global electric car industry

CASE: SM-175

DATE: 09/10/09

Debra Schifrin prepared this case under the supervision of Professor Robert A. Burgelman and Andy Grove as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. Copyright © 2009 by the Board of Trustees of the Leland Stanford Junior University. All rights reserved. To order copies or request permission to reproduce materials, e-mail the Case Writing Office at: [email protected] or write: Case Writing Office, Stanford Graduate School of Business, 518 Memorial Way, Stanford University, Stanford, CA 94305-5015. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means –– electronic, mechanical, photocopying, recording, or otherwise –– without the permission of the Stanford Graduate School of Business.

THE GLOBAL ELECTRIC CAR INDUSTRY IN 2009: DEVELOPMENTS IN THE U.S., CHINA, AND THE REST OF

THE WORLD

I believe strongly that this country has to get off oil…. The electrification of the automobile is inevitable. If some Silicon Valley start-up (Tesla) can solve this equation, no one is going to tell me anymore that it is unfeasible. This is like JFK and the moon shot.

—General Motors Vice Chairman Bob Lutz, Newsweek, December 31, 2007

INTRODUCTION

In 2009, the U.S. had about 250 million cars on the road, 40,000 of which were electric vehicles. Most of these had a range of 20 miles, a speed of 25 miles per hour, and were generally used for fleet applications, checking parking meters, and transporting people and clubs across golf courses.1 But the electric car industry was poised to take a giant leap forward. Brand new start-ups as well as established automakers were jumping into the electric car, hybrid retrofitting, and battery- making industries. Funding for these projects continued to come in, despite the troubled fortunes of the car industry in general in 2008 and 2009. VC firms were investing hundreds of millions of dollars in promising start-ups, while existing companies were spending billions of dollars designing new cars and battery technology as well as building new battery plants. Some companies already had electric cars on the road, while others were pushing to have electric cars and so-called “plug-in hybrid electric vehicles” (PHEV) available by late 2009 or 2010. (See Exhibit 1 for comparison chart of hybrid, plug-in hybrid and electric cars.)

1 John Addison, “Electric Cars for 2010,” Clean Fleet Report, June 4, 2008.

This document is authorized for use only by manuel valenzuela ([email protected]). Copying or posting is an infringement of copyright. Please contact [email protected] or 800-988-0886 for additional copies.

The Global Electric Car Industry in 2009: Developments in the U.S., China, and the Rest of the World SM-175

p. 2

Large-scale transformation of the automotive industry from oil dependence to reliance on electricity would require tremendous changes in manufacturing and marketing. In addition, the success of the electric car depended on the construction of a massive infrastructure of charging stations that would allow electric car owners to charge or swap out their batteries. These charging stations could be simple boxes with electric outlets located in people’s garages or on the street next to parking meters. They could also be similar to gas stations with employees and service stations. Plugging into the electricity grid meant that utility companies had to be partners as well, and in 2009 they were just beginning to work with car companies, exploring ways to ensure that car owners could get enough electricity at an affordable price. Another challenge was that many people around the world, for example in China, lived in apartments without garages, and so would be reliant on public charging stations. Although it was unclear exactly what role the U.S. government would play, in 2008 it had begun talking about the energy crisis in earnest in response to both skyrocketing gasoline prices and a national mood that favored decreasing the U.S.’s dependence on foreign oil. These discussions included debates about offshore oil drilling, but also included plans for providing subsidies and other incentives for electric vehicle owners and manufacturers. When President Barack Obama entered office in 2009, he made energy independence one of his core issues, and his administration allocated billions of dollars to promote electric vehicle manufacturing and development of advanced batteries for those vehicles. In China the government was offering subsidies of thousands of dollars for buyers of “new energy cars,” including hybrids, electric cars and fuel cell-powered cars. The subsidies varied in amount by region, type of buyers, and type of vehicle. Other governments were even more active partners. In Israel, for example, the government was working with Silicon Valley start-up Project Better Place and established car companies Renault and Nissan to bring the electric car to Israel, and had committed to offering substantial tax incentives to consumers who would buy electric cars.2 Denmark was also working with Renault and Nissan, and with Project Better Place, to build a country-wide electric car network with 20,000 recharging stations powered by wind turbines.3 In Japan, the government pledged to install power outlets throughout public areas in certain cities and towns, and planned to encourage private companies to give discounts on loans, insurance and parking to electric car owners.4 The electric car industry, however, faced many obstacles, including the very high cost of batteries and battery technology, which was still evolving. At the same time, designers of internal combustion engines (ICE) were relentlessly pushing to make the ICE more efficient and get significantly better gas mileage. In late 2009, it was not yet clear how the structure of the emerging global electric car industry would take shape. However, both established car companies and a plethora of start-ups were jockeying for strategic position and trying to secure early-mover advantages. Similarly, many 2 Bill Vlasic, “Nissan Plans Electric Car in U.S. by ’10,” The New York Times, May 13, 2008. 3 “Denmark’s Electric Car Network Will Use Wind Power,” Environment News Service, April 1, 2008. 4 Jonathan Soble, “Japan Fuels Electric Car Revolution,” The Financial Times, August 25, 2008.



p. 3

nations had become aware of the rapidly growing strategic importance of the emerging electric car industry, and their governments were actively pursuing policies to ensure that their own established and new companies would be best equipped to become market leaders. This industry note first describes the major policies of governments of the U.S., PRC and other nations (rest of the world) in relation to the emerging global electric car industry. A discussion of the key non-government players in the emerging global electric car industry in the U.S., China and rest of the world follows. The note also reports some of the responses of existing technologies (the ICE) to the competition of electric cars, and in relation to shifts in demand toward more fuel-efficient vehicles.

THE ROLE OF GOVERNMENTS IN SHAPING THE GLOBAL ELECTRIC CAR INDUSTRY IN 2009

The U.S. Government When he came into office, President Obama set a goal of having 1 million electric cars on the road by 2015.5 By September 2009, there were already multiple efforts underway to make that a reality. (See Exhibit 2 for U.S. government programs to promote the electric car.) The U.S. Department of Energy had a $25 billion direct loan program, called the Advanced Technology Vehicle Manufacturing Loans Program, to develop electric-powered cars and improve battery technology. Big recipients included Ford ($5.9 billion), Tesla Motors ($465 million), and Nissan (1.6 billion). The money for Japan-based Nissan was allotted for building batteries and electric cars in Tennessee. In addition, in August 2009 President Obama awarded $2.4 billion from the American Recovery and Reinvestment Act to push forward electric car manufacturing in the United States. $1.5 billion of that went to U.S.-based manufacturers to produce batteries and battery components, and to expand battery recycling capacity. $500 million went to U.S.-based manufacturers to produce electric drive components for vehicles, including electric motors, power electronics, and other drive train components. $400 million was set aside for purchasing thousands of PHEVs and electric vehicles for test fleets, and for installing electric charging infrastructure.6 The grants were to cover 48 projects in over 20 states.7 Recipients of this money included General Motors ($241 million) for their plug-in hybrid the Volt; Compact Power, an affiliate of LG Chem ($151) for production of cells for the Volt; Ford Motor Company ($30 million) and Chrysler ($70 million). The administration also committed $11 billion to upgrade the nation’s power grid to prepare for introduction of electric vehicles in the U.S., and allocated an additional $15 million to explore the purchase of alternative-powertrain vehicles such as electric vehicles for the General Services Administration fleet.8 5 Eric Mayne, “Future Shock,” Ward’s Autoworld, June 2009. 6 DOE press release, August 5, 2009. http://www.energy.gov/news2009/print2009/7749.htm 7 White House press release, “President Obama Announces $2.4 Billion in Grants to Accelerate the Manufacturing and Deployment of the Next Generation of U.S. Batteries and Electric Vehicles,” August 5, 2009. 8 Eric Mayne, loc. cit.



p. 4

On the consumer side, government incentives existed for buying fuel-efficient cars. As part of the American Recovery and Reinvestment Act, customers received a $7,500 consumer tax credit for the purchase of an Electric vehicle or plug-in hybrid. There were similar incentives in place for other alternative fuel vehicles, such as natural gas or methanol, and for fuel cell vehicles.9 The government also passed a “cash for clunkers” program in June 2009, which provided government incentives of $3,500 to $4,500 to consumers who traded in older, less fuel-efficient cars for new, more fuel-efficient ones. The program was extremely popular, with the $1 billion allocated for the program running out within two months. Congress subsequently allocated an additional $2 billion for the program. However, there was no mandate in the “cash for clunkers” program that the new vehicles had to be conventional or plug-in hybrids or electric vehicles. Therefore many observers felt that the program, as it was implemented in 2009, was primarily a short-term economic stimulus measure, rather than an effort to promote the electrification of cars. The automobile industry saw government support for battery technology as crucial for American car makers to be competitive in the electric car industry, as well as to further the country’s energy security. In a June 2008 speech on the federal government’s role in the development of electric cars, Mark Fields, Ford Motor Company’s executive vice president and president for the Americas, noted:

Most battery supply is currently being developed in Asia. For those looking to plug-ins to answer our energy security concerns, we must ensure a domestic battery supply. Moving from imported oil to imported batteries clearly would not address this growing concern. The governments of Japan, China, Korea, and India are significantly funding the research, development and deployment of plug-in hybrid vehicle technologies. Government should be a key partner in promoting American manufacturing and the fight against global warming―and for energy security. We won’t be successful unless industries and governments are all working together.10

Field advocated creating a new industry/government partnership to aggressively advance battery research and development, injecting significant federal funds into advanced plug-in vehicle technologies, and enacting one national standard for fuel economy―rather than allowing a patchwork of state and federal regulations to rise up.11 Questions also remained about whether the scale of government funding, essentially $25 billion in loans, $2.4 billion in grants and $7,500 consumer tax credits, was sufficient to help jump-start the electric car industry. By comparison, General Motors’ R&D budget for 2007 alone was $8.1 billion dollars.12

9 Joseph Smith, “Energy Saving Tax Breaks for the 2006 Tax Year,” Locumlife, February 2006. 10 ‘Plug-In Electric Vehicles 2008: What Role for Washington?” Conference speech by Mark Fields, June 11, 2008, http://media.ford.com/article_display.cfm?article_id=28425. 11 Ibid. 12 David Welch, “Live Green or Die,” BusinessWeek, May 26, 2008.



p. 5

The PRC Government

In 2008, China’s hybrid and all-electric vehicle production capacity was 2,100, and according to government officials and Chinese auto executives, China wanted that number to hit half a million, or 5 percent of the market, by the end of 2011.13 Some in the government hoped that number would be closer to 1 million per year.14 China also wanted to turn the country into a global leader in hybrid and electric cars within three years.15 Within that time, each of the country’s passenger vehicle makers would be required to have a licensed new energy vehicle on the market. China also wanted to hit battery capacity that would be equal to 1 million units of battery-powered automobiles in operation.16 To reach these goals, municipal governments in 13 “test” cities were offering up to $8,800 in subsidies to taxi fleets and local governments for hybrid and all-electric vehicles.17 Subsidies for private purchases were to be added later in 2009. (See Exhibit 3 for PRC government programs to promote the electric car.) The goal was to put 60,000 low-fuel-consumption vehicles on trial. The subsidies were up to $7,300 for hybrid cars, $8,800 for pure electric cars and up to $36,000 for hydrogen cars. These vehicles had to be approved for mass market by China’s industry regulator. In addition, China’s State Council (China’s cabinet) also enacted the Automotive Industry Revitalization Program, which allocated $1.5 billion over three years to be spent on new energy vehicles, technology upgrades, and dedicated parts and components.18 Other goals of the program were to help independent vehicle brands, and push forward independent innovation and industry consolidation.19 China felt that its automotive industry, including the electric vehicle industry, would be more competitive with a few strong players rather than many smaller companies. The program also mandated that 50 percent of government-owned automobiles would have to be independent brands and trademarked as “registered in China.” 20 This program was in addition to China’s National High Technology Research and Development Program, or 863 program, which had a mandate and $285 million in funding to support electric vehicles and battery technology development.21 China also had a program similar to the United States’ “cash for clunkers.” Older vehicles that did not meet certain environmental standards could be traded in for newer vehicles with a subsidy attached. For rural residents, the government gave a 10 percent subsidy to those

