WORKSHOP 1: WHAT IS THE BUSINESS CASE FOR ELECTRIC-DRIVE VEHICLES? PANELISTS: Lew FULTON, IEA/ETP/SPT, Senior transport energy specialist Tong ZHANG, Shanghai-Tongji University/FCV, Director of New Energy Vehicle Development Center Valérie BOUILLON-DELPORTE, Michelin, Technical Secretary Valery CERVANTES, Irisbus / Iveco, Public Affairs Director Ching Chuen CHAN, AEVA, President Erwan CHARETON, PVI, VP in charge of the business development of PVI Rolf DOEBEREINER, MAN, Division Research, Senior Department Manager, Propulsion Technology and Dynamics Karine FORIEN, Renault Trucks, Product Marketing: Alternative energies and drivelines Paul GUSTAVSSON, Volvo car, Senior Vice Pres Business Dev Hartmut KÜHNE, BMWI (German Min of Economy), head of the division for «environmental innovation and electric mobility Franz LOOGEN, E-Mobility Baden-Wurttemberg, general director of e-mobil BW, Baden-Wurttemberg s regional agency for electric vehicles and fuel cell technology Maurizio MAGGIORE, European Commission DGR, Directorate General for Research and Innovation, Surface Transport Unit Marc SEMELLE, Leoni, R&D Director Leoni wiring systems France Henri TRINTIGNAC, Valeo Electric vehicle program Director Nils-Gunnar VAGSTEDT, Scania, Manager Michael VALENTINE-URBSCHAT, Siemens, Director Industry Sector / Drive Technologies Division Sven WANDRES, Oliver Wyman, Associate Partner, Global Automotive Practice EXECUTIVE SUMMARY The participants in the workshop represented mainly car and truck companies and parts suppliers, involved with development and sales of electric vehicles. Presentations generally were framed around the question of what characteristics of vehicles and markets will be necessary for electric vehicles to succeed, in the context of viable business models. The tone of the discussions was frank and realistic generally interest in seeing electric-drive vehicles succeed but acknowledgement that there are very significant obstacles and issues that must be overcome. Participants agreed that the scope of the topic should be plug-in vehicles, so this could include battery electric vehicles as well as plug-in hybrids (and fuel cell vehicles that are plug-in). Several key principles were agreed upon a business model implies that businesses can make a profit in producing such vehicles; there may be different market segments and niches where this is true, so it is important to identify these; different technology solutions will be appropriate for different market segments. Finally, the business environment will matter to the feasibility of various business models: oil prices, emissions/safety regulations, tax regimes, start-up/investment costs and risks can strongly affect the case. 4 Michelin Challenge Bibendum - Berlin 2011 WORKSHOPS
BUSINESS CASE FUNDAMENTALS The group agreed that electric vehicles are a disruptive technology and will require new business models and new ways of thinking about the way we travel. EV market success was framed by one participant as the intersection of business models, infrastructure and products (i.e. the nature and cost of electric vehicles themselves). Business model success, in turn, was framed as the result of actions by government, OEM, Users and Energy suppliers (see figure below). Within this scope, several factors were identified as being critical to the creation of a positive business case for electric vehicles. These include: Infrastructure government assistance with building key infrastructure (especially recharging) will help bring down consumer costs, overcome chicken/egg problems. Key for establishing viable business models. But governments can t /won t pay for everything. Other investors must be convinced, such as utilities and 3rd party providers. Financing: Strong financing programs will be needed for mass market sales, to levelize or nearly the first cost. This can build on the energy savings from EVs (but moving these savings into the first cost) but the monthly ownership cost of EVs must also be competitive. Investment payback: Especially for business fleets, the investment payback period must be short typically maximum 2 years. Hi mileage drivers will be an important group. More driving = more energy use, quicker payback. Promising niches: Rental fleets, bus companies may have longer pay back period; taxis may benefit given high mileage, but must have a way to quickly recharge (or swap) batteries. Car Sharing programs may also be promising, if cost per use or per km can be competitive. Such vehicles may get more intensive use, so energy cost savings can provide an important bonus to users and/or car sharing operators. Batteries are key to achieving viable business models. $300/kWh (EUR 225) or similar target is needed to achieve reasonable vehicle first costs. Better range, durability will also be very valuable to consumers. Battery scrappage value should be established early on and reflected in battery pricing. PVI figure (overleaf) shows break-even points for battery cost for different applications. Source: Professor C.C. Chan, FIEE, FIET, FHKIE WORKSHOPS Michelin Challenge Bibendum - Berlin 2011 5
This fi gure shows how EVs could be made competitive, indicating breaking points of batteries and oil prices Source: Chareton Erwan, PVI ONE SIZE DOES NOT FIT ALL There will be different market segments with different characteristics and interest in EVs. The group identified at least three distinct groups with different needs and interests. These include: Top down (early adopters): These will likely be high-end, emotional purchases. Consumers will be willing to pay a premium; the payback time for the purchase (given fuel savings) won t be important; but will need a high quality project that provides the performance and projects the image they seek. Bottom up (mass market): These will be highly cost sensitive buyers; also likely to be high-mileage drivers. First cost probably needs to be comparable to competing technology; sales may do best in low cost applications and niches. Truly new business models may emerge: e.g. car sharing; pay by kilometer; battery swapping may provide important benefits. Price incentives, non-cost incentives will be needed to grow the market, until first costs decline significantly. There will need to be a soft landing for incentive programs. Commercial, public fleets: This will primarily be an economic decision (assuming vehicle duty requirements are met). High turnover vehicles will require very short payback times; fleet operators will be wary of resale value. Some submarkets (buses?) may be able to use longer payback times, potential early adopters. Non-cost incentives may be very powerful: e.g. increases in payload weight limits, access to city center, delivery zones and priority parking locations. Thus for both the mass market and commercial fleet buyers, achieving short payback times is key; this could be achieved by shifting up-front costs to monthly costs over time. 6 Michelin Challenge Bibendum - Berlin 2011 WORKSHOPS
