco and other cities.

Fleet operators can better afford the higher initial investment for PEVs because of the cumulative effect of tax credits, the possible reduction in operating expenses, and their ability to charge a premium for hourly rates – all of which result in a much more rapid return on investment. GE, for one, has made a substantial commitment to purchasing PEVs because of the potential operating expense savings as well as carbon reductions. For consumers looking to rent a car, a PEV can be a matter of convenience, allowing them to avoid out-of-the-way trips to refuel. If charging is convenient (such as staying at a Sheraton Hotel with a charge spot), then the savings over returning a less-than-fully-fueled gas vehicle can more than make up for the rental premium.

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2. Automakers will get pushback from EV owners regarding the length of time it takes to fully charge a vehicle.

Most charging will occur overnight, enabling owners to wake up to a fully charged vehicle battery without concern for the speed with which it was charged. However, there will be instances where charging is more time-sensitive, such as when a depleted battery needs to be charged in the few hours between coming home from work and going out for an evening on the town. The majority of charging equipment offers Level II charging (as defined by the Society of Automotive Engineers), which has a maximum charge rate of 7.2 kW and cost in the range of $1,000 to $2,000 plus equivalent installation and permitting fees. But none of the available consumer vehicles – the Nissan Leaf, the Chevrolet Volt, or the Mitsubishi i-MiEV – are yet capable of charging at the full Level II rate. Because the standard (known as J1772) was not yet finalized when the vehicles were first being developed, the automakers decided to take the cautious (and less- expensive) approach of installing onboard charging equipment that provides a maximum of 3.3 kW to the batteries. In the case of the Nissan leaf, a full charge that could have been completed in less than 4 hours takes 8 hours.

Some consumers are likely to feel they have overpaid for their charging equipment or were shortchanged with their vehicle. Purchasing charging equipment is strongly recommended for safety reasons, and, even at the less-than-optimal rate, will charge PEV batteries at more than twice the rate of a standard wall outlet. However, automakers are likely to feel pressure to upgrade their vehicles to support the top Level II rate.

3. Stop-start vehicles will arrive in the United States, albeit in small numbers.

Automakers have been adding stop-start technology, which offers significant fuel savings and emissions reductions, to vehicles for the European market. For the added cost of $300 to $500, stop-start vehicles will cut the engine when the brakes are applied and when the vehicle is stopped, providing a fuel savings of 8% to 15% over traditional vehicles. Stop-start vehicles, which use a larger battery or ultracapacitors to store energy for starting the vehicle, are not hybrids because they do not have an electric motor. While originally aimed at diesel vehicles to meet more stringent NOx reduction requirements in Europe, stop-start technology is now being incorporated into gasoline vehicles.

Unfortunately, due to an overcorrection to a previous test that inflated hybrid mileage by including frequent stops, the current U.S. EPA drive cycle test used to for determining MPG ratings does not account for this fuel savings. Although consumers would experience better fuel economy, the inability to advertise such reductions on the vehicles' window stickers has left automakers reluctant to add the cost. In 2010, however, BMW and Porsche offered the first U.S. vehicles with stop-start technology, and several manufacturers are likely to follow suit during 2011. Several Tier One suppliers have stop-start systems available and, with Europe providing the volume to reduce costs even more, stop-start will begin to make an impact in North America.

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4. Many EV charging stations will spend the majority of their time idle.

Public charge spots are being installed to provide convenient access for drivers. Thanks in part to federal stimulus funds, charging stations are being installed outside of restaurants, along highways, and at gas stations. One of the primary benefits to consumers is the alleviation of "range anxiety": Drivers will know that charge spots are available close by should their batteries become nearly depleted.

The strategy of installing an extensive network of charging equipment may be good for PEV owners and automakers, but the charging equipment owners themselves are unlikely to see a business benefit in the near term. During 2011 and 2012, the penetration of PEVs will be insufficient to result in many visits (if any) to charging spots per day. The most popular spots will be within high traffic areas that involve an extended stay, such as a structure adjacent to an area where people work (or leave their cars during work) or spend leisure time, such as at entertainment or shopping complexes. For convenience sake, the vast majority of charging will occur at home, allowing owners to avoid out-of-the-way trips to charge at a gas station or roadside stop. Since most EV owners will own a second vehicle, the number of long journeys requiring frequent recharging will be few.

5. Fuel cell vehicles will be sold to fleets and consumers in small but growing numbers.

Major automakers including Toyota, Daimler, Hyundai and GM have pledged to produce fuel cell vehicles for consumers by 2015 or earlier. Hyundai, Honda and Daimler have stated that small production fleets will be available between now and 2012. Daimler recently began leasing its B-Class fuel cell car, making a commitment to produce 70 for California out of a global fleet of 200. Honda, which has produced the FCX Clarity FCV since 2008, has delivered fewer than 50 to customers to date, but has promised to produce a total of 200. Hyundai says it will begin small-scale production in 2012.

Getting these vehicles on the road is a significant milestone as automakers will need to have final production designs ready by the end of 2013. A successful launch of even a few hundred vehicles would indicate just how serious the auto companies are about fuel cell technology and that they are indeed preparing to hit the 2015 target. Unfortunately, the fuel cell car industry has seen past commercialization targets come and go, so industry credibility is at stake.

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6. Someone somewhere will have a bad EV experience and the media will overreact.

