Electric vehicles. November 25, 2010 Koskue Mikko & Talka Markus

Electric vehicles November 25, 2010 Koskue Mikko & Talka Markus

Contents 1. Introduction 2. Ecosystem 3. Governmental role 4. OEM s 5. Suppliers 6. Infrastructure 7. New Business Models 8. Conclusions Disclaimer: The conclusions and statements in this document are based on market knowledge of Finpro or drawn from information and data through desk research and interviews as well as underlying assumptions. Finpro assume no liability for the correctness of the information made even if every attempt has been made to validate the data. Finpro 2

Contents 1. Introduction 2. Ecosystem 3. Governmental role 4. OEM s 5. Suppliers 6. Infrastructure 7. New Business Models 8. Conclusions Finpro 3

Introduction Increasing discussions about global warming and oil dependence are leading to a massive push to reduce fuel consumption and emissions. After far more than 100 years of developments in the internal combustion engine, electromobility heralds the dawn of a new technological era in road transport. The electrification of drives is crucial to the future of mobility. It affords the opportunity to lessen dependence on oil, minimize emissions and facilitate the integration of vehicles into a multimodal transport system. The main question is not if, but when (near) zero emission vehicles will penetrate the market. For the most part, technical issues for battery and key electrical components have been resolved, but major challenges remain regarding cost, infrastructure and regulations. This will determine how fast the market will develop. Automotive industry was hit by the economical downturn very hard 2008-2009. Though, in 2010 many OEM s have announced new record turnovers, so the branch recovered much faster than expected. The business case for electric mobility is not only a matter of technology, but also of good cooperation and organization between the economic sectors and the authorities concerned. A number of nontechnical issues are identified that play a large role in the development of Electric Drive. Particular attention is devoted to ensure good cooperation with the energy sector and the government on a great number of technical and non-technical issues. Finpro 4

Introduction Carmakers are developing a roadmap towards sustainable mobility solutions Driven both by the sticks of increasingly stringent government regulations, energy efficiency concerns and higher oil prices, virtually all leading carmakers are exploring ways to reduce their vehicles carbon dioxide emissions and increase their fuel efficiency. These forces are driving the development of alternative concepts for automotive propulsion as well as alternative fuels. To meet this challenge, the automotive industry is investing large R&D budgets in a variety of new technologies. These include hybrid power trains, fuel cells, electric cars etc. The cars and technologies will undoubtedly develop in many forms and in competition with each other (electric, hybrid, fuel cell and combustion engine). There is no clarity which will be the winning technology. The roadmap to sustainable mobility will include three steps: the optimization of vehicles with internal combustion engines, the increase of efficiency through hybridization and local emission-free electric vehicles. Comparison of electric vehicles with other vehicle types Vehicle type Electric vehicle Electric vehicle with range extension Plug-in hybrid vehicle Hybrid vehicle Fuel cell vehicle Acronym BEV (battery electric vehicle) REEV (range-extended electric vehicle) Ratio of power grid use for battery supply 100 % Partial, depending on battery range and use PHEV Partial, depending on (plug-in hybrid electric battery range and use vehicle) HEV (hybrid electric vehicle) FCHEV (fuel-cell hybrid electric vehicle) No grid connection No grid connection Typical features Electromotor with grid chargeable battery Cars but also two-wheeled vehicles High potential for CO2 reduction through use of renewable energies Electromotor with grid chargeable battery Modified low-performance internal combustion engine or fuel cell Electromotor with grid chargeable battery Combination of classical internal combustion engine and electromotor Cars as well as commercial vehicles (e.g. delivery vehicles) Conventional internal combustion engine plus electromotor Battery charging through braking energy recovery Cars and commercial vehicles Electromotor with fuel cell for energy supply Finpro 5

EV (OEM) market growth predictions vary substantially Introduction There are very contradictory predictions about the market size of electric vehicles. According to one market forecast, the BEV market will comprise approximately 13 million vehicles in 2020 (J.P.Morgan), while another research company s forecast for the same year is just two million vehicles. Frost&Sullivan has 3 different scenarios in its forecast (figure upper right hand corner) Roland Berger s high scenario for different powertrain technologies 2015/2020 (figure lower right hand corner) Key enablers for the market acceptance of EV s: Costs (competitive products available) Battery (e.g. range and reliability) Infrastructure Finpro 6

1. Introduction 2. Ecosystem 3. Governmental role 4. OEM s 5. Suppliers 6. Infrastructure 7. New Business Models 8. Conclusions Finpro 7