13 Keith Bradsher, “China Vies to Be World’s Leader in Electric Cars,” The New York Times, April 2, 2009. 14 “The Revolution Begins Now – PRC to Get Electric Car Charging Stations,” China Car Times, September 16, 2008. 15 China Auto, May 2009. 16 “Automotive Revitalization Program to Be China’s New Industry Policy,” China Automotive Information Net, April 4, 2009. 17 Keith Bradsher, op. cit. 18 “China Offers Subsidization Alternative Fuel Vehicles on Trial Operation in 13 Cities,” China Automotive Information Net, June 6, 2009. 19 Ibid. 20 Ibid. 21 China Automotive Review, December 2008.



p. 6

replacing aged cars or three-wheeled vehicles with vehicles that had engines of 1.3 liters or less, or small trucks.22 In early 2009, the government increased the budget for these subsidies from $150 million to $900 million. As with the United States, there was no mandate that these new vehicles be conventional or plug-in hybrids or electric vehicles. China’s efforts in the electric car space were carried out in conjunction with its overall goal to build up its domestic auto industry. China saw the opportunity to capture its own growing market as well as to export cars, which it believed it could make more cheaply, to the rest of the world. As with the United States, questions remained about whether the PRC government was making a significant enough contribution to the electric car industry specifically to effectively jump-start the industry.

Rest of the World

Many governments around the world were taking steps to bring electric cars to their countries. In Germany, for example, the government was providing about $700 million dollars to build an electric car charging infrastructure and support research and development of battery technology. Germany had a goal of putting 1 million electric cars on the road by 2020, growing to 5 million by 2030. Five million cars was the equivalent of about 10 percent of the existing car fleet.23 The British Government was offering $3,250 to $8,000 to each consumer who bought an alternative fuel vehicle. In addition, the government was giving $160 million to manufacturers for R&D and building production capacity. Another $33 million was to be allocated to select cities for building charging stations.24 Israel, Denmark, Japan, and Portugal were working closely with start-up Better Place to build a nationwide infrastructure for electric cars and to promote electric cars through tax rebates and lower car taxes. (See more on Better Place later in this note.) In addition, Japan was looking to turn its postal fleet of 22,000 vehicles into electric vehicles. In South Korea the government created a consortium of government officials, auto executives and battery makers to work together to speed up the development of electric vehicles.25 There were many more examples such as this all across the globe.

ELECTRIC CAR INDUSTRY IN THE U.S.

Start-Ups

There were several start-up electric car companies that had a head start on bringing electric cars to market. (See Exhibit 4 for chart of Electric Car and PHEV companies.)

22 China Auto, May 2009. 23 Peter Wells, “Can Germany Dominate the Electric Vehicle Industry?” Automotive World, August 24, 2009. 24 James Murray, “Government to Offer £5,000 Incentives to Jump-start Electric Car Market,” BusinessGreen, April 16, 2009. 25 Eric Loveday, “South Korea Establishes Consortium for Electric Vehicle development,” All Cars Electric, June 21, 2009.



p. 7

Tesla Motors U.S.-based Tesla Motors, founded in 2003, already had an all-electric high-end sports car on the road. The Tesla Roadster got 220 miles per charge, could go from 0 to 60 miles per hour in 3.9 seconds, and cost $109,000. As of August 2009, Tesla had delivered about 700 Roadsters, and had orders for hundreds more. In July 2009, Tesla announced it achieved its first month of profitability.26 In 2011, Tesla was scheduled to come out with the Model S, a sedan with the same miles per charge as the Roadster, for an anticipated base price of about $57,500 ($50,000 after a $7,500 U.S. federal tax rebate). The company planned to ramp up to produce 20,000 of these sedans a year and hoped that by 2012 it could produce an all-electric car for under $30,000.27 The company was also conducting research and development focused on providing lithium-ion battery technology and manufacturing engine components for Daimler’s new all electric two-seat Smart City car. Daimler acquired about a 10 percent stake in Tesla in May 2009.28 Daimler then turned around and sold 40 percent of its stake to an investment firm in Abu Dhabi-based Aabar Investments in July 2009. Tesla had raised almost $200 million in investment dollars.29 Investors included Valor Equity Partners, Vantage Point Venture Partners, Technology Partners, Jeff Skoll, Sergey Brin, Larry Page,30 and JP Morgan Bay Area.31 Tesla also got a boost when Bank of America decided to finance the Roadster in the U.S., making buyers eligible for a loan of up to 75 percent of the value of the car, with five years to pay it off. 32 In addition, Tesla received approval for $465 million dollars in low income loans from the Department of Energy’s (DOE) Advanced Technology Vehicles Manufacturing program. It planned to use $365 million of that for production engineering and assembly of the Model S. 33 It planned to use the other $100 million to move its headquarters and build a new 35,000 square-foot powertrain production facility at Stanford Research Park in Palo Alto. Regarding its role in the electric car industry, Telsa’s founders believed that they had helped stimulate a new market by proving the feasibility and technological readiness of the industry. But the question remained as to whether Tesla would be a niche player, given the high price of its electric cars, or whether it would be able to mass-market its cars.

26 Scott Duke Harris and Tracy Seipel, “Tesla Moving Headquarters and Powertrain Operations to Palo Alto,” San Jose Mercury News, August 18, 2009. 27 Fareed Zakaria, “A Tesla in Your Future? PayPal’s Cofounder Hopes to Produce a Practical $30,000 All-electric Car in Four Years,” Newsweek, July 12, 2008. 28 Scott Duke Harris and Tracy Seipel, op. cit. 29 Michael V. Copeland, “Tesla's Wild Ride,” Fortune, July 9, 2008. 30 Tesla Motors website http://www.teslamotors.com/media/investors.php 31 Red Herring, October 7, 2007. 32 Ken Bensinger, “Bank of America Takes Some Sting off of Tesla Price Tag,” The Los Angeles Times, July 14, 2009. 33 Dan Strumpf, “Tesla Investors Bank on Mass Produced Electric Cars,” Associated Press, July 14, 2009.



p. 8

Aptera U.S.-based Aptera was producing a vehicle with two front wheels and one rear wheel, which could fit two adults and one child. The vehicle was classified as a motorcycle and was available in both all-electric (the 2e) and PHEV (2h) versions. The cars would range in price from $25,000 to $40,000, depending on options and power train.34 The electric car was to go on the market in late 2009, and the PHEV was to come out in 2010. Aptera investors included Idealab, Esenjay Investments, the Simons Family, the Beall Family Trust, and Google.35 However, the government considered Aptera ineligible for part of the $25 billion dollars slated for energy-efficient vehicles because the vehicle had three wheels. Some observers wondered whether Aptera would be able to compete without government funding, which was proving so important to other electric car start-ups.

Fisker Automotive In May 2008, American start-up Fisker began testing the Karma, a plug-in hybrid that could go from 0 to 60 mph in less than 6 seconds. The Karma could drive 50 miles per charge, and had a top speed of 95 miles per hour in all-electric mode, and 125 miles per hour in “sports” mode. Sports mode utilized a small internal combustion engine to charge the batteries. Consumers had the option of buying a solar panel for the roof that would help charge the car and cool the inside cabin. The car contained a small gasoline internal combustion engine that charged the lithium-ion battery pack, which in turn powered the electric motor. Fisker planned to bring the Karma to market in the second half of 2010,36 and grow production to 15,000 cars a year. The car would cost $88,000.37 In total, Fisker had raised $176 million dollars. Much of that came from Qatar Investment Authority, an investment firm based in oil-rich Qatar. 38 Kleiner Perkins Caufield and Byers was also a major investor. 39

Miles Electric Vehicles Miles Electric Vehicles was founded in 2004 and produced low-speed all-electric vehicles mostly for university and government fleets. Its low-speed car, the ZX40S Advanced Design Car cost $19,900 plus $895 for inland freight and delivery. It had a maximum speed of 25 miles per hour and a range of 40-50 mph. Its low-speed truck, the ZX40ST Work Truck, also cost $19,900 with a $795 inland freight and delivery charge. The truck had a maximum speed of 25 miles per hour and an estimated range of 30 to 40 miles.40 The company was based in Los Angeles, and the cars were made in China.

34 Aptera website FAQ http://aptera.com/faqs.php. 35 “Aptera Moves One Step Closer to Production of Its Ultra-Efficient Type-1 Vehicle; Aptera Motors Raises More than $24 million in Series C Funding from Idealab, Google Inc, and Others,” BusinessWire, July 24, 2008. 36 Fisker website, http://www.fiskerautomotive.com/technology. 37 Kristen Schott, “Irvine-based Fisker’s Karma Makes Public Driving Debut,” OCMetro, August 19, 2009. 38 “Fisker Secures $65 Million in Funding,” Left Lane, September 9, 2008. 39 “Fisker Automotive Receives Major Investment from Kleiner Perkins Caufield & Byers,” The Auto Channel, January 14, 2008. 40 Miles Electric Vehicle website, http://www.milesev.com.



p. 9

Next up for Miles Electric was their highway-capable electric vehicle, the XS500 (under the brand name Coda Automotive). The car would be able to go 80 mph and had a range of 120 miles per charge. The exact U.S. price had not been determined, but the company said the base price would probably be around $45,000. The XS500 was based on the Hafei Siabao, made by Hafei in China (see later section on Hafei). A few hundred of the XS500s would be test marketed in the first half of 2010 and available to the public in the fall of 2010. Miles Electric planned to build 3,000 cars in 2010 and had the capacity to reach 20,000 vehicles a year.41

Incumbents − Big Automakers

Start-up companies may have had cars that were already on the road or in production, but incumbent automakers were not far behind, and they were putting a lot of muscle into the effort to catch up. Many giant automakers from the U.S., China, Japan, France, Germany and India were making large investments in the electric car, with hopes of getting their all-electric cars or PHEVs to major markets within a few years.