Like any other vehicle, an EV can be improperly maintained or operated. Because EVs are "new" technology that has been viewed askance by those in the industry and the media who want to perpetuate the dominance of the internal combustion engine, any misstep or glitch will receive considerable attention. The first time a driver is left "stranded" by running out of charge will be cause célèbre for the doubters to highlight the superiority of gas cars.

The process of charging a battery subjects both the owner and the vehicle to an entirely new range of environmental factors. While safety standards and fail-safes are in place (e.g., cutting power if cords are pulled out of charging station equipment or when charging is complete), no system is foolproof, and an incident is likely to occur. The potential also exists for EV owner frustration if vehicles do not achieve their advertised all-electric driving range. Just as with MPG ratings, the driving range numbers are based on typical driving patterns and conditions; Heavy-footed drivers and trips taken in extreme weather will substantially reduce the driving range, which, while expected, will still cause frustration and garner attention.

7. The advanced battery category will heat up with M&A activity.

The advanced battery category has been among the most active in public and private research funding during the past few years. More than a dozen lithium battery chemistries are in development, including combinations with titanates, polymers, iron phosphates and manganese oxides. Competing technologies include nickel metal hydride (NiMH), valve regulated lead-acid (VRLA), and lithium metal air batteries. The American Recovery and Reinvestment Act (ARRA) of 2009 provided more than $1.5 billion for energy storage research, and some of these technologies will soon be ready to move from the lab to the plant.

The universe for battery companies has become saturated, and the market is not likely to sustain the current number of independently operating companies. Automotive and grid energy storage customers are looking for solutions providers that can serve all their needs. However, to provide such a one-stop shop often requires access to multiple technologies, and this creates a major incentive for companies to join forces. Startup companies that have created new intellectual property may not have the financial resources to produce batteries in sufficient volumes to reduce costs, and will be likely targets for larger competitors. The storage industry has seen a great number of international technology sharing agreements and memorandums of understanding between major and minor players. During 2011, a number of these exploratory relationships will be cemented through mergers and acquisitions as established companies look to extend their technology portfolios to better serve their customers.

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8. "Range anxiety" will prove to be more fiction than fact.

Range anxiety is a term used to describe vehicle owners’ concerns about running out of battery power and not being able to make it to their destination. It is thought that this fear will make buyers hesitant to consider EVs and prompt many owners to use only a portion of their available battery power. The number of available and known public charging stations today is infinitesimal compared to the ubiquity of gas stations. The driving habits of Mini E owners who participated in a pilot project indicated that in most cases the battery was rarely depleted to below half, which some said was proof of range anxiety. But according to Pike Research analysis, the underutilization of an EV’s potential driving distance may be more a function of daily driving habits than range anxiety: Traveling 30 or fewer miles per day is the established pattern for most drivers, even those in gas powered cars.

EV owners will be required to make many adjustments while getting to know their new vehicles, one of which will be learning how far they can travel before needing a charge. Owners are likely to adjust quickly, aided by an abundance of reminders provided both in vehicle and via mobile phone applications. Automakers have been sensitive to range anxiety, providing both visual and auditory notifications of battery charge status as well as offering maps and information about how far they can travel, and navigation tools to direct drivers to charging spots. Most EV owners will have a second vehicle or will rent a vehicle for infrequent long trips because of the current limitations in charging infrastructure. Knowing how far you can drive before you need to refuel is a skill that all car operators have mastered, and EV ownership will be no different.

9. The best-selling EVs won't have four wheels.

The market for passenger EVs is nascent and small when compared to the entire light-duty fleet, but the market for all forms of electrified personal transportation is well-established. Electric two-wheeled vehicles, including bicycles, scooters and motorcycles, comprise a huge global market that will continue to overshadow electric passenger vehicles for the foreseeable future.

Pike Research forecasts that more than 53 million electric two-wheeled vehicles will be sold in Asia Pacific in 2011, more than three times the entire North American light-duty auto market. China is by far the largest market, with more than 48 million sales projected. In North America, two-wheeled EV sales will outnumber passenger PEVs by approximately 8:1 in 2011, but the gap will be narrowed to close to 2:1 by 2015 due to more rapid growth in passenger vehicle sales. In North America, e-bikes will represent 97% of all two-wheeled EV sales in 2011, and will dominate through 2016. The fastest growing market for two wheeled EVs will be the Middle East and Africa, where the combined annual growth rate between 2009 and 2016 will be 54%. Two-wheeled vehicles have the advantage of removable battery packs, and do not require a charging infrastructure.

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10. The landscape for charging equipment will undergo a seismic shift as the category swiftly moves toward becoming a commodity market.

The majority of electric vehicle supply equipment (EVSE) being installed today comes from relatively smaller niche companies, including Coulomb Technologies, AeroVironment and ECOtality. These companies have benefitted from high margins and from demand that is less price-sensitive due to tax incentives and federal funding that can cover the majority of the cost. In 2011, the market will quickly become crowded as larger entities with experience in delivering power to buildings and appliances jump in with their own offerings.

Large and established companies including Eaton, GE, Leviton, and Siemens will begin shipping EVSE during the year, which will drive down costs through both innovation and greater manufacturing capacity. These companies have an inherent advantage in scaling technology and have longstanding relationships in the building energy efficiency industry. Smaller competitors will counter by leveraging their momentum and existing relationships with customers within the metropolitan regions that are most aggressively pursuing EVs and charging infrastructure. The annual global shipments of EVSE will surpass 300,000 in 2011, and surpass 1 million by 2014. When EVSE becomes a commodity product in the next few years, many of today's EVSE leaders will likely either ally themselves with larger companies or be acquired by them.