Ecosystem Electric vehicles ecosystem (or value chain) involves new partners for cooperation As mentioned, to enable electric vehicle industry succeed, new kind of cooperations are needed. Not just the traditional partnerships between OEM and supplier, but also with the players outside the conservative automobile industry, as Utilities, Charging station manufacturers etc. Also much bigger role of the government as earlier is needed. Electromobility Ecosystem Smart grid Charging stations Car sharing ICT Etc. Infrastructure Mobility services/ New business models Tier2/3 Tier1 Battery Manufacturer OEM - Traditional OEM s - New e-car specialists Government End customer Finpro 8

Ecosystem Electric vehicles will have significant effects and implications on traditional automotive industry structures New competitors New competences New technologies New business models Etc. Flow of turnover to new players Supplier Shifting of value creation within the value chain OEM New technology competences required in battery and electric motor technologies New partnering models required New business models: charging facilities, e-services, battery exchange etc. Finpro 9

Ecosystem Indeed many companies, not just existing automakers, are eager to develop new business models with BEVs. The relative simplicity of BEV production and their many potential uses in an advanced infrastructure are very attractive. The coming changes in electromobility will thoroughly shake up the automotive industry. They will create many opportunities, but also pose serious risks for both established and new players. The success of individual players will very much depend on how well they understand the market dynamics of their specific section of the value chain. All parts of the e-mobility value chain offer growth opportunitites for both existing and new players Finpro 10

Ecosystem The automobile industry has historically followed a hierarchical structure with automakers at the top and suppliers meeting their requirements. This posed no problem as long as the structure met society s view of the car as a standalone product. However, as the BEV may become part of the social system in a technological sense, it must complement various products and services that are also connected to the social infrastructure. Moreover, BEV manufacturers will need to coordinate with agents of urban development and, of course, electric power utilities. In other words, the scope of competition in which automakers take part will expand, and the resultant business model may well shape competition. From standalone to networked ecosystem: Finpro Source: Ricardo 11

Ecosystem For decades, the profit structure in the automotive industry has followed a reverse smile curve in which the profitability of the processes in the middle of the value chain (e.g., assembly) has increased, whereas the processes at the ends of the value chain have seen decreased margins. This has helped make automotive assemblers the most profitable links. However, according to Deloitte s analysis this revenue structure is likely to change if the automotive industry structure changes from being largely vertical to being predominantly horizontal, and if automakers purchase all necessary parts from suppliers and engage only in assembly. In this case, the profit structure would change drastically and evolve to a smile curve structure, with a profit shift from the middle of the value chain to the upstream and downstream. The emergence of new upstream/downstream businesses may also catalyze this change. Source: Deloitte Finpro 12

Governmental role Environment, public transport, and infrastructure are on governments agenda One of the driving forces of BEV expansion is government policies favoring mobility with less impact on the environment. Many governments have set clear goals for BEV expansion: Germany is aiming for one million BEVs held by 2020; the United States for one million Plug-in Hybrid Vehicles held by 2015; and China for four million BEVs held by 2020. These countries are also proactively developing policies to create an initial demand that will directly impact the market. These include developing the necessary charging infrastructure for BEVs, providing a subsidy to consumers for choosing BEVs, and opting for BEVs for official use. As the electromobility is a hot topic globally right now, there are plenty of different pilot and research projects going on, mostly funded by governments. Participants of the pilot projects are e.g. big OEM s (to test the technology and to understand the end customer behavior with electric cars) Utilities (to test grid optimization and different charging solutions, to understand the business models how to make money) Cities (to find new solution to CO2 emissions and to understand the new challenges with electromobility) Some examples of pilot cities listed below: Finpro 14

Governmental role - Incentives and funding Another trend that will likely affect the spread of BEVs relates to regulations to promote the use of public transport systems. For example, in Stockholm and London, a congestion tax encourages people to leave their cars at designated parking areas and instead use public transport to enter the city center Governments give incentives and funding to boost BEV acceptance Short description of the funding and incentives of selected countries in the following pages: European subsidies (status 06/2010) for end customers Finpro 15 Source: PSA Peugeot Citroen