General Motors In September 2008, General Motors unveiled the much-anticipated Chevy Volt. The plug-in hybrid (PHEV) drove 40 miles on electric power, after which an internal combustion engine, which GM called a range-extending power source, kicked in to recharge the lithium-ion battery pack. The Volt had a top speed of about 100 miles per hour. In 2009, GM said that the Volt could reach a fuel efficiency of 230 miles per gallon, assuming one charge per day42 (although the method of calculation was still being debated). GM planned to produce the Volt for customers in November 2010,43 delivering 10,000 cars the first year. (In 2008, 13.2 million new cars and trucks were sold in the United States, of which about 3 million were GM brands.44) Over a year before its planned release, the Volt had an unofficial waiting list of over 50,000 people.45 GM had been frantically working to get the Chevy Volt out in time.46 The company’s 2007 Research and Development budget was its largest in a decade, $8.1 billion up from $6.6 billion the year before47 (although R&D was cut by an undisclosed amount when GM went into bankruptcy negotiations). In 2008, GM had 200 engineers and 50 designers working on the Volt, with 400 more working on related components.48 In the summer of 2009, GM had not released the sticker price for the Volt, but was estimating that it would be between $35,000 and $40,000 (before the $7,500 consumer tax rebate).49 This 41 Martin LaMonica, “Miles Electric Readies All-Electric Family Sedan,” Cnet, May 5, 2009. 42 Based on new EPA federal fuel economy methodology. Chevrolet website, www.chevrolet.com/electriccar. 43 Charlie Rose, “A Look at the New GM Volt with Designer Bob Lutz,” The Charlie Rose Show, August 19, 2008. 44 GM press release, “GM Announces 2008 Global Sales of 8.35 Million Vehicles,” January 21, 2009. 45 GM Volt website, http://gm-volt.com/wait-list-data. 46 Jonathan Rauch, “Electro-shock Therapy,” The Atlantic Monthly, July/August 2008. 47 David Welch, “Live Green or Die,” BusinessWeek, May 26, 2008. 48 Chevrolet website, www.chevrolet.com/electriccar. 49 Chuck Squatriglia, “Bob Lutz: Volt Is U.S. Car Industry’s Moon Shot,” Wired, January 15, 2008.



p. 10

was higher than GM had hoped, as the average price of a new car in the United States in 2006 was about $28,000.50 Much of the Volt’s price came from the cost of the battery, which was estimated to be about $10,000.51 (See more about automotive batteries in a later section of this note.) GM also had a second PHEV in the works, the Saturn Vue.52 The Volt was a large beneficiary of the $2 billion the U.S. government handed out for electric car and battery makers. Of the $241 million that GM received, $106 million was for production of batteries for the Chevy Volt. GM was designing the Volt’s battery pack with battery cells made by South Korea’s LG Chem. Another $30 million was for building 125 Chevy Volts for electric utilities and 500 for other buyers to use as part of a test fleet. $105 million more was to build factories in Maryland and Michigan to produce a second generation of electric cars. In addition to other advancements, one key change would be that these new cars would have rear-wheel drive, while the Volt had front-wheel drive.53 GM had a checkered history with electric cars. The company received negative publicity when it introduced and then quickly stopped producing its first electric car, the EV1, in the 1990s. A 2006 movie about the EV1, called “Who killed the Electric Car?,”54 showed GM crushing relatively new EV1s rather than sell or lease them to customers who wanted them. In total, GM leased only 800 EV1s,55 and lost a billion dollars on the car.56 However, GM appeared to be committed to the Volt. In late 2008, a high-level GM executive commented, “We’ll burn the furniture before we stop working on the Chevy Volt.” Soon afterwards, GM went through some high-profile economic woes, which included bankruptcy and a change in leadership. The question remained as to what effect those things would have on the Volt. Some analysts felt that a leaner, post-bankruptcy GM would be better situated to launch a brand new type of product. However, others felt that the company was under heightened pressure to show profitability, and the Chevy Volt was unlikely to find a mass market until the $40,000 price came down.

Ford Ford’s first electrified vehicle was slated to hit the market in 2010, and would be an all-electric commercial van called Transit Connect. The Transit Connect had a top speed of 70 miles per hour and could travel 100 miles on a single charge.57 That would be followed by an all-electric Focus compact car in 2011 and a plug-in hybrid in 2012.58 Ford had an experimental SUV fleet of 21 Escape plug-in hybrids.

50 Philip Reed, “How to Get a Used Car Bargain,” Edmunds.com. 51 Justin Hyde, “Hybrid Batteries: One more way we are dependent on foreign energy,” Detroit Free Press, August 15, 2008. 52 Michelle Maynard, “Toyota Will Offer a Plug-in Hybrid by 2010,” The New York Times, January 14, 2008. 53 Matthew Wald, “$2 Billion in Grants to Bolster U.S. Manufacturing of Parts for Electric Cars,” The New York Times, August 6, 2009. 54 Movie: “Who Killed the Electric Car?” Sony Pictures, 2006. 55 Anita Lienert, “Chevrolet Volt Takes a Giant Leap Forward,” Edmund’s Inside Line, June 3, 2008. 56 Don Sherman, “G.M. at 100: Is Its Future Electric?” The New York Times, September 14, 2008. 57 Evan McCausland, “2009 Geneva: Ford Transit Connect,” Automobile, March 4, 2009. 58 Matthew Dolan, “Ford Plans Vehicles to Tap Power Grid,” The Wall Street Journal, August 21, 2009.



p. 11

Ford received $5.9 billion in Energy Department loans to use toward retooling its plants in Illinois, Kentucky, Michigan, Missouri and Ohio in order to produce 13 fuel-efficient models. By 2011, Ford planned to produce 5,000 to 10,000 electrified vehicles a year.59 Ford also received about $90 million in grants from the Recovery Act to accelerate the launch and commercialization of PHEVs and EVs. Ford had also developed an on-board communications system to be used in its plug-in hybrids that allowed the car to talk with the electric grid. In doing so, drivers would be able to program the timing and length of their battery charges. As utility rates change based on time of day, this made it possible for drivers to control what utility rate they paid. This communication to the electric grid was made possible by wirelessly networking, using smart meters installed by utility companies. Ford was planning to equip its 21 experimental SUVs with this technology.

Chrysler LCC-Fiat Auto Group Chrysler was working on five models of electric cars as part of its ENVI range of vehicles; the Dodge Circuit EV, Jeep(R) Wrangler EV, Jeep Patriot EV, Chrysler Town & Country EV, and the Chrysler 200C EV concept car.60 ENVI was a new group within Chrysler, formed in 2007 to work on electric vehicles. First to hit the market would probably be the Dodge Circuit, a two-seat roadster, to be released in 2010. The sports car would go from 0 to 60 miles per hour in under 5 seconds and would have a top speed of 120 miles per hour.61 It had a range of 150 to 200 miles before needing a charge. Chrysler was also supplying a small test fleet of battery-powered minivans to the U.S. Postal Service.62 Chrysler’s goal was to have four electric vehicle models on the market by 2013, and to sell half a million of those vehicles by the same year.63 In April 2009, Chrysler partnered with U.S. battery maker A123Systems. The battery maker was planning a new production facility in Michigan where it would build battery cells, modules and packs for Chrysler.64 Chrysler received $70 million in grants from the Recovery Act to develop and deploy 220 advanced PHEVs pickups and minivans. However, Chrysler faced similar challenges to GM in that it had recently gone through bankruptcy and had merged with Italian automaker Fiat in order to stay alive. If its electric cars were not good sellers out of the gate, would Chrysler be able to continue to make them?

59 Mathew Dolan and John Murphy, “Nissan, Ford Plan Electric Push Aided by U.S.; Demand Is Uncertain,” The Wall Street Journal, June 24, 2009. 60 Chrysler website. 61 Peter Valdez-Dapena, “Chrysler Developing Electric Sports Car for 2010,” CNNMonday, April 15, 2009. 62 Matthew Dolan and John Murphy, op. cit. 63 Alex P. Kellogg and Neal E. Boudette, “Chrysler Plans Electric Car Push in 2010,” The Wall Street Journal, January 12, 2009. 64 Andrew Donoghue, “Chrysler Moves Electric Car Plans Up a Gear,” BusinessGreen, April 9, 2009.



p. 12

Battery Makers

The type of battery used in traditional hybrids (HEVs), such as Toyota’s Prius, was nickel metal hydride (NiMH), but for electric cars, a new type of battery was needed. Lithium-ion batteries were used in laptop computers and cell phones, and car makers were converting these batteries for use in electric cars because they were lighter and more powerful than the NiMH batteries.65 (See Exhibit 5 for a comparison of Lead Acid, NiMH and Lithium-ion batteries.) There were challenges with lithium-ion batteries. They were expensive to produce―the battery for the Chevy Volt would cost about $10,00066―and they generated too much heat.67 This problem was highlighted in 2006 when six Dell computers with Sony lithium-ion batteries caught fire, prompting Dell to recall 4.1 million notebook computer batteries.68 Nevertheless, most car makers had settled on lithium-ion as the electric car battery of the future, and battery makers were quickly ramping up production capacity of these batteries. In 2008, the market for hybrid batteries was $900 million, but the market for all advanced automotive batteries was expected to grow to between $30 and $40 billion by 2020.69 Lithium-ion batteries were first designed and developed in the United States in the late 1980s, but the Japanese company Sony was first to license the technology for manufacturing.70 As opposed to U.S. companies, Asian companies had 20 years of experience actually making rechargeable batteries. U.S. car makers found themselves concerned that they would be dependent on foreign sources of advanced batteries. Because of this concern, U.S. automakers applied for and received money from the federal government to help push forward U.S. electric car battery production. (See Exhibit 6 for a list of battery makers by country.) Regardless of where they were made, batteries were quickly becoming the bottleneck in the electric car industry. Most of the lithium-ion battery capacity was used for the nearly 200 million laptop computers and other handheld electronic devices built each year. Making enough batteries for just 1 million electric vehicles would require doubling the current manufacturing output.71

A123 Systems Boston-based battery makers A123 Systems, founded in 2001, quickly became one of the world’s leading lithium-ion battery suppliers. It supplied batteries for TH!NK, and it formed a strategic partnership with Chrysler in which it would produce batteries for Chrysler’s new electric vehicles. In August 2009, A123 received a $249 million grant from the U.S. Department

65 “Mitsubishi Plans Plant to Meet Battery Demand,” Automotive News, August 19, 2008. 66 Justin Hyde, “Hybrid Batteries: One More Way We Are Dependent on Foreign Energy,” Detroit Free Press, August 15, 2008. 67 Jerry Flint, “Electric Cars: They Need Gas,” Forbes.com, June 10, 2008. 68 Damon Darlin, “Dell Will Recall Batteries in PCs,” The New York Times, August 15, 2006. 69 John Murphy, “U.S. AutoMakers Target Battery Gap with Japan,” The Wall Street Journal, September 15, 2008. 70 Justin Hyde, op. cit. 71 Robert A. Burgelman, Andrew S. Grove, “Research Paper No. 2013. The Drive Toward the Electric Mile, A Proposal for a Minimum Winning Game,” Stanford Graduate School of Business Research Paper, February 2009.



p. 13

of Energy for building advanced battery production facilities in the U.S.72 A123 was required to match the funds over time as they were used. A123 System planned to build its manufacturing operation in Livonia, Michigan.73 The company also received $100 million in refundable tax credits from the Michigan Economic Development Corporation. A123 had raised more than $350 million74 in private equity from investors including Sequoia Capital, General Electric,75 Qualcomm and Motorola. Ener1 Indiana-based EnerDel, a subsidiary of Ener1, was an automotive lithium-ion battery company based in Indianapolis, Indiana. The company had strategic partnerships with Volvo, Nissan, Think, and Fisker. EnerDel was also working with Think Electric Drivetrain to work on Japan’s postal service conversion to electric vehicles. In August 2009, the company received $118.5 million dollars in federal grants as part of the U.S. stimulus package. The grant would allow EnerDel to double its U.S. production capacity.76

Johnson Controls-Saft Johnson Controls-Saft was a joint venture between U.S.-based Johnson Controls and France-based Saft that was a leading world supplier of lithium-ion batteries. In April 2009, Johnson Controls-Saft announced that it would build its first U.S.-based manufacturing facility in Michigan for lithium-ion hybrid batteries. The company already had a manufacturing facility in Nersac, France, where it was producing batteries for the Mercedes S-class hybrid, which was to hit the market in late 2009.77 Ford was also planning on using Johnson Control-Saft technology. In August 2009, the company was awarded about $400 million in federal grants.

Retrofitters

There were some companies that did not make electric cars, but instead converted or retrofitted existing cars to turn them into plug-in hybrids. This process was known officially as Aftermarket Fuel Vehicle Conversions (AFV). Conversions of small cars to PHEVs ranged in price from about $5,000 to $20,000, while conversions to all-electric cars were much more expensive, on the order of $55,000.78 The cost for converting trucks and SUVs to PHEVs ran about $60,000. The safety of these converted cars was still being debated. In June 2008, a converted Prius caught fire. Although the fire was blamed on improper installation, it still raised some questions about the readiness of lithium-ion batteries.