Source: Paul Gustavsson, Volvo Car Corp. ROLE OF NON-PRICE POLICIES There are a number of ways in which non-price policies can assist to build the market for EVs. Some of these can provide powerful incentives to purchase EVs. Several were identified in the workshop: Access to city centers (when banned for higher emitting vehicles) Increase payload weight limits (axel loads) Parking/delivery access; Parking restriction for other (higher emitting) cars Special access to dedicated lanes Reduction/elimination in road pricing or cordon pricing charge (in cities with such pricing systems, expected to grow over time). CONCLUSIONS Electric drive/plug-in vehicles are a disruptive technology. We need to think differently, build a different economic paradigm for them in terms of business models, marketing strategies, even how we use them and how we travel. A long term vision is needed with appropriate short term strategies. For example, a much greater role for car sharing could be part of a successful strategy over time. Policy packages must be smart, holistic and sustainable. They need to include investments in R&D, spending on infrastructure, purchase incentives. Incentives should be performance based. Incentives can be based on pollutant emissions and CO 2 emissions, and not mention EVs specifically (but these emissions must then be measured WORKSHOPS Michelin Challenge Bibendum - Berlin 2011 7
carefully, with a well-to-wheel approach. In places where EVs provide strong benefits, they will then receive strong incentives. Incentive systems can be self-financing, e.g. via bonus-malus approaches that tax some vehicles to pay the incentives for others. This is increasingly common in Europe. Finally, Is there a business case? Already there is a clear business case for some applications. But we need to expand the situations where this business case works well. We also need more information: we need to better understand consumers and market segments to know when, where and how we can achieve large scale, self-sustaining markets. FROM CONSUMPTION-ORIENTED PRODUCTION TO PRODUCTION-ORIENTED CONSUMPTION The German energy sector is undergoing an asymptotic change: whereas so far «production was a function of consumption», now «consumption is oriented to production». Up until now, adjustable conventional systems served to produce exactly the quantity of electricity relating to consumption. Henceforth, it will be necessary to manage consumption is such a way that the energy produced from largely unmanageable renewable sources is consumed mainly when it is available. In the long term, electromobility will reinforce the need for management. The essential features of future customer requirements concern not only all the challenges related to car technology, such as vehicle battery autonomy, but also charging infrastructure and invoicing processes. For invoicing, it will be necessary to draw on the approaches found in other everyday areas, such as mobile telephony. International traffic flows, for example, could be invoiced along the lines of «roaming» charges in mobile telephony. That explains why EnBW Group is participating, as a supplier of infrastructure and energy components, in the first Franco-German test performed on a vehicle fleet. This test is a demonstration project performed on electric vehicles in the two countries between Strasbourg and Stuttgart/Karlsruhe. The charging infrastructure, combining smart charging and invoicing models, is based on technologies developed under the aegis of EnBW as part of the «MeRegioMobil» (Minimum Emission Region Mobil) research project subsidized by the German Federal Ministry for Economic Affairs. Moreover, EnBW has drawn together for the project, in the form of partnerships, various regional energy and service suppliers situated along the Rhine. BENCH TESTING CHARGING TERMINALS FOR EVERYDAY USE Under a common approach agreed with its other industrial partners, EnBW Group engineers are developing charging terminals with a view to putting in place a prototype of this capital-intensive costly infrastructure. In the medium term, the aim of EnBW is to participate in the development of infrastructure that is financially affordable and accessible, regardless of battery manufacturer and serves as a harmonized standard at European level. By end-2011, there will be hundreds of electric vehicle charging terminals in Bade-Wurtemberg, with all service stations running on hydropower. In the Stuttgart region, EnBW is studying mobility and battery charging behavior in 500 electric bicycles for an entire year. The results of this project, subsidized by the German Federal Ministry of Transport, will be used towards charging infrastructure optimization. Making charging terminals available is however merely the first visible step. In reality, the challenges facing this infrastructure in terms of energy logistics are huge. But in spite of these challenges, electromobility may be considered a factor of asymptotic change because its dynamic development prospects would allow increasingly fluctuating renewable energy production capacities to be integrated into the energy supply system by means of energy storage solutions. For further information, please look up www.enbw.com/e-mobilität 8 Michelin Challenge Bibendum - Berlin 2011 WORKSHOPS