Governmental role - Incentives and funding All the important automotive countries support their industries and research institutes with extensive programs on the way to electromobility. Japan: The forerunner country in hybrid/electric vehicles started the government funding already in 1971 and has been supporting the technology continuously since then. There has been many R&D projects with wide involvement of the industry, a infrastructure project with electric charge stations, a Clean Energy Vehicle Diffusion Plan to speed up the launch of green cars etc. The Japanese government invested 2008-2010 ca. 200 mio. in electro mobility. It is still unclear, if and how the government will support the buyers of green cars, the incentive is expected to be around 2.000, if a car older than 13 years will be changed in e-car. USA: The U.S government subsidized the R&D of electric vehicles between 1993 and 1998 with around 455 mio. and also after that flowed lot of state money to R&D. Until 2016 the government aims to support the R&D with 1,5 billion euro. The US companies producing electro engines and electric components get around 500 mio. support. Additional, Johnson Controls gets around 200 mio to develop the batteries together with French partner Saft. The government announced also to support the buyers of e-cars with a incentive, it is speculated to be around 1.800 for a battery capacity of 4 kwh, and 316 for further kwh s. E-cars can also park for free, and all the road charges and tolls should be for free. All in all, governments goal is to have 1 million electric/hybrid vehicles on the U.S roads already 2015. China: China began 2001 to support the R&D of electric vehicles and has been supporting it with increasing amounts of money since then. With a fund totalling approx. EUR 1 billion, China promotes technological innovations in more efficient drive technologies. Moreover, the Chinese Ministry of Science and Technology is supporting the development of over 10 pilot regions with more than 10,000 vehicles and approx. EUR 2 billion between 2009 and 2011. Finpro 16

Governmental role - Incentives and funding Germany: The German automotive industry has been criticized been sleeping the first steps of development in e-cars. Therefore, the government has takes very active role in recent years, aiming to speed up the R&D with numerous funding programs. Germany launched a campaign in Mai 2010 to put 1 million electric cars on the road by 2020, making battery research a priority as it tries to position the country as a market leader. Presently, electromobility is sponsored by the National Electromobility Plan under which a total of EUR 500 million are being allocated in 2009, 2010 and 2011. Additionally, a research program funded by the Federal Ministry of Education and Research provides EUR 200 million for the period from 2005 to 2013. Germany plans not to give any incentives for buyers of e-cars, only R&D is funded. France intends to promote research and development for hybrid and electric vehicles with an overall budget of EUR 400 million over the next four years. Under a bonus-malus arrangement, purchase subsidies of EUR 5,000 are to be granted for vehicles with low CO 2 emissions below 60 g of CO 2 /km. Finpro 17

OEM s Today, automakers are already investing about one-third of their worldwide research and development expenditure of some Euro 75 billion on this goal on CO2 reduction efforts, which include both further optimizing traditional combustion drives and developing alternative drive technologies for serial production. Even though the internal combustion engine will remain important for transport in the foreseeable future and companies need to keep additional efficiency improvements and biogenic fuel use on the transport policy agenda, they must begin today to make the necessary gradual transition to new efficient technologies. Following an example of key technologies to reduce CO2 emissions (Source: Ford) The traditional OEM s technological focus vary, therefore the prediction of winning technology is difficult at the moment. Finpro 19

OEM s Carmakers manufacturing will get simplified and will open up opportunities In short, over the coming decades there will be plenty of space for new propulsion technologies and new players on the market. Full electric vehicles have significantly fewer components than the current car. For example, the Quicc by Duracar has 600 components, while a normal vehicle has between 1700 and 2200 components. One of the electric vehicle s components, the battery, is very expensive and today the bottleneck in the e-car business (kwh costs around 1.000, the aim is to have around 300 per kwh). The electric vehicles distinctive characteristics, such as simplicity of its vehicle structure and driving capability, could bring about major changes to an industry that has progressed without significant changes for a century. With German electricity mix Finpro 20

OEM s End user acceptance for EVs (large scale) is ultimately driven by Total Cost of Ownership So far the future of propulsion technology remains the subject of much speculation and debate with very little consensus. Even within the industry there are very contradictory beliefs. For instance, one side beliefs that hybrid and electric car will be the number one in the future, others are sure, that these are only for the transfer time until the fuel cell technology is ready and cheap enough. Despite boastful announcements by automotive manufacturers, the line-up of battery electric vehicles available to date is rather small. From an overall market perspective, vehicles like the Tesla Roadster (Tesla Motors) or TH!NK City (Think) are just a drop in the ocean, with a share of less than 0.1 percent of the total car market. Likewise, the worldwide fleet of around 2.5 million hybrid vehicles is a marginal phenomenon in view of the more than 850 million cars in the world. In 2010, just two percent of new car sales will involve dual or partial electric drive. By 2025, their market share will rise but the majority will still have combustion engines. As a result, cutting down carbon dioxide is and will remain the hot topic in the automotive industry. Finpro 21

