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Conventional Engines Will Shrug Off Electric Challenge

Renault Twizy


Battery Car Sales Barely Register, Hammered By Price, Range Anxiety

Hybrids Will Be Most Important High Tech Sector
Could Weird Little Renault Twizy Be Most Popular Electric Vehicle?

“Why don’t manufacturers produce a cheap and cheerful improved golf-cart with no pretensions about being a car, with limited shopping or school-run capability?”

“A gasoline hybrid would cost an extra $2,000, a plug-in hybrid an extra $5,800 and a battery electric vehicle an eye-watering and deal breaking $14,600 more”

Arguments have been raging for years about the utility of electric cars, and at last there is some concrete evidence from the marketplace about their popularity as vehicles move from the drawing board to dealer lots.

Not surprisingly, at this point initial sales are tiny. According to Britain’s JATO, which publishes data on the global automotive industry, European sales of electric cars totalled just 5,222 in the first half of 2011, up from just over 500 in the same period of 2010. At least electric car enthusiasts can say sales increased ten times.

But as new regulations loom forcing European car manufacturers to offer drastically improved fuel consumption, the question is; will car makers be forced to produce massive and expensive fleets of electric vehicles, or will radically improved internal combustion engine (ICE) technology provide a cheaper, viable way of meeting these targets?

A new report from British automotive consultancy Ricardo and stock broker Bernstein Research reckons that battery-only vehicles will be also-rans in this race, at least until 2020, while ICE technology will rise to the occasion by improving fuel consumption at affordable prices. Hybrids, plug-in hybrids and extended range electric vehicles will fall far short of ICE cars, but will still be more popular than battery-only electric ones.

“We conclude that improvements to conventional engines are the key in the next 10-15 years. Hybrids will become viable on a large scale by 2020. We believe that near-term mass market adoption of electric vehicles looks unlikely given the tough comparison with ever improving combustion engine vehicles. Premium-priced plug-in hybrids may become viable earlier, but by definition will be niche,” says the Ricardo/Bernstein report.

62 miles per gallon
The report said that the European target for average fuel economy by 2020 of around 62 miles per U.S. gallon can be met with a fleet of just over 80 per cent traditional gasoline and diesel vehicles. Some commentators had said this target would require sales of 30 per cent hybrid and 20 per cent battery-only electric. The report reckons this can be met with a 10 per cent share for hybrids, 4.5 per cent for plug-in hybrids and four per cent battery-only electric vehicles.

Manufacturers which have been at the forefront of the call for electrification, like the Renault-Nissan alliance, have invested upwards of $5.5 billion in electric cars on the basis of its forecast that 10 per cent of the world’s cars will be battery powered by 2020. Automotive consultancy J.D.Power agrees with Ricardo-Bernstein that four per cent is more likely. Renault of France and Nissan of Japan has said it will be able to produce 500,000 battery-only cars by 2013 or 2014. There’s a long way to go when you add in the fact that in the first eight months of 2011, only 9,428 electric cars were sold in the U.S.

Economics not close
The gap between Renault-Nissan’s ambition and the likely outcome is less surprising given that the economics of electric cars are not even close to ICE technology.

“Logical consumers will only buy new-generation vehicles in significant quantities when it makes economic sense to do so. It is clear that it will take some time, possibly a long, long time – before EVs can compete with current technology. From our calculations, hybrids and/or plug-in electric vehicles with small battery packs are going to become economic far earlier than pure EV’s,” the report said.

Ricardo-Bernstein said hybrids and plug-ins have a much higher total cost of ownership than conventional engines. A gasoline powered Ford Focus or Volkswagen Golf-sized vehicle would cost about $28,000 over four years including depreciation. A gasoline hybrid would cost an extra $2,000, a plug-in hybrid an extra $5,800 and a battery electric vehicle an eye-watering and deal breaking $14,600 more. Some electric-only car supporters say all this would change if the price of oil jumped, but the report said the price of a barrel of oil would have to reach between $300 and $500 a barrel to make battery-only competitive. In regions where gasoline taxation is low like the U.S., the oil price would need to jump to $800 for battery-only cars to compete. A barrel of oil today costs just over $100.

More motorbike than car
At the biennial Frankfurt Car Show last month, Europe’s biggest showcase for new cars, many manufacturers showed off designs for electric cars of the future. As well as the already on sale Nissan Leaf battery car and the European equivalent of the range extended Chevrolet Volt, VW, Audi and GM’s Opel Vauxhall unveiled concept vehicles more like four-wheel motorbikes than cars. The fact that these designs are less ambitious than the Leaf/Volt might mean their lower cost might tempt buyers into the market if they only need a cheap car with limited range for the daily commute.

This could be good news for Renault, which as well as the Zoe, Frendzy, Fluence and Kangoo van, has the Twizy, a little commuting vehicle.

Why don’t the manufacturers scale down their ambitions a bit, and produce a cheap and cheerful improved golf-cart with no pretensions about being a car, with a limited shopping or school-run capability?

Twizy
“We haven’t included vehicles like the Twizy in our forecasts because it isn’t actually a car,” said Al Bedwell, auto analyst with J.D.Power in Britain.

“With different requirements the Twizy and vehicles like it could do quite well in an inner city environment. Vans too. If it’s a regular duty of say a 50 mile cycle and is never used at night when it can be recharged, the model works quite well. When Renault talks about a 10 per cent market share, a significant number might be LCVs (light commercial vehicles,” Bedwell said.

As for the electric car’s appeal for regular car buyers, Bedwell is not convinced.

“There isn’t going to be a breakthrough in battery technology any time soon. Range will go up but not in leaps and bounds and will remain a limiting factor. For most people it (battery electric) won’t be sufficient for requirements, although it might be ok for a second vehicle,” Bedwell said.

Peter Schmidt, Editor of the Automotive Industry Data newsletter, says that in the case of electric cars, being first to the market is not likely to prove to be an advantage, unlike for the makers of iPhones, Ipads and flat-screen TVs.

“They face an embarrassing false start. Though very, very early in the day, judged on hard recent figures, both in Europe and the U.S. electric car sales numbers certainly do not look inspiring. And yet, it looks certain that electric vehicles are destined to play a big role in future years, but to believe that this will happen before 2020 is far too optimistic,” Schmidt said.

Blind-sided by fuel cells?
Could electric cars be blind-sided by a completely different technology like fuel cells, being developed by Daimler of Germany, Honda of Japan and Hyundai of Korea? That doesn’t look likely either, according to J.D.Power’s Bedwell.

“Fuel cells are a long way off. Running hydrogen cars needs a hydrogen infrastructure and that’s much harder to do than for electricity, which is already there. But this is the ultimate solution for cars of the future if you can generate electricity from renewables you’ve got the perfect transportation mode. It’s feasible and a great goal but its maybe 15 or 20 years away,” Bedwell said.

Meanwhile, manufacturers pushing electric vehicles with high prices and limited range are not likely to be a compelling purchase even with massive government subsidies. Only “early adopters” will be putting their hands willingly in their pockets. According to Ricardo-Bernstein, every electric vehicle sold is likely to result in a loss for the manufacturer.

Every one a loser
“The sobering insight is that even at these elevated prices, every electric vehicle sold is likely to result in a loss. (Comparing the costs) of a full battery electric vehicle from a standard gasoline ICE versus the expected French retail price of the Nissan Leaf (35,990 euros-$56,100 including tax), this cost walk does not even include extra allocations for higher R&D, capex, marketing or overhead costs, but still results in a loss per vehicle,” the report said.


Neil Winton – October 20, 2011

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