72 A123 Systems press release, August 5, 2009. 73 Ryan McBride, “A123 Systems Wins $249 Million Piece of DOE Grants,” Xconomy Boston, August 5, 2009. 74 Ibid. 75 Norihiko Shirouzu, “Race to Make Electric Cars Stalled by Battery Problems – GM, Toyota Seek Ways to Snuff Out Fire Risk; Start-Ups See Opening,” The Wall Street Journal, January 11, 2008. 76 Ener1 press release, “President Obama Announces EnerDel will Receive $118.5 Million Grant,” August 5, 2009. 77 Johnson Controls press release, “Johnson Controls-Saft Announces Plan to Build Lithium-ion Battery Plant in Michigan,” April 14, 2009. 78 Ibid.



p. 14

In addition, the high cost of these conversions raised the question of whether retrofitters could find a large enough market for their companies to survive, even as niche players. Some observers also felt that retrofitting cars was a short-term solution to be pursued until new PHEVs and electric cars hit the market. Investors might be wary of a company that only had a life span of a few years.

Small Car Conversions

A123’s Hymotion In 2007, Lithium-ion battery maker A123 acquired Hymotion, the leading fabricator of aftermarket plug-in hybrid modules.79 The company took 2004-2009 models of Toyota Prius hybrids and converted them into plug-in hybrids that used lithium-ion batteries. These cars were able to go about 100 miles per gallon, with an electric range of 30 to 40 miles. The Hymotion L5, a plug-in conversion module, sat in the spare tire well in the trunk, and a hole was drilled into the bumper to allow for the installation of the cord. The conversion process took a few hours to complete and cost the customer $10,000.80 There was also a 10 percent federal tax credit for the cost of the conversion.81 Hymotion had installation partners in 14 cities around the country. Utility Pacific Gas and Electric and Google had both run tests on Hymotion converted cars.82 CalCars CalCars, a nonprofit that promoted PHEV and electric cars, converted the first Prius hybrid to a Plug-In Hybrid in 2004. The company also created a set of open standards for the conversions.83 CalCars did not sell its converted cars, but rather focused on public policy, technological development, and creating demand for PHEVs.84

Plug-In Supply California-based Plug-In Supply made PHEV conversion kits based on CalCar’s open standards. The company offered $5,000 conversions using full, lead-acid batteries. These conversions allowed the owner to drive up to 20 miles gas-free. The company also offered either $8,500 or $12,000 conversions that used lithium-ion batteries. The $8,500 converted car could go 20 miles in all-electric mode, while the $12,000 converted car could go 30 to 40 miles in all-electric mode. This gave the car a total of 100 miles per gallon.

Plug-In Conversions San Diego based Plug-In Conversions charged $3,500 to convert Prius conventional hybrids to PHEVs.85 Converted cars could get 100 miles per gallon.

79 A123 press release. 80 Hymotion website, http://www.a123systems.com/hymotion/products/N5_range_extender 81 Internal Revenue Service website, http://www.irs.gov/formspubs/article/0,,id=210607,00.html 82 Ibid. 83 Elsa Wenzel, “Do It Yourself Electric Cars,” CNET, August 15, 2008. 84 CalCars website. 85 Plug-in Conversions website.



p. 15

AC Propulsion AC Propulsion, also based in California, focused on converting gasoline cars to all-electric vehicles. The company’s eBox converted all-gasoline Scion xB cars, allowing them to hit speeds of 95 miles per hours and go 150 miles per charge. The cost to the customer was $55,000.

Truck and SUV Conversions

Chicago Institute of Technology and Hybrid Electric Vehicle Technologies At the other end of the spectrum, some companies were looking to convert the most gas-guzzling cars to PHEVs, as opposed to focusing on relatively fuel-efficient sedans and hybrids. A team at Chicago’s Institute of Technology converted a Ford F-150, which originally got 16 miles per gallon, to a PHEV, which pushed the fuel economy to about 40 miles per gallon. The F-150 could run without gasoline for 15 miles.86 A spin-off company, Hybrid Electric Vehicles, was carrying out the conversions, at a cost of $60,000 each.87

Infrastructure Providers

In order for electric cars and PHEVS to succeed, a vast infrastructure of charging stations was required. In the United States, about 50 percent of car owners drove 25 miles or less each day,88 and about 80 percent drove less than 50 miles each day.89 (See Exhibit 7 for daily miles driven in the U.S.) The average worker commuted 33 miles between work and home each day.90 Therefore, many car owners would be able to charge their electric cars and PHEVs at home at night, and have enough charge for the following day. However, those taking longer trips would have to recharge the electric car battery outside the home. For example, the distance between San Francisco and San Jose, California was about 50 miles. PHEV users who made that daily commute and wanted to stay mostly in electric mode would need charging stations available near their places of work, since PHEVs, such as the Chevy Volt and the Fisker Karma, would get 40 and 50 miles per charge, respectively. However, this presented a chicken-and-egg quandary: Cars needed a charging infrastructure, but who would invest in infrastructure before there were cars on the road that needed it? One company that was stepping into the role of infrastructure provider was Arizona-based Electric Transportation Engineering Corporation (eTec), a subsidiary of ECOtality Inc. In August 2009 eTec received $99.8 million from the federal government and $8 million from the state of California to join Nissan in building 12,750 charging stations and deploying 5,000 Nissan LEAF electric vehicles in five U.S. markets: the states of Tennessee and Oregon, the cities of San Diego and Seattle, and the Phoenix/Tucson region.

86 Ibid. 87 Elsa Wenzel, “Do It Yourself Electric Cars,” CNET, August 15, 2008. 88 Electric Power Research Institute (EPRI). 89 U.S. Department of Transportation. 90 Kim Clark, “Career Spotlight: New Benefit: Help with Commuting Costs,” US News and World Report, September 24, 2005.



p. 16

This project was the biggest of its kind inside the United States, a fact that raised questions about how far the country still had to go. For electric cars to gain any real foothold in the U.S., there would have to be millions of charging stations across the nation. An Infrastructure provider that was achieving a wider reach, albeit outside of the U.S. mainland, was California-based Better Place, founded by former SAP executive Shai Agassi. Better Place was working with the Israeli, Danish, Japanese and Portuguese governments to build charging stations and charging spots throughout urban areas, where drivers could plug in their cars. Better Place was also working with the utility Hawaii Electric to build a car charging network,91 as Hawaii had some of the highest gas prices in the country. Better Place had raised over $400 million for all its ventures from investors around the world. In Israel, Better Place had raised $200 million92 from holding company Israel Corp., investment bank Morgan Stanley, venture capital firm Vantage Point and a group of private investors.93 Better Place had an aggressive goal of building a network of 100,000 charging spots and dozens of battery swap stations by the end of 2010.94 Better Place and the Israeli government were also working with the Renault-Nissan Alliance to provide the electric cars, beginning in 2011.95 The cars’ computers would be programmed to tell drivers when they needed to recharge and where to find the nearest charging point.96 Israel’s goal was to make its transportation system oil-independent by 2020.97 The government planned to substantially reduce its 78 percent car tax for citizens who bought electric vehicles.98 Renault-Nissan and Better Place felt that Israel was an ideal place to mass-market the electric car, since the country was only 8,50099 square miles, about the size of New Jersey. Ninety percent of Israeli car owners drove less than 40 miles per day, and all major cities were less than 90 miles apart.100 Denmark was also considered an excellent country for mass-marketing electric cars, because it was about 16,000 square miles101 and because the country needed only 750 wind turbines to power every car in the country.102 The average commute time in Denmark was 12.4 miles per day.103

91 Jeff St. John, “Better Place Goes to Hawaii,” GreentechMedia, December 2, 2008. 92 Bradford Plumer, “The Future of the Electric Car,” The New Republic, August 25, 2008. 93 Steven Scheer, “Renault to Develop Electric Cars for Israel,” Reuters, January 22, 2008. 94 Better Place website. 95 Bradford Plumer, loc. cit. 96 Better Place website. 97 Ibid. 98 Bradford Plumer, op. cit. 99 Israel Central Bureau of Statistics. 100 Nissan press release, January 21, 2008, http://www.nissan-global.com/EN/NEWS/2008/_STORY/080121-02-e.html. 101 The official Tourist Website of Denmark. 102 Tamar Snyder, “Who Revived the Electric Car?” The Jewish Week, August 6, 2008. 103 Melissa Valadon and Nicolaj Stenkjaer, “Do Electric Cars Make Sense in Denmark?” Nordic Folkecenter for Renewable Energy, January 2008.



p. 17

Because it took several hours to charge an electric car, part of Better Place’s plan was to separate the battery from the car to enable customers to pull into charging stations and swap out their batteries for charged ones―a process that would only take about one minute.104

Other U.S.-based infrastructure providers included California-based Coulomb technologies, which had a target of installing 1,000 charging stations in 2009 at a minimum cost of $2,000 each.105 Coulomb had a contract with the city of Amsterdam to install 200 charging stations by 2012. Drivers would be able to subscribe to the power stations through the web and get a smart card to give them access to the stations, called the Charged Point Networked Charging Stations.106 Coulomb’s customer base was made of up 37 percent municipalities, 39 percent businesses, 22 percent utilities, and 4 percent automakers.107 In addition, PowerUp Systems was planning to set up a network of e-stations in Vancouver, Seattle and Toronto for the 2010 Vancouver winter Olympics.108

Utilities

In the U.S., some utility companies were beginning to take an interest in electric cars and PHEVs. One of the most active utility companies was Southern California Edison. SoCal Edison provided electricity to 13 million people in southwest California, and around 17 percent of the power it provided came from alternative or renewable sources.109 The company had its own electric fleet of 300 vehicles, the largest EV fleet in the country. It also ran the Electric Vehicle Technical Center in Pomona, California, where several automakers, including Ford, Mitsubishi, Daimler and GM, had tested their electric cars. To prepare for what it estimated would be 30,000 EVs in its region by the end of 2012, SoCal Edison was planning to install 5.3 million SmartConnect meters in every home in its service region, about 50,000 square miles, by 2012. The cost would be $1.9 billion.110 In July 2008, General Motors joined with more than 30 U.S. utility companies to work on issues that would arise when the Chevy Volt hit the streets. A big question was whether the electric generation system could handle the increased demand for power. They also planned to work on policy issues such as government tax incentives.111 Other utilities were getting involved by joining with local governments and private businesses to build a network of charging stations. For example, in collaboration with the local government, Portland General Electric (PGE) installed 20 charging stations in Portland, Oregon, and had a strategic partnership with eTec on its project of installing thousands of charging stations in the Portland area. PGE planned to study how electric vehicles could be integrated into the smart grid

104 Chuck Squatriglia, “Better Place Unveils an Electric Car Battery Swap Station,” Wired, May 13, 2009. 105 Peter Henderson, “Electric Car Future May Power a Charging Industry,” Reuters, August 9, 2009. 106 Lisa Sibley, “Amsterdam Picks Coulomb’s EV Charging Stations,” Cleantech Group LLC, May 5, 2009. 107 Matt Kelly, “Plug in 2009: Coulomb Charging Ahead!” Examiner.com, August 14, 2009. 108 Peter Henderson, “Electric Car Future May Power a Charging Industry,” Reuters, August 9, 2009. 109 Candace Lombardi, “Ford, Electric Utility to Promote Hybrids,” CNET, July 9, 2007. 110 Robert Chew, “Utilities Scramble to Meet Power Needs of Electric Cars,” Time, July 16, 2009. 111 Tom Krisher, “GM Eyes Electric Car Future, Joins with Power Companies,” USA Today, July 22, 2008.



p. 18

efficiently and at a low cost.112 Meanwhile, Northeast Utilities applied for about $700,000 from the U.S. Department of Energy to help in its plans to build 275 charging stations in Connecticut and Massachusetts by 2011. The government funds would cover half of the project’s projected cost. As mentioned above, Hawaii Electric was working with Better Place to install charging stations in that state. 113

ELECTRIC CAR INDUSTRY IN CHINA

The Nascence of China’s domestic auto industry created advantages and disadvantages for China’s automakers that were entering the electric car sphere. On the plus side, these new companies were not encumbered with legacy systems and organizations, so could more easily leapfrog existing technologies and focus on the electric car. However, they faced the challenge of scaling up quickly enough to compete with the more established global players who were also making the electric car a priority.

