I'm already getting pretty frustrated with the unnecessarily politicization and partisanship of clean technologies, particularly by outsiders.
In case you missed it, JD Power came out with a report (note: pdf) concluding that the market for electric vehicles and plug-in hybrid electric vehicles will underperform versus all the hype around the sector, through 2020. It's well worth reading.
They base their conclusions on some critical assumptions, existing market data, and survey data. It's a credible effort to forecast the market. And it's getting talked about among those who opine on political issues: This morning's WaPo editorial by Charles Lane is particularly breathless and unnecessarily partisan and harsh, for example. But taking a step back from whatever ulterior reasons Lane might have for using the JD Power report as an excuse to take a roundhouse swing at the Obama administration, the report and the reactions do raise a very legitimate question, "Does it make sense to subsidize electric vehicles"?
Lane argues no. He points to the Chevy Volt's cost and concludes that it is Exhibit A of why electric vehicles are a foolish thing to subsidize.
Let's take a look at what the JD Power report actually says, tho, since Lane is clearly not a very good reader of detail.
1. They expect Hybrid Electric Vehicles (HEVs) and Battery Electric Vehicles (BEVs) [pay attention to these specific terms, they're important] to grow from a little under 1M vehicles sold per year to 5.2M vehicles sold per year in 2020, worldwide.
2. One major reason that will hold back HEVs and BEVs is the cost premium associated primarily with battery packs, both upfront costs and disposal. And in large part this is because battery packs are "prohibitively expensive to manufacture at large scale" at $10-15k per.
3. Survey data shows that consumers' interest in purchasing a HEV drops from over 60% to 30% when they're told the price premium will be $5k.
4. Gasoline prices are low and JD Powers expects them to stay that way because "the supply of oil remains steady, as is widely expected."
5. Environmental justifications for purchasing an electrified car might be undermined by the fact that they "might only be transferring the exhaust-emissions problem upstream."
6. As far as BEVs go, consumers will be concerned about limited driving ranges and significant time required to recharge, as well as the current lack of recharging infrastructure.
7. In light of all of the above, customer economics and dollars per kilometer driven remain unknown.
Let me be clear before diving in here: I've never directly invested in an electric or hybrid vehicle company or battery company, and I don't have an axe to grind here. I was just really struck by the unnecessary harshness of Lane's screed this morning and thought it was worth looking at, you know, some actual facts.
So first of all, how does the JD Powers report hold up to what we know about electric vehicles and the like?
There's a lot of merit to the report, which is pretty well-informed from what I've read. But I do quibble with some of their assumptions and how they use them.
A recent BCG report on battery packs (note: pdf), for example, does lend credence to the idea that battery packs will remain more expensive to produce than the price targets of $250/kwh that have been cited. That would still represent a significant drop in cost versus the current $1,000/kwh price tag of such battery packs, but given the JD Powers survey data about how sensitive customers are to price premiums, even a significantly reduced battery pack cost may still mean a larger premium than customers would support. Nevertheless, it's unclear how much of JD Powers' market forecast is based on battery pack cost assumptions that reflect current costs versus realistic costs 5 years from now. Lithium ion battery prices may fall 19% in 2010 alone, for instance.
I've seen a few companies looking to develop non-lithium ion technologies with even better price performance, and I know the engineering teams at Tesla and elsewhere are putting resources into such efforts. So there's hope that BCG's "glass floor" on non-scaleable lithium ion battery pack costs can be broken or just avoided at some point. But I don't expect such technology efforts to bear significant volumes of new very low tech much before a 2020 timeframe. But li-ion battery packs should continue to rapidly decline in price, which should help on the price premium and vehicle performance challenges.
Furthermore, customers may be more willing than JD Powers found to take on a higher cost vehicle if the customer economics net out in their favor, and it's important to recognize that JD Powers didn't have a conclusion about customer economics. But as we've repeatedly seen in the cleantech space, even when paybacks are attractive upfront cost premiums can be stifling to rapid adoption.
Also, their description of shifting the "exhaust-emissions" problem upstream ignores the fact that in many U.S. regions the electricity generation mix isn't coal-based, but is a cleaner mix of hydro, nuclear, renewables and natgas. And in many of the regions where hybrids and EVs will be most popular, that tends to be the most true. Plus there are plenty of arguments to be made about the better efficiency of using centralized large-scale generation rather than many small, variable internal combustion engines. And they also completely ignore the energy independence benefits of ANY domestic electricity production versus often-imported oil.