OEM s End user behavior is evident and in OEM s focus One particular side effect of urbanisation is the emergence of so-called megacities. Depending on the definition, the term megacity or mega-urban area is used to describe cities with at least 8 million inhabitants. Worldwide there are now more than 30 of these vast agglomerations, with a total population of some 280 million. For EVs to be successful they must be able to compete on all of customer needs. EV s need to represent an attractive alternative. Attractiveness of EV s and PHEV s a small number of key drivers determine whether customers needs are met Finpro 22

OEM s Today electric vehicles represent a very small niche market which is dominated by low performance light electric vehicles for particular applications. The first major activities of several vehicle manufacturers (OEMs) were carried out in the 1990s and resulted in the development of several electric vehicles in the United States and Europe. A growing activity in electric vehicle development can be observed as a result of recent major advances of battery technologies. Some smaller manufacturers have already introduced electric vehicles at small production volumes into the market. Several major OEMs have announced the development and the commercialization of electrically driven vehicles within the next years. The development activities comprise full electric and plug-in hybrid electric vehicle concepts and passenger cars as well as delivery vans. Some vehicle manufacturers started already a small scale production of electric vehicle prototypes that are tested in several (national funded) projects. The pilot projects concentrate mainly on urban areas and include the installation of charging infrastructure. Examples of globally announced electric series vehicles 2009-2012 Finpro 23

OEM s The manufacturing process of BEVs is also somewhat different from that of ICE cars. While expertise is still required to maintain BEV quality, including its safety, the assembly process of BEVs will be simpler because of manufacturing line simplification, suggesting that the entry barrier to the automotive industry will become lower. Under these circumstances, new BEV manufacturers are likely to break into the automotive industry, much like BYD and Tesla Motors have done. It is also possible that we will see new dealers, like retail stores, that specialize in selling BEVs for emerging automakers. Thus, in the BEV business value chain, industry players may work horizontally across each process. OEMs traditionally regard the powertrain as a critical part of their in-house development and production base. Indeed, the powertrain is how they differentiate their vehicles from those of their competitors. With the arrival of new electric technology, OEMs need to redefine their core competences. This is particularly important as electrical components have not traditionally been a focus area for OEMs. Developing and producing new components will be vital for automakers if they want to stay ahead of their competitors in terms of technology. To some extent this is happening already. Forerunners such as Toyota have built new R&D centers focused purely on electric and hybrid powertrains. Other players such as Daimler are following their example. In powertrain production, OEMs' current focus is on core mechanical components, such as the crankcase and cylinder head, as well as final assembly. Here, a complete rethink of the in-house production setup is needed. Finpro 24

OEM s In early phases, automakers are likely to become deeply involved in many of the processes in order to get a better understanding of the fundamentals within critical systems. OEMs will also need this involvement to make decisions about required in-house competencies, which is so critical for sustainable product differentiation. Later on, as the market matures and competitive landscapes become clearer, automakers might think about scaling back their involvement, reducing it to their core areas. These considerations apply in particular to the battery. Most OEMs, such as Toyota, VW and Daimler, have entered into strategic alliances with battery producers, either through long-term agreements or even joint ventures. BYD, for example, is one manufacturer deeply involved in battery production, and is actually a leading supplier of Li-Ion batteries for cell phones. The company develops and produces LiFePO4 batteries in-house. It covers most of the value chain down to raw materials production (source: Roland Berger). OEM s need to define the level of vertical integration with regard to production and how this will change over time Finpro 25

OEM s Different kind of newcomers on the market Besides the traditional OEM s there are also new comers producing electric vehicles. Many of new electric vehicle specialists like Think have already launched their electric vehicles, whereas the major OEM s have announced the launch of pure EVs and PHEVs by 2013 at the latest. Roland Berger foresees two types of new competitors emerging in vehicle manufacturing. On the one hand, there will be companies that are completely new to the business. On the other, there will be companies that are already active in other parts of the value chain and that wish to exploit the opportunity to become OEMs. Tesla is an example of the first type of new competitor. In the past, OEMs were large, publicly listed companies with an extensive history and tradition behind them. Tesla, by contrast, is a start-up company funded by its founders and venture capital and with a clear vision of the future. Whether this vision will be enough to ensure its survival in the long run remains to be seen. An example of the second type of new competitor companies already active in other parts of the value chain is Pininfarina. Pininfarina is an established contract manufacturer. In 2008 the company unveiled its new City EV. This vehicle builds on the company's wide experience in automotive design and production, leveraging their brand name, which is well known in the industry. With solid financing behind them, these two players may represent a major challenge to established OEMs. Finpro 26

