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Electric Car Sales Forecast Slashed Nearly In Half

Europe’s Faltering Economy, Engine Improvements Undermine Case
Bad News For Renault-Nissan And Its $5.6 Billion Investment

“The critical nature of the government credit problems plaguing Europe poses a material threat to the necessary government support for EVs which we had previously taken for granted”

Investment bank Morgan Stanley came up with a nasty new Year surprise for Nissan-Renault and other cheer-leaders for battery powered cars when it cut its electric vehicle sales forecast by nearly 50 per cent for 2025.

Europe’s economic crisis meant that crucial government subsidy to kick-start the market for electric cars was likely to be less than generous, while huge improvements in the fuel efficiency of traditional petrol and diesel engines was weakening the case for battery-powered cars.

Morgan Stanley analyst Adam Jonas, in a report on electric vehicle wannabe Tesla Motors of California, said his new projection, that electric vehicle sales would only reach 4.5 per cent of global sales by 2025 not the 8.6 per cent previously expected, was based on four main factors –

  • The rapid commercialisation of advanced internal combustion engine technology.
  • Disappointing sales for newly launched electric vehicles in 2011.
  • Lower fuel prices (the report was published in the U.S.).
  • A faltering European economy.

This forecast compares with the Renault-Nissan alliance projections that sales of electric vehicles would reach 10 per cent of the global market by 2020. The Franco-Japanese combination is investing $5.6 billion to build half a million electric vehicles a year in eight countries by the end of 2013. Renault-Nissan CEO Carlos Ghosn recently said he expects the companies to sell 1.5 million zero emission vehicles by 2016.

Ghosn has consistently predicted that electric vehicle sales would hit 10 per cent by 2020, a target more than twice that of most other large manufacturers. Ghosn has refused to dilute his electric vehicle plans despite ominous signs that the technology is not yet ready for prime time. Prices of the Leaf are often more than twice as high as similarly sized vehicles, with claimed a range of 110 miles which can be slashed in half by adverse weather, difficult terrain, moderate-speed highway cruising or larger than usual loads.

But Renault-Nissan showed no signs of giving up on its electric vision. At the Tokyo Car Show, Andy Palmer, head of Nissan’s business strategy and corporate planning, said Leaf sales will double in 2012 to the full capacity of 40,000 next year.

Morgan Stanley’s Jonas said the improvement in the performance of internal combustion engines (ICE) was hugely important because small improvements in the penetration of these, can force massive changes on the electric vehicle (EV) market.

Jonas said current technology, using turbo-charging, direct injection, variable valve timing and cam phasing has delivered fuel efficiency improvements of 10 to 15 per cent on newly launched models in 2011-2012. Between 2013 and 2017, eight or nine speed automatic transmissions, start-stop, weight reduction, improved aerodynamics, thermal management and advanced engine electronics can deliver another 15 to 20 per cent. For 2017 until 2025 regenerative braking will help hybrid cars, Mazda will introduce its first commercial application of capacitors instead of batteries, others will use coasting technology with a small battery allowing the engine to shut down at highway speeds and new mild hybrids will add between 20 and 30 per cent to fuel efficiency with not much incremental cost or design challenges.

Volt sales stumbling
Meanwhile, sales of EVs have been disappointing, with plug-in hybrids and pure battery vehicles only reaching 47,000 globally in 2011, nearly 30 per cent below Morgan Stanley’s previous estimates. U.S. sales of GM’s extended range electric Volt have been stumbling, with government projections of 120,000 sales in 2012 being scaled back by GM to 45,000. Morgan Stanley expects 25,000 to 30,000. Leaf sales in the U.S have declined for three months in a row.

China was expected to be a torch bearer for electric cars, but in 2011 plug-in and EV sales were only likely to be around 3,000 after an expectation of 9,000.

But it is economically deteriorating Europe that is the biggest drag on EV sales.

“The impact of decelerating global growth, particularly in Europe, which we had previously expected to be the world’s largest EV market through 2020 cannot be overstated. We have always believed that mass EV adoption will require a combination of high fuel prices and unwavering government support to overcome the economic disadvantages and long or infinite pay-back period for early generations of EV technology,” Jonas said.

“The critical nature of the sovereign (government) credit problems plaguing Europe poses a material threat to the necessary government support for EVs which we had previously taken for granted,” he said in the report.

Tesla rating cut
The West European market, with its highly concentrated metropolitan population centres and fuel prices roughly three times U.S. levels was expected to be one of the largest EV markets globally. Morgan Stanley had expected sales of plug-ins and EVs to be nearly 40 per cent higher than the U.S. by 2025. Only China was expected to be larger.

It seems now that all bets are off.

Meanwhile in the report, Morgan Stanley said Tesla had performed well in preparing for the launch of its Model S in July. Morgan Stanley said it was lowering its Tesla rating to “Underweight” from “Overweight”, but was confident that the company would be successful.

Neil Winton – December 15, 2011

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