Start-Ups

BYD Auto China’s BYD (Build Your Dream) Auto was part of BYD Company Limited, the world’s second-largest battery maker,114 founded in 1995.115 BYD supplied power units to mobile-phone makers including Motorola, Nokia, Samsung and LG.116 Thus BYD Auto, headquartered in Shenzhen China, had the advantage of both advanced battery technology expertise and substantial financial resources. In addition, Warren Buffet’s Berkshire Hathaway invested $232 million to acquire a 10 percent stake in the company. In the first 11 months of its involvement with BYD, Berkshire Hathaway had earned 1 billion dollars paper profit.117 Overall, BYD Auto sold 170,000 conventional vehicles in 2008, and targeted 400,000 for 2009 and 700,000 for 2010.118 BYD launched two plug-in hybrid cars, the F3DM (dual-mode) and the F6DM (a larger, more luxurious version of the F3DM) in December 2008.119 BYD planned to enter the U.S. and European markets in 2011.120 BYD also planned to produce a pure electric car, the E6, by 2009

112 Portland General Electric press release, “PGE to Participate in Largest Electric Vehicle Project in U.S. History,” August 5, 2009. 113 Jeff St. John, “Better Place Goes to Hawaii,” GreentechMedia, December 2, 2008. 114 David Barboza, “China’s Industrial Ambition Soars to High Tech,” The New York Times, August 1, 2008. 115 Joanna Kujawska “BYD Plans to Take on Giants with Electric Car,” AFP, May 14, 2009. 116 Buffet Earns $1 billion on China’s Hybrid Maker BYD,” Bloomberg, July 31, 2009. 117 Ibid. 118 “BYD Sets ’10 Car Sales Target at 700,000 Units,” Reuters, July 27, 2009. 119 Sebastian Blanco, “Detroit 2009: Plug-in hybrids, the F3DM and the F6DM,” Autoblog, January 13, 2009. 120 “BYD Plans to Take on Giants with Electric Car,” AFP, May 14, 2009.



p. 19

or 2010.121 The E6 needed 9 hours to fully charge, but could charge 80 percent in only 15 minutes.122 The F3DM could go 63 miles on its battery or 360 miles in hybrid mode with gasoline, with a top speed of 90 miles, and could accelerate from 0-60 in 13.5 seconds.123 BYD said that the F3DM’s electricity cost was about a quarter of the cost of a comparable gasoline-powered car.124 The F3DM would first be marketed to corporations, which had the resources to buy a small hybrid fleet and build the necessary recharging infrastructure.125 However, as of April 2009, BYD had only sold 80 units of the F3DM. The Shenzhen government purchased 20 of those and China Construction Bank’s Shenzhen branch bought the remainder. BYD was also in talks with the city’s taxi fleets, but the high price of the car, almost $22,000, was making negotiations more challenging.126 The price was close to double that of a similar gas-powered car, 127 However, BYD received good news as China’s Ministry of Industry and Information Technology (MITT) announced that the F3DM was one of five energy-efficient vehicles to receive regulatory approval for production and sale.128 That meant that the car was eligible for federal subsidies for consumers beginning in September 2009. BYD said that since the F3CM was the only sedan on the list, it qualified for the highest subsidy level, 50,000 yuan, or about $7,300 per unit.129 The government was also carrying out an experiment in allowing sales of the F3DM in 13 cities, including Shanghai,130 to see if it made sense to build a system of charging stations across the country.131 BYD wanted to set up a system of charging stations in China in order to make its PHEVs and electric cars more commercially viable for the average consumer. As such, BYD was in talks with utility companies, including State Grid Corporation of China, about building such a system. According to BYD’s general manager for auto exports, Henry Z. Li, “It’s a positive cycle. More electric cars, more charging stations. It’s no use asking which comes first, the chicken or the egg. We have to put something out there first.”132 121 Norihiko Shirouzu, “China’s BYD Auto Co. to Unveil All-Electric Car,” The Wall Street Journal, April 18, 2008. 122 Ibid. 123 Chris Lydgate, “Portland to Electric Car Maker BYD Auto: Build Your Car Here. Please!” Portland Tribune, September 11, 2008. 124 Li Fangfang, “Subsidy Will Help Plug-In Hybrid Sales, BYD Says,” China Daily, August 19, 2009. 125 Joanna Kujawska “BYD Plans to Take on Giants with Electric Car,” AFP, May 14, 2009. 126 Ally Liu, “BYD Has a Long Way Off to Commercialize World’s First DM Electric Car,” Gasgoo, April 14, 2009. 127 Joanna Kujawska, op. cit. 128 The other four were Nanjing Iveco’s electric commercial vehicle, Jianghuai Auto’s electric engineering vehicle, JMC’s electric service vehicle, and Zotye Auto’s electric light minibus. Li Fangfang, “Subsidy will Help Plug-in Hybrid Sales, BYD Says,” China Daily, August 19, 2009. 129 Ibid. 130 Cities include Beijing, Shanghai, Chongqing, Changchun, Dalian, Hangzhou, Jinan, Wuhan, Shenzhen, Hefei, Changsha, Kunming and Nanchang. 131 “BYD F3DM and Zotye Electric Cars to Launch Soon,” China Car Times, August 19, 2009. 132 “BYD Plans to Take on Giants with Electric Car,” AFP, May 14, 2009.



p. 20

In May 2009, BYD joined forces with Volkswagen to develop lithium-ion battery-powered hybrid and electric vehicles.133 Volkswagen was BYD’s first major industrial partner. In August 2009, BYD also announced that it would be supplying Shanghai Automotive Industry Corp (SAIC) with lithium-ion batteries for hybrid vehicles. These batteries could be recharged more than 2,000 times, which allowed the batteries to last for 375,000 miles.134 SAIC would use the BYD batteries for its own Roewe brand hybrid vehicles, which it planned to have on the market by 2010.135 BYD had 5,000 auto engineers and 5,000 battery engineers.136 Yet BYD had some major challenges ahead, as it was competing in the electric car industry with more established global automakers such as Japan’s Nissan, which expected to sell its electric vehicle for as low as $25,000―within striking range of BYD’s $22,000 F3DM. Some observers wondered if BYD had the experience necessary to go head-to-head with companies like Nissan in mass-producing and selling its electric vehicle.

Chery Automobile Company Chery Automobile, a Chinese automaker founded in 1997 in Wuhu, Anhui Province, rolled its first electric car off the production line in February 2009. The Chery S18 could travel up to 93 miles on a charge and had top speeds of 75 mpg. It took four to six hours to completely charge the vehicle and 30 minutes to charge 80 percent of the battery under a quick-charging mode.137 Chery Automobile planned to bring the S18 to market by early 2010, at a price of less than 100,000 yuan ($14,600). The first S18s would go to government agencies for trials.138 Chery Automobile was owned by the Wuhu local government and was founded to give a boost to the remote Wuhu province. Chery began developing electric car models in 2001, the same year Shanghai Automotive Industry Company (SAIC) invested in Chery, which allowed the company to obtain a license to sell cars all over China―a license that had previously been denied. Chery quickly grew to become one of the top China own-brand automakers in the country. At the end of 2010, the Wuhu government planned to merge Chery with Jianghuai Automobile Co (JAC) to create the "Da-An Motors" Group.139 It would be one of the largest car companies in Eastern China. Chery had recently taken in about $300 million when it sold 20 percent of its stock to Chinese investment companies. It planned to use that money on the merger.140 Zotye China’s Zotye entered the electric car race with China’s first all-electric SUV. The four-seater mini SUV had a range of 185 miles and a top speed of about 65 mph. The car would be priced at

133 Ally Liu, “BYD to Supply Lithium-ion Battery to a Major Chinese Automaker,” Gasgoo, August 17, 2009. 134 Ibid. 135 Ally Liu, “BYD Signs Contract to Supply Lithium Batteries to SAIC,” Gasgoo, August 18, 2009. 136 Keith Bradsher, “China Vies to Be World’s Leader in Electric Cars,” The New York Times, April 2, 2009. 137 Chery International website, http://www.cheryinternational.com/engine_technology 138 “Chery Auto Unveils Its First Electric Car S18,” Gasgoo, February 20, 2009. 139 Ally Liu, “Chery, JAC to Merging to Form Da-An Motors Group,” Gasgoo, July 24, 2009. http://autonews.gasgoo.com/auto-news/1011441/Chery-JAC-merging-to-form-Da-An-Motors.html 140 “JAC, Chery Merger Plans to Be Shown at Year End,” China Car Times, August 16, 2009.



p. 21

$16,000.141 Zotye, based in Zhejiang, China, planned to bring this car to China in late 2009 and to the rest of the world in the subsequent few years. Zotye was also developing a system that consumers could use at home that would recharge car batteries in less than an hour.

Great Wall The Chinese company Great Wall, known in China for its SUVs and trucks, was coming out with a two-seater electric car that had a top speed of 40 mph. The electric car was designed for city driving, and could travel about 90 miles per charge. It could recharge with 70 percent capacity in 10 minutes. As of August 2009, a release date had not been set. 142

Hafei Chinese company Hafei, a regional car maker in north eastern China, planned to come out with its all-electric Hafei Saibao by 2010. Hafei had been working with U.S.-based Miles Electric for several years on the electric car, and the Saibao was a collaboration between the two companies. In the U.S., the Saibao was branded as Miles Electric and would sell for about $50,000. 143 Jinzhou Wonder Motor Co and CT&T Jinzhou Wonder Motor Co., a subsidiary of Wonder Auto Technology, Inc., came out with its first electric car in March 2009 in China’s northeastern city of Jinzhou. It did so as a joint venture with Korean electric car maker CT&T. The joint venture was created to build a $10 million electric plant that would produce 50,000 vehicles in its first phase.144 Wonder Auto Technology was a leading Chinese manufacturer of automotive electronics, and CT&T, founded in 2002, manufactured golf carts and small electric cars. With production facilities in South Korea, Canada and South Korea, CT&T’s target was to manufacture 71,000 electric cars by 2010.145

Changzhou Micro EV Technology In May 2009, Changzhou EV Technology Company delivered its first batch of three-seat electric cars, with a range of 62 miles and a top speed of 32 mph. (At that point, no price had been indicated.)

Geely Automobile Geely Auto’s PHEV was called Gleagle EK2, and the company hoped to bring it to market by 2011. The Gleagle (meaning “for fashion”) EK2 had a top speed of 95 mph, with a range of 115 miles.146 Geely was also in talks to convert London’s black cabs into electric vehicles. Geely co-owned black London taxi-maker Manganese Bronze. Geely Automobile, a subsidiary of Geely Holding Company, began auto production in 1998. It was the first independent automaker in China and held its IPO in 2004.147 Geely was also in talks to buy Ford’s share of Volvo.