OEM s Strategic partnerships According to experts OEMs must try to identify strategic partners with the expertise and solid financial backing required to secure access to technological know-how. There are lot of partnerships between OEM s announced in the last years, e.g. Daimler and BYD. Not just with other OEM s, the manufacturers are making cooperations with other players as well, e.g. with utility companies, suppliers etc. The joint ventures mentioned below, such as LiTech between Daimler and Evonik in Germany, are good examples of such attempts. Established suppliers such as Bosch and Continental are also trying to support their in-house development activities with joint ventures with leading independent players. This is particularly the case in the area of batteries, with the newly formed SB LiMotive (a 50-50 joint venture between Bosch and Samsung) being one good example. Changing technologies for other components, such as air conditioning and cooling, will create additional opportunities for suppliers, while compensating for losses in the traditional components business. OEM s ensure access to battery technology and production capacity by means of joint venture Finpro 27

OEM s As mentioned, electromobility emergence brings or has already brought lot of new niche car manufacturers to the market, such as Think or Tesla. Frost&Sullivan s forecast how the market will be divided between traditional OEM s and e-car specialists in 2015 Source: Frost&Sullivan Finpro 28

OEM s Different technologies with different features: Source: McKinsey 2010 Finpro 29

OEM s two wheelers Globally, the market of electric two-wheelers is highly dynamic, dominated by an increased demand of zero-emission two-wheelers in Asian metropolitan areas. Including the two wheelers, there are world wide more than 100 million electric vehicles (electric bicycles, electric scooters, in-house forklift trucks etc.) some exhibiting very high growth rate (source: Fraunhofer) Also big traditional players such as Daimler entering this market Frost&Sullivan s forecast how the market will be divided between traditional OEM s and e-car specialists in 2015 Source: Frost&Sullivan Finpro 30

Suppliers According to Deloitte s analysis, the spread of the BEV may bring about a substantial structural change, from a vertical to a horizontal structure, throughout the value chain of the industry. First, because BEVs are manufactured with about one-third the number of ICE cars components, less collaboration will be required between automakers and parts suppliers in the research and development process. In fact, vehicle-to-component calibration will be decreased, with fewer adjustments between components and vehicle required. This means that parts suppliers can develop their products with more autonomy. Finpro 32

Suppliers The market success of pure EVs and PHEVs will have a major impact on almost all parts of today's mobility value chain. The new vehicles will require a number of technically innovative components and systems. This will impact key parts of the component and vehicle creation value chain. With the electrification of the vehicle powertrain, components such as batteries, electric motors etc. will enjoy much higher growth rates than other areas in the automotive industry. Electrification will also mean that other components such as air-conditioning units, water pumps, brakes and steering systems will have to be adapted to make the overall vehicle system as efficient as possible. Established suppliers of current powertrain components must also take a careful look at their product portfolio, technology basis and competitive edge. Failure to do so could result in a loss of future business as the powertrain environment changes and develops. The market for electric and electronic powertrain components will soon be worth EUR 20-50 billion a year Finpro 33

Suppliers Toyota and Honda introduced hybrid vehicles in the late 1990s. This has enabled their key component suppliers in Japan to build up a considerable knowledge base. These suppliers are now utilizing this base to further develop their products for use in PHEVs and EVs on a global basis. At the same time, key European suppliers such as Bosch and Continental are increasing research in this area in an attempt to counterbalance Asian dominance. According to Roland Berger, existing players (excepting those in Asia) essentially have to start from scratch when it comes to developing the new electrified components and systems. This makes it much easier for new players to gain a foothold in the market than was previously the case in the highly mature automotive component market. Indeed, a number of new players such as A123, Litec and Tesla are already offering innovative technologies in specific components, trying to gain a share of the attractive revenues in this section of the value chain. The task facing them is a challenging one for two reasons: strong reactions are expected from incumbents, and heavy up-front investments are required in this field. The biggest suppliers world wide company Automotive turnover 2009/2010 Source: Automobil Produktion 2010 Finpro 34