Driving ranges and recharge times are indeed another barrier to adoption of pure electric vehicles. But here's where Lane departs pretty significantly from JD Powers' logic. Reading the JD Powers report, it does strike me that they didn't do a very good job of describing where PHEVs fit into their worldview. Ostensibly, an extended range EV (such as the Chevy Volt), which they define as belonging to the HEV segment and not the BEV segment, avoids such range challenges and even some of the charging time challenges. They confine their criticism along these lines therefore to applying to BEVs, pure electric vehicles like the Tesla, and not to ER-EVs like the Volt.
Lane's stepping off point, of course, is the Obama administration's support of the Chevy Volt. In fact, he CRITICIZES the Volt for (gasp) using gasoline for drives over 25-50 miles. He declares that this means "much of the time the car will be running on gas". Define "much"? The average American commute is something like 16 miles one-way. Most of these cars will be used for commuting. If the Volt is plugged in at night to recharge and has a commute like that it would be running electricity most of the time.
Then the part that particularly fired me up to blog on a Saturday morning: Lane then turns around and misquotes the JD Power survey. It says "Rather than rushing to commercialize BEVs, the industry might be better served to pursue continued fuel economy improvements in ICEs and the mass production of HEVs." Lane conveniently changes "HEVs" (which JD Powers very specifically defined to INCLUDE ER-EVs like the Volt) to "conventional hybrids".
So basically, Lane took a quote where JD Powers suggests investing in Volts rather than Teslas, and twisted it to suggest they said investing in Volts is a bad idea too.
Okay, so Charles Lane can't be bothered to tell the basic differences between types of hybrid vehicles and electric vehicles. Frustrating to see something like that turned into useless partisan hackery, but those are the times we live in. What SHOULD we take away from the JD Powers report?
First of all, seeing hybrid and EV vehicle volumes grow 5x over 10 years would undershoot some analysts' expectations but doesn't feel unrealistic to me, and would frankly still be a big win. Elsewhere in the JD Powers report they state: "The near future will depend on improving existing technologies, while also experimenting with new technologies that will carry the global community into the next 125 years." In other words, it's not that they conclude EVs have no future. It's just that they don't expect EVs to take over the market over the next 10 years. Agreed.
And I also would point out that some of JD Powers' assumptions, such as that gasoline prices will remain low, could be wrong. There appears to be a lot more upward pressure and potential on oil prices right now than downward potential. If nothing else, we can expect oil and gas prices to remain highly volatile. It's entirely possible that there will be another period, perhaps prolonged, of high gasoline prices, and if so this would significantly change customer perceptions of electricity versus gasoline as their transportation fuel.
But in short, I largely agree with the JD Powers report's overall conclusions that hybrids and EVs will see strong growth over the next 10 years, but not the stratospheric growth some pundits have been calling for. And that does have significant implications for cleantech investors.
Especially since the report's forecasts of market shares suggests not much room for new entrants. Those investors backing standalone hybrid and EV OEM startups won't find much to cheer in the report.
But does all this mean government incentives and investment to promote early adoption of hybrids and EVs is a bad idea?
I'm not going to pull a Charles Lane and tell you what you should think about this, there are legitimate arguments to be made on both sides of the question, and the JD Powers and BCG and other recent reports on the topic can lend evidence to support either answer. But I'll point out that the supposed purpose of incentives into costly new technology areas is to help bridge the gap and encourage a market ramp-up so as to accelerate the scale-driven cost declines that it would take for the technology to stand up on its own. You're welcome to draw your own conclusions as to whether a) it's warranted for this technologies; and b) if it will work for these technologies. It's a worthwhile discussion to have, based upon the fundamental potential of the technologies and whether they can ever achieve good customer economics at scale, and these reports are additive to that debate.
But it's wrong to point out that the price premiums are too high for the first few products and thus conclude that incentives are a bad idea on that basis alone. Because really, that price premium is the rationale for those incentives. Charles Lane needs to go back and re-read the JD Powers report. Or at least pick another topic to get angry about.
Cleantech is just not a partisan topic. Or at least, it shouldn't be.