141 Zotye Pure Electric SUV: 110,980 rmb,” China Car Times, April 21, 2009. 142 Great Wall Continuing Electric Car Development,” China Car Times, March 6, 2009. 143 “Hafei Working on Pure Electric Vehicle,” China Car Times, January 9, 2009. 144 Ally Liu, “Wonder-CT&T Venture Rolls Out First Electric Car,” Gasgoo, March 24, 2009. 145 Ibid. 146 George Gao, “Geely to Make EK2 Plug-In Electric Car by 2011,” Gasgoo, May 6, 2009. 147 “Geely: We’ll Make an Electric London Cab,” Reuters, October 20, 2008.



p. 22

Battery Makers

BYD As mentioned above, BYD Company Limited was the world’s second-largest battery maker. Founded in 1995, BYD was a private enterprise with over 130,000 employees.148

BAK The Chinese company BAK was one of the largest lithium-ion battery makers in the world, and was developing lithium-phosphate batteries for light electric vehicles and plug-in hybrids. In December 2008, the government announced that BAK would receive up to $3.1 million in grants from Shenzhen’s municipal government through China’s 863 program. BAK’s 3 million square foot facilities were located in Shenzhen and Tianjin.

Infrastructure Providers

While the main push to build electric car charging stations was coming from one of China’s biggest utilities (see upcoming section on utilities), private companies were also teaming up with China’s government to build the stations. In July, 2009, eTec joined with the Shenzhen Goch Investment, Ltd. to establish manufacturing and distribution operations for charging stations in China. Their initial investment was $17.5 million.149 Renault-Nissan was targeting 2011 for selling electric cars in China, and to that end signed a deal with the Wuhan city government to bring in electric vehicles and provide guidance for building a charging network.150

Utilities

China’s power industry went through a reform in December 2002, and the monopoly State Power Corporation (SPC) was split into 11 smaller companies―five electric power generation companies, two electric power grid operators and four business companies. The five state holding companies generated 80 percent of the country’s electricity: China Huaneng Group, China Datang Group, China Huadian, Guodian power, and China Power Investment. Most of the remaining 20 percent was operated by IPPs (Independent Power Producers). State Power Corporation divested all of its electricity transmission and distribution assets into the Southern Power Grid Company and the State Grid Corporation of China, both state owned. Chinese utilities were beginning to make investments in electric vehicle infrastructure. In September, 2008, the State Grid Corporation of China announced it was speeding up its plans to build electric car charging stations in large cities such as Shanghai, Beijing, Guangzhou, as well

148 Scott Doggett, “China’s BYD to Showcase Production Plug-in Electric Hybrid Vehicle at Detroit Show,” Edmunds.com, January 5, 2009. 149 ECOtality press release, “ECOtality Establishes Joint Venture to Manufacture and Distribute Electric Vehicle Charging Stations in China,” July 6, 2009. 150 Lisa Sibley, “Amsterdam Picks Coulomb’s EV Charging Stations,” Cleantech Group LLC, May 5, 2009.



p. 23

as smaller cities such as Dalian, Ningbo, and Qingdao.151 The charging stations cost between $36,000 and $44,000 each to set up.152

ELECTRIC CAR INDUSTRY IN THE REST OF THE WORLD

Start-Ups

TH!NK One example of a European electric car start-up was the Norwegian company TH!NK, which was producing a different type of all-electric car, marketed and distributed in a very different way. Think had three models―Think City, Think Ox (concept car), and Think Open (concept car). The Think City, released in Norway in 2008, was a two-seater with a backseat option that had a range of 124 miles per charge and a top speed of 62 miles per hour.153 The car sold for about $32,000 in Norway,154 (by comparison, a Toyota Corolla cost about $40,000 in Norway) but that did not include the battery. Think retained ownership of the battery and charged a monthly fee of about $150155 for battery use and maintenance. Customers could choose either sodium or lithium-ion batteries.156 As of April 2009, Think had sold 1,200 cars to consumers in Norway, and it planned to distribute 3,000 cars to governments across Europe.157 Think also planned to open a manufacturing plant and technical center in the United States, with production starting in 2010. Think’s goal was to produce 2,500 cars in the first year, mostly to be used for pilot and demonstration fleet projects. The cost in the U.S. would be about $20,000, plus an $80-$90 fee per month to lease the battery.158 Think also planned to sell cars online and allow customers to design their own cars (similar to the way Dell sold computers), rather than going the traditional route of car showrooms. Think had raised $133 million in investment money from Scandinavia, the U.K., and the U.S.,159 with much of that money coming from General Electric160 as well as Silicon Valley161 firms Rockport

151 “The Revolution Begins Now – PRC to Get Electric Car Charging Stations,” China Car Times, September 16, 2008. 152 Megan Lampinen, “China: State Grid Corporation Prepares Electric Vehicle Charging Stations,” AutomotiveWorld, September 24, 2008. 153 Think website, www.think.com. 154 Brady Holt, “Review: Think City Electric Car – This Affordable Gas-Free Car Demands Too Many Sacrifices,” The San Francisco Examiner, July 26, 2009. 155 This was the intended fee in Norway. 156 Think website, www.think.com. 157 Adam Vaughan, “Behind the Wheel of a Think City,” The Guardian, April 15, 2009. 158 Sebastian Blanco, “Think Details U.S. Manufacturing, Sales Plans: Hopes to Sell EV City for Under $20,000,” Autoblog, March 12, 2009. 159 John Reed, “Jump-Start in the Race to Go Electric,” The Financial Times, December 11, 2007. 160 Norihiko Shirouzu, “Norway’s Think Plans to Produce, Sell Small Electric Cars in US,” Dow Jones News Service, May 29, 2008. 161 Dan Neil, “The Next Big Think: Electric Car from Norway Could Be Coming to the U.S.,” Los Angeles Times, June 25, 2008.



p. 24

Capital Partners, and Kleiner Perkins Caufield and Byers.162 Think got $40-$50 million of that money from unnamed donors.163 Think cars had been in the United States before. Ford owned Think from 1999-2003,164 having purchased the company to meet California’s zero-emission vehicle policy. Ford invested $150 million in the company, but when the zero-emission policy was revised, sold it to a Swiss company. Think went bankrupt in 2006 and was then bought by Norwegian investors.165

Incumbents

Daimler Germany’s Daimler was in the testing phase for its Electric Smart EV, a small town car. Tesla was providing the battery packs for the car, which had a top speed of about 60 miles per hour and a range of 70 miles. Daimler was leasing 100 e-Smarts to customers in London for $660 a month.166 The company planned to begin production of the car in November 2009167 and to mass-produce it by 2012.168 The company was also working on a Mercedes brand EV car, which would follow the release of the Smart EV. BMW By the summer of 2009, BMW had leased about 500 Mini E electric cars to customers in the United States. Drivers were paying $850 a month and were part of BMW’s test fleet. The Mini E had a range of about 100 miles, with an estimated cost of $50,000. The anticipated launch date was 2012.169

Renault-Nissan Alliance In August, 2009, Nissan unveiled the Leaf, which had a range of 100 miles and a top speed of over 85 miles per hour. Nissan said the Leaf would get 367 miles per gallon170 (although the method of calculation was still being debated171). The car took seven hours to charge, but its fast charge capability allowed 80 percent of the battery to charge in 30 minutes.172 The car would cost between $25,000 and $30,000, before government incentives ($7,500 tax credit in the

162 “The Electric Car Lives,” BusinessWeek, June 16, 2008. Rockport Capital Partners also has a Boston Office. 163 Sami Grover, “Think Electric Cars Get Massive Funding Boost,” Treehugger, June 16, 2009. 164 Douglas A. Bolduc, “Think to Launch New Car in 2008; Former Ford-owned electric car maker will start production in autumn,” Automotive News Europe, July 23, 2007. 165 Dan Neil, “The Next Big Think: Electric car from Norway could be coming to U.S.,” Los Angeles Times, July 18, 2008. 166 Jack Ewing, “Daimler: The Dawning of the Age of the Electric Car,” BusinessWeek, July 20, 2009. 167 Michael Graham Richard, “Second Generation Smart Electric Drive Production Begins in November,” Treehugger, August 24, 2009. 168 Martin LaMonica, “Daimler Grabs Tesla Stake in Electric Car Push,” CNet, May 19, 2009. 169 John C. Abell, “We Drive BMW’s Electric Mini E,” Wired, July 2, 2009. 170 Bryan Walsh, “Electric Cars: China’s Power Play,” Time, August 31, 2009. 171 Based on new EPA federal fuel economy methodology. 172 Chris Paukert, “2010 Nissan Leaf Electric Car: In Person, in Depth, and U.S. Bound,” Autoblog, August 1, 2009.



p. 25

United States).173 Nissan planned to begin production in Japan in the fall of 2010, starting at 50,000 units a year. Soon thereafter, Nissan expected to export small numbers of cars to the U.S.174 By 2011, Nissan planned to have the capacity to build at least 100,000 electric cars a year at its plant in Tennessee. Nissan received $1.6 billion in loans from the U.S. Department of Energy to build those cars 175

Nissan believed that electric cars could make up 10 percent of all car sales by 2010, and it wanted to be a leader in the field.176 After previously stating that it would not enter the Plug-in hybrid market, Nissan CEO Carlos Ghosn said in August 2009 that Nissan might begin to produce them if strong market demand emerged for PHEVs.177 Renault planned to make electric versions of the Menage and the Kangoo and install lithium-ion batteries developed by Automotive Energy Supply Corp (AESC), a joint venture between Nissan and Japanese battery maker NEC.178 The electric cars would be branded as Renault in some markets, and Nissan in others.179 The cars would have a daily range of 100 miles and a top speed of around 75 miles per hour. It would take about 8 hours for the car to completely recharge.180 The cars were ready for production and were scheduled to hit the market by 2011. As mentioned earlier in the case, the Renault-Nissan Alliance was working with California-based Project Better Place to bring all-electric cars to Israel and Denmark by 2011, and was separately working with the Portuguese government to bring all-electric cars to Portugal by 2011 or 2112. The Alliance also planned to bring electric cars to the United States and Japan in 2011, and distribute them globally by 2012.181

Toyota By 2010, Toyota planned to launch plug-in hybrids for fleet vehicles.182 The company also intended to build a compact, shorter-range EV by 2012.183 The FT-EV concept car was geared for urban consumer who drove up to 50 miles per day. Masatami Takimoto, Toyota’s executive vice president commented in 2009 that “the time is not here” for electric cars.184 Toyota wanted to wait on mass producing them until battery technology had improved. This decision left some 173 Michael Kanellos, “Nissan Turns Over a New Leaf with Electric Car, New HQ,” Greentech Media, August 2, 2009. 174 Matthew Dolan and John Murphy, “Nissan, Ford Plan Electric Car Push Aided by U.S., Demand Is Uncertain,” The Wall Street Journal, June 24, 2009. 175 Ibid. 176 Ian Rowley, “Introducing the Nissan Leaf Electric Vehicle,” BusinessWeek, August 2, 2009. 177 “Nissan Unveils Electric Car to Be Available Next Year,” Reuters, August 2, 2009. 178 Better Place website, www.betterplace.com. 179 Nick Kurczweski, “Renault Develops an Electric Vehicle for Israel, and a Small Car Strategy for the World,” Auto Observer, January 22, 2008. 180 Rick Kranz and David Sedgwick, “Nissan: Electric Cars to Get Here by 2010,” Automotive News, March 10, 2008. 181 Yuri Kageyama, “Nissan Shows Test Models of Electric Car, Hybrid,” Associated Press, August 6, 2008. 182 John Letzing, “Toyota Reported Planning All-Electric Car for the U.S. by 2010,” MarketWatch, August 5, 2009. 183 Jeff St. John, “Hybrids on the Menu as Well as EVs,” Greentech Media, July 27, 2009. 184 Hiroko Tabuchi, “Toyota, Hybrid Innovator, Holds Back in Race to Go Electric,” The New York Times, August 19, 2009.



p. 26

observers wondering if Toyota was risking falling behind in the electric car market, or if it was correct in holding back. Were there lessons that Toyota, the pioneer of the hybrid vehicle, learned from its experience with the Prius that led to this decision?