Battery as a bottle neck Suppliers - battery According to most experts, even if there are challenges within the infrastructure, the biggest problem or bottle neck in electric vehicles is the battery. Mostly because of the battery costs, production costs of a electric car is today about 2,5 times higher than of one with combustion engine. Also in 2025 the production costs will be about 60% higher (Oliver Wyman 2010). Battery is not the core business of OEM s, but to ensure access to battery technology and production capacity they have started different joint ventures, as already mentioned. Manufacturers of Lion batteries currently enjoy a business hype, but massive consolidation expected in next 5-7 years, only 6-8 global battery manufacturer will survive in that time (source: Roland Berger) Source: Roland Berger Finpro 35

Suppliers - battery Electromobility requires efficient, safe and affordable battery systems. The motor-vehicle manufacturing industry makes the following chief demands on battery systems for future electric vehicles (source: National Electromobilty Plan Germany): Battery costs: Lower battery costs are essential for broader market introduction. Today s costs of EUR 1,000 EUR 1,200 per kwh of storage capacity still exceed the international targets by a multiple (typical, small electric cars with a range of 100 km presently incur battery costs of EUR 10,000 to EUR 15,000). The target cost amounts to EUR 300 to EUR 500 per kilowatt hour. This must be met to be able to generate a mass market for electric vehicles. Higher energy and/or power density: The energy density of 200 Wh/kg for battery systems generally demanded by 2015 means almost doubling that of present lithium-ion batteries. Longer service life and higher cycle stability: Due to high battery costs, the demand is for battery service life to equal that of the vehicle. Requiring a service life of 10-15 years also means the ability to cope with 3,000 5,000 charging cycles without major detriment to the parameters. Improved safety features: In normal operation, a battery management system ensures the necessary safety. This must also be assured for accidents or misuse that could cause fires or explosions. Reductions must be made - in weight - volume - charging times - dependence on operating temperature - in the use of toxic components. Finpro 36

Suppliers - battery Many different battery technologies Lithium-ion preferred today. The value chain of electric-car batteries consists of seven steps (source: Boston Consulting Group s analysis): Finpro 37

Suppliers - battery Lithium-ion batteries comprise a family of battery chemistries that employ various combinations of anode and cathode materials. Each combination has distinct advantages and disadvantages in terms of safety, performance cost and other parameters. Main battery suppliers are pursuing different technological approaches Finpro 38

Suppliers - battery Lot of experts and even OEM s see the electromobility bringing the big change to the business model, instead of selling the product in future it might be selling the service. Here rises the question who owns the battery. Many of today's e-cars are based to model where battery is leased to the end user instead of selling it with the car. Due to the battery risks, e.g. the insecurity of the durability etc., the customers are not willing to pay the high battery costs. In many cases the battery costs today are almost the same as the whole car without the battery. OEM s need to decide which product to market from the vehicle without the battery to a full mobility package Source: Ricardo Analysis Finpro 39

Infrastructure Without an appropriate recharging infrastructure with enough availability and necessary density of recharging possibilities, electrically chargeable vehicles cannot successfully be introduced in the market. The energy sector will have to build up a recharging infrastructure as a prerequisite for customer s acceptance of electrically chargeable vehicles. An encouraging framework e.g. with clear targets for market penetration and standards for chargers and billing systems is required to build-up an infrastructure. Frost&Sullivan has 3 scenarios in their forecast about the amount of charging stations in Europe: Finpro 41

Infrastructure The implementation of charging stations is being widely discussed in the industry. Cities across Europe are taking different approaches to infrastructure developments and a wide array of industries are involved creating new partnerships between OEMs, Governments, Utility Companies and Charging Station Manufacturers. In a first phase, recharging places should be installed in parallel at strategic locations including homes, workplaces and truck or bus depots - and on main roads: Public recharging stations (parking garage, shopping mall, Park & Ride ) Home/depot recharging Workplace recharging. Different charging concepts: Slow charging (ca. 3,7 kw, investment around 500-1.500 ) Fast charging (investment around 20.000 ) Battery swapping concept Inductive charging Source: Finpro 42

Infrastructure Appropriate recharging infrastructure required In a first phase, recharging places should be installed in parallel at strategic locations including homes, workplaces and truck or bus depots - and on main roads: Public recharging stations (parking garage, shopping mall, Park & Ride ) Home/depot recharging Workplace recharging. Different charging concepts: Slow charging Fast charging Battery swapping concept Inductive charging Finpro 43

Infrastructure Charging and discharging storage units: Compensating for the fluctuation effects of renewable energies through intermediate storage requires regulatory and control mechanisms at medium and low voltages. Advanced information and communication technologies need to be applied to ensure the continuity of load supply, avoid adverse operating states in power station and grid components and reduce balancing and reserve capacities. Source: Ford Finpro 44