Mitsubishi In June 2009, Mitsubishi unveiled its four-passenger electric car, the i-MiEV, in Japan. The car could run up to 100 miles on a charge, with a top speed of 80 mph. The Japanese version had a target price of $40,000-$50,000, but Mitsubishi estimated that the price would drop down to $30,000 with tax incentives from the government.185 Honda There were rumors that Honda would unveil a prototype of an electric minicar at the Tokyo Auto Show in October 2009. The vehicle would hit the U.S. market in 2015.186

Tata Tata planned to put an electric car on the market in September 2009.187 The Indica was to hit Norway first and then expand to other European markets and possibly the United States. Tata said it chose Norway because it had the existing infrastructure to support the car.188 The Indica could go 125 miles on a full charge.

Battery Makers

Mitsubishi In order to meet what it expected to be a sharp increase in demand for lithium-ion batteries, the Japanese company Mitsubishi entered a joint venture with the GS Yuasa Corporation to build a new battery factory in Kyoto for $21 to $32 million. The JV, called Lithium Energy Japan, would make enough lithium-ion batteries for up to 15,000 vehicles. The goal was to meet the expected demand for Mitsubishi’s electric i-MiEVs. The plant was scheduled to open by the fall of 2010.189 This plant followed another new lithium-ion battery plant that Lithium Energy Japan began constructing in 2008 in Kusatsu, Shiga Prefecture. That plant would have capacity for batteries for 10,000 vehicles.190

Toyota and Matsushita Japanese companies Toyota and Matsushita Electric Industrial teamed up in a joint venture called Panasonic EV Energy to produce a limited number of lithium-ion batteries in 2009, 185 Ken Bensinger, “Mitsubishi Electric Car to Get U.S. Market Test by PG&E, Edison,” Los Angeles Times, August 8, 2008. 186 Viknesh Vijayenthiran, “Honda Electric Car on Sale in U.S. by 2015,” The Car Connection, August 23, 2009. 187 “Tata Electric Car by September, Nano in U.S., Thailand,” Press Trust of India, June 5, 2009. 188 “Tata Motors Unveils Electric Version of Indica and Ace,” Asia Pulse, September 4, 2008. 189 Eric Loveday, “Lithium Energy Japan to Build Battery Factory to Support Increased i-MiEV Production,” All Cars Electric, May 26, 2009. 190 “Lithium Energy Japan Building Second Li-Ion Plant for Mitsubishi i-MiEV,” Green Car Congress, May 25, 2009.



p. 27

scaling up in the subsequent few years.191 Panasonic EV already had Japan’s most advanced battery-making facility,192 and was building a $290 million plant to make NiMH batteries. The company expected to produce enough NiMH batteries to power 1 million hybrids a year by 2010.193 However, Panasonic EV was unable to keep up with demand for lithium-ion batteries, which led Toyota to procure batteries for hybrids from Sanyo Electric Co.194 Toyota also opened a battery-research center in July 2008, which it planned to grow to 100 scientists and support staff by 2010.195

Nissan and NEC In May, 2008, Nissan and NEC’s Automotive Energy Supply Corp (AESC) announced they were investing $115 million in a factory that would have a start-up production of 13,000 lithium-ion battery packs a year and ramp up to 65,000 battery packs a year by 2011.196 In July 2009, AESC began a trial production. The batteries would be used for Nissan’s electric car and original hybrid. AESC also was preparing to sell batteries to other automakers.197

Hitachi Ltd. Japanese battery maker Hitachi Ltd. had a contract with General Motors to produce lithium-ion batteries for 100,000 GM hybrids.198 In 2009, Hitachi produced 400,000 lithium-ion batteries per month, and was planning to raise production to 3 million units.199

Sanyo Electric and Volkswagen In May 2008, Japan’s Sanyo Electric, the world’s largest rechargeable battery maker, and German automaker Volkswagen agreed to co-develop the next generation of lithium-ion batteries for conventional hybrids (HEVs).200 Volkswagen was expected to use those new batteries for an all-electric car it planned to build.201 Sanyo Electronic also supplied batteries for Ford hybrids (HEVs)202 and had a contract to supply lithium-ion batteries for Toyota’s Prius.

191 “Toyota, Matsushita JV Set 2009 Start Date,” Reuters, June 11, 2008. 192 John Murphy, op. cit. 193 Ibid. 194 “Toyota to Source Lithium-ion Batteries from Sanyo,” Green Car Congress, August 18, 2009. 195 Ibid. 196 Chuck Squatriglia, “Nissan, NEC to Invest $115 Million in Li-Ion Battery Factory,” Wired, May 19, 2008. 197 Nissan press release, “Automotive Energy Supply Corporation Begins Trial Production of Lithium-ion Batteries,” July 16, 2009. 198 John Murphy, “U.S. Auto Makers Target Battery Gap with Japan,” The Wall Street Journal, September 15, 2008. 199 “GM Hybrids to Use Hitachi Lithium-ion Batteries from ’10,” Associated Press, July 3, 2009. 200 Sanyo press release, May 28, 2008. 201 Domenick Yoney, “Sanyo Seeking New Customers for Lithium-ion Batteries,” Autoblog Green, August 24, 2008. 202 John Murphy, op. cit.



p. 28

Samsung SDI and Bosch The Korean company, Samsung SDI, and the German automotive supplier Bosch set up a joint venture called SB LiMotive to develop, manufacture and sell lithium-ion batteries for cars. Samsung SDI already produced lithium-ion batteries for a large number of laptops, cell phones and power tools.203 SB LiMotive was chosen by BMW to supply batteries for its future Megacity electric vehicle.204

LG Chem Korea-based LG Chem provided lithium-ion batteries to Hyundai and its affiliate Kia motors. The two companies planned to mass-produce hybrid cars by 2009. LG was also chosen to build batteries for GM’s Chevy Volt.

Retrofitters

One example of an electric car retrofit business was Vancouver-based Rapid Electric Vehicles (REV) Technologies, Inc., founded by former professional snowboarder and entrepreneur Jay Giraud. REV’s model was to convert new and used Ford Rangers and Escapes to all-electric vehicles for sale to the North American Fleet vehicle market. The trucks had a range of up to 125 miles and a top speed of 105 mph. REV was also working on a Ford F150 model. The cost to the customer for retrofitting was $30,000 to $45,000 per vehicle. The company had completed three working prototypes and had orders from Canadian companies Angel Restoration and Novex Couriers, as well as from the Province of British Columbia, U.S. Utilities, and private corporations. REV also had a strategic alliance with Metro Motors, a major Ford dealer in Western Canada. New Ford vehicles converted with REV and sold through Metro Motors would retain their original factory warranty. REV then provided its own warranty for labor, and passed on supplier warranties for parts to consumers. In the pre-commercial stage, REV clients were shipping new and used vehicles to the company, which was doing the conversions itself. REV’s next step was to develop Plug-In Aftermarket Conversion Kits, REV PACKs, to sell to fleet markets through existing auto repair shops. The company planned to develop the Fast Install Training (FIT) Licensing Program for auto repair shops to service fleet customers. REV’s medium-term goal was to have these licensees provide the warranties instead of REV. Giraud estimated that 90 percent of conversions would be done on used vehicles, as fleets found this financially more attractive than purchasing all-new vehicles. REV also had an alliance with Aerovironment, which had established relationships with many U.S. utilities to bring rapid charging stations to market.

Utilities

Utilities around the world were also stepping into the electric car industry. For example, in Germany, utility RWE joined forces with Daimler AG to run a project called “E-Mobility 203 Katrin Pudenz, “Bosch and Samsung SDI Joint Venture for Lithium-ion Batteries,” AZT, June 17, 2008. 204 Jeremy Korzeniewski, “SB LiMotive to Supply Batteries for BMW Megacity Electric Car,” Autoblog Green, August 4, 2009.



p. 29

Berlin,” which would put 100 electric cars on Berlin’s streets. The project also involved building 500 charging stations. RWE planned to supply the electricity and install charging points in public parking areas and at drivers’ homes and workplaces. The project would use Smart Car EVs and the Mercedes EV for the project.205 Another example of utilities getting involved was in Japan, where the country’s largest power company, Tokyo Electric Power Co. (TEPCO), began working with three domestic automakers, Mitsubishi Motors, Nissan Motors, and Subaru-maker Fuji Heavy Industries to formulate a plan to build a network of battery-charging stations. TEPCO was also gradually switching out its own fleet by buying or leasing up to 3,000 electric vehicles.206 Separately, Mitsubishi was working with Japanese utility companies to see how well electric cars ran, how reliable they were, and how much they used the grid. 207

EXISTING TECHNOLOGIES AND MARKETS ADJUST

While the various forces driving toward the adoption of electric cars and PHEVs were gaining momentum, innovators in combustion energy technology were striking back in an attempt to dramatically increase fuel efficiency, thus turning themselves into a moving target. Simultaneously, consumers were rapidly shifting their buying patterns toward more fuel-efficient cars, leaving “gas guzzlers” unsold on the dealers’ sales floors. Evolving Demand for the Combustion Engine A main selling point for electric and PHEV cars was their fuel efficiency compared to the combustion engine. But that advantage would not necessarily last for long. Internal combustion engine makers were not standing still, but were actively working to create more fuel-efficient engines with better performance. For example, Valeo, a French automotive supplier, developed the e-valve system, which used electromagnetic controls to open and shut valves instead of using the traditional camshaft-operated pushrods. The company said it could cut fuel consumption and CO2 emissions by up to 20 percent using the e-valve system. If used to make three-cylinder and two-cylinder engines, the e-valve system could also make the car run more smoothly.208

Other innovations included a supercharger designed by the British company Antov Automaker Technologies, which forced more air into the engine’s combustion chambers, giving the car 40 percent more pulling power, or torque. It also reduced the size of the engine by 50 percent, so the car using the supercharger would use less fuel and emit fewer CO2 emissions.209 Italian car maker Fiat designed a new valve-control system called Multiair, which it said could translate to fuel savings of about 20 percent, and Daimler designed a new type of engine which combined the low emissions of a gasoline-powered engine and the high efficiency of a diesel engine.210 205 “Berlin Getting Charge out of Electric Cars,” Associated Press, September 8, 2008. 206 “Japan Electric Car Makers, Utilities Plan Battery-Charge Stations,” Physorg, August 5, 2009. 207 Chuck Squatrigila, “Mitsubishi Testing its Cute EV in California,” August 7, 2008. 208 “The Old Motor Roars Back,” The Economist, August 14, 2008. 209 Ibid. 210 Ibid.



p. 30

The ultimate goal for engine designers was developing a car that could get 100 miles per gallon. For small cars, some analyst felt that the new technologies were making that achievement look possible. 211

Evolving Demand for Fuel-Efficient Vehicles

Americans were certainly addicted to their cars. In 2008, Americans drove about 3 trillion miles.212 The number of cars owned per civilian worker had increased 95 percent between 1950 and 2005, and had increased 34 percent between 1970 and 2005.213 (See Exhibits 8, 9 and 10 for cars per capita, employee, and household over time.) In 2005, miles driven per capita topped 10,000 miles.214 (See Exhibit 11 for miles driven per capita over time.) Americans spent 25 percent of their driving time on family or personal business, and those trips averaged 7.5 miles. Driving to and from work accounted for 22 percent of driving time, with an average of 12.1 miles.215 The other big chunks of time Americans spent in their cars were for shopping (21 percent of the time, 6.7 miles per trip), and social and recreation events (14 percent of the time, 9.6 miles per trip).216 (See Exhibit 12 for driving lengths and trip purposes.) When the price of oil shot up well above $100 a barrel in the spring and summer of 2008, however, consumers were quick to substitute the gas-guzzling SUVs that had become so popular with smaller, more fuel-efficient cars. In May 2008, sales of minivans, pickups, SUVs and crossovers were down 16 percent from May 2007.217 In June 2008, Ford sold 55 percent fewer SUVs than it had in the previous month, and some automakers were discounting their new SUVs by more than $9,000.218 (For more detailed information on the effects of the oil price increase, please see the Stanford Graduate School of Business research paper, “U.S. Dependence on Oil in 2008: Facts, Figures and Context.”219)

CONCLUSION

As existing combustion technologies tried to strike back and consumers adjusted their buying patterns toward more fuel-efficient cars in 2009, it seemed that the time of the electric car had finally arrived. Yet there were still many questions to be answered. For instance, what role could governments play in the transition from oil-based to electricity-based transportation? Were the current governmental strategies the right ones, and were there enough financial resources

211 Ibid. 212 Department of Transportation, Federal Highway Administration. 213 U.S. Commerce Department, the Polk Company, U.S. Department of Transportation. 214 U.S. Department of Energy, Transportation Energy Hand Book. 215 National Travel Household Survey, nhts.ornl.gov. 216 Ibid. 217 Sarah Webster, “Car Sales Drop-Off Feared; Analysts Predict Declines Across Industry in Staggered Economy,” Detroit Free Press, June 30, 2008. 218 N. Bunkley, “U.S. Auto Sales Plunge in June on High Prices,” International Herald Tribune, July 1, 2008. 219 Andrew Grove, Robert Burgelman, and Debra Schifrin, “U.S. Dependence on Oil in 2008: Facts, Figures, Context,” Stanford Business School Research Paper No. 1997.



p. 31

available to make them successful? Also, how much impact would the global economic recession of 2008-2009, and the worldwide decline in auto sales and associated financial problems of all the major car makers have on the speed with which electric cars would be brought to market and be accepted by consumers? It also remained unclear which countries and companies were best suited to become leaders in the emerging global electric car industry. For instance, how important to securing a winning position were the relative strengths of different nations in the crucial battery technologies? How would start-ups fare in the battle for market share with incumbent car makers? What would be the pattern of consumer adoption of the all-electric car versus the PHEV? Would lithium-ion battery technology progress fast enough to allow car makers to meet their deadlines for rolling out their new electric cars? And if those deadlines could be met, could they bring the cost down enough to sell electric cars and PHEVs on a mass scale? These and other strategic questions required urgent answers.



p. 32

Exhibit 1 Comparison of Hybrid and Electric Cars

Car type Description Pros Cons Vehicles Hybrids Battery and Electric Motor

power car at low speeds. Gas engine accelerates for highway driving.

Significant increase in fuel-economy, especially in stop-and-go driving.

Price premium of $2,500 - $8,000. Larger vehicles have less mileage improvement.

Toyota Prius, Ford Escape Hybrid, GMC Yukon Hybrid, Lexus LS600h, Lexus 400h, Chrysler Aspen Hybrid, Dodge Durango Hybrid.

Mild Hybrids Electric motor only assists the gasoline engine, cannot drive the wheels on its own.

Less expensive than full hybrids.

Only modest improvement in fuel economy.

Honda Civic Hybrid, Chevrolet Malibu Hybrid, Saturn Aura Hybrid.

Plug-In Hybrids (PHEV)

Full hybrid with large battery that can be recharged by plugging into an AC outlet.

Enormous boost in fuel economy; can go up to 120 miles on the battery alone.

The advanced batteries required are still in development. The batteries are expensive and can overheat.

In development by multiple car companies. Some companies are converting existing cars into plug-in hybrids.

Electric Car Powered by long-lasting battery and electric motor. Can have small gas engine to charge the battery.

Almost no emissions or engine noise. Recharges from AC outlet.

Technology still in development.

In development by multiple car companies.

Source: The Wall Street Journal.



p. 33

Exhibit 2 U.S. Government Programs to Promote Electric Vehicles

Plan Description

Advanced Technology Vehicle Manufacturing Loans Program

$25 billion direct loan program for companies to develop electric-powered cars and improve battery technology. Big recipients include Ford, Nissan and Tesla.

American Recovery and Reinvestment Act

$2.4 billion in grants. Of the total, $1.5 billion went to U.S.-based manufacturers to produce batteries and components, $500 million to produce electric drive components, and $400 million for building charging infrastructure and buying test fleets. Big recipients included GM, LG Chem, Ford and Chrysler.

American Recovery and Reinvestment Act

$7,500 consumer tax credits for the purchase of an electric vehicle or plug-in hybrid.

Exhibit 3 PRC Government Programs to Promote Electric Vehicles

Plan Description

(Government Subsidy Plan)

Up to $8,800 in subsidies to taxi fleets and local governments for hybrid and all-electric vehicles. Subsidies for consumers to follow. $7,300 for hybrid, $8,800 for all- electric.

Automotive Industry Revitalization Program

$1.5 billion for hybrids, electric cars and fuel cell vehicles, technology upgrades and dedicated parts and components.

National High Technology Research and Development Program (863 Program) $285 million



p. 34

Exhibit 4 Top Electric Car and PHEV Makers

Company Country Vehicle(s) Type Price Release Date Start-Ups

Tesla U.S. Roadster, Model S All-Electric

$109,000, $57,5000 2008, 2011

Th!nk Norway Think City All-Electric $32, 000 2008

Aptera U.S. Aptera All-Electric, PHEV $25,000, $40,000 2009, 2010

Miles Electric Vehicles U.S.

ZX40S, XS500 All-Electric

$19,900, $45,000 2008, 2010

Fisker Automotive U.S. Karma PHEV $80,000 2010

BYD China F3DM, F6DM PHEV, All-Electric $22,000 2008

Chery China S18 All-Electric $14,600 2010

Zotye China SUV All-Electric $16,000 2009

Great Wall China N/A All-Electric N/A N/A

Hafei China Saibao All-Electric

$50,000 (U.S. price) 2010

Jinzhou Wonder Motor Co. and CT&T

China, South Korea N/A All-Electric N/A 2010

Changzhou Micro EV Technology China N/A All-Electric N/A 2009Geely Automobile China Gleagle EK2 All-Electric N/A 2011

Sources: company websites, BusinessWeek, AutoWeek, Los Angeles Times, Wall Street Journal, China Car Times.



p. 35

Exhibit 4 (continued) Top Electric Car and PHEV Makers

Company Country Vehicle(s) Type Price Release Date Incumbents

General Motors U.S. Chevy Volt, Saturn Vue PHEV

$35,000-$40,000 2010

Ford U.S.

Transit Connect, Focus, PHEV, Escape PHEV N/A 2010

Chrysler U.S.

Dodge Circuit EV, Jeep Wrangler EV, Jeep Patriot EV, Town and Country EV, 200C EV concept car PHEV, All-Electric N/A 2010

Daimler Germany Smart Car, Mercedes EV All-Electric N/A 2009, 2010

BMW Germany Mini All-Electric $50,000 2009

Renault France Menage, Kangoo All-Electric N/A 2011

Nissan Japan Leaf All-Electric $25,000-$30,000 2010

Toyota Japan PHEV, FT-EV PHEV, All-Electric N/A 2010, 2012

Mitsubishi Japan I-MiEV All-Electric $40,000-$50,000 2009

Tata India Indica All-Electric N/A 2009-2010Sources: company websites, BusinessWeek, AutoWeek, Los Angeles Times, Wall Street Journal, China Car Times.



p. 36

Exhibit 5a Automotive Battery Comparison Chart

Lead Acid Nickel-Metal Hydride (NiMH) Lithium-ion (Li-ion) Cost Cheap Expensive Most expensiveWeight Heavy Lighter Lightest Energy Density Poor Fair Good Calendar Life Poor Fair Fair Deep-cycle Life Poor Good Fair Safety-abuse Tolerance Good Fair Fair Current Uses ICE* starter Motors Gasoline Hybrids Laptop Computers Technology Readiness Proven technology Established for automotive use Early stage for auto *Internal Combustion Engine Source: Cambridge Energy Research Associates, Inc.

Exhibit 5b Nickel-Metal Hydride vs. Lithium-ion Batteries

Battery Pros Cons

Nickel-metal hydride (NiMH)

Technology ready and proven, more environmentally friendly.

High self-discharge rate (30% per month), heavier than Li-ion.

Lithium-ion (Li-ion)

Twice the power of NiMH, size and weight advantage, low self-discharge rate (5% per month)

Expensive to manufacture. Overheating concerns. Quick aging; frequently fails after 2-3 years.

Source: Compiled by author.



p. 37

Exhibit 6 Electric Car Battery Makers by Country

Company Country A123 U.S.

Johnson Controls U.S.

Ener1 U.S.

BYD China

BAK China

Mitsubishi Japan

Toyota and Matsushita Japan

Nissan and NEC Japan

Hitachi Japan

Sanyo Electric and Volkswagen Japan, Germany

Samsung SDI and Bosch Japan, Germany

LG Chem Korea

Saft France Source: Compiled by author.



p. 38

Exhibit 7 Personal Miles Driven per Day in the U.S.

Source: U.S. Department of Transportation, Plug-in America.



p. 39

Exhibit 8 Vehicles per 1,000 People in the U.S.

0

100

200

300

400

500

600

700

800

900

1000

1900

190519

1019

1519

2019

2519

3019

3519

4019

4519

5019

5519

6019

6519

7019

7519

8019

8519

9019

9520

0020

05

Veh

icle

s pe

r Tho

usan

d P

eopl

e

Source: U.S. Department of Energy Transportation Energy Data Book.

Exhibit 9 Vehicles per Civilian Employee

00.20.40.60.8

11.21.41.61.8

1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005

Source: U.S. Commerce Department, the Polk Company, U.S. Department of Transportation.



p. 40

Exhibit 10 Vehicles per Household 1960-2000

0%

10%

20%

30%

40%

50%

60%

1960 1970 1980 1990 2000

No vehiclesOne vehicleTwo vehiclesThree + vehicles

Sources: U.S. Department of Transportation, U.S. Census Bureau.

Exhibit 11 Vehicles and Vehicle-Miles per Capita

1950-2005

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005

Vehi

cles

per

Cap

ita

0

2,000

4,000

6,000

8,000

10,000

12,000

Veh

icle

-Mile

s pe

r Ca

pita

Vehicle-Miles per Capita

Vehicles per Capita

Source: U.S. Department of Energy Transportation Data Book.



p. 41

Exhibit 12a Share of Trips by Purpose in the United States (2001)

0%

5%

10%

15%

20%

25%

30%

To/fro

m wor

k

Work-rel

ated bu

sines

s

Shopping

Other f

amily

/perso

nal b

usine

ss

Schoo

l/Chu

rch

Medica

l/den

tal

Vacati

on

Visit fr

iends

/relat

ives

Other s

ocial/re

creati

ons

Other

Source: National Household Travel Survey, nhts.ornl.gov.



p. 42

Exhibit 12b Trip Length by Purpose in the United States (2001)

05

101520253035404550

To/from workW

ork-related business

ShoppingOther family/personal business

School/ChurchMedical/dentalVacationVisit friends/relatives

Other social/recreations

Other

Trip

Len

ght i

n M

iles

Source: National Household Travel Survey: nhts.ornl.gov.


global electric car industry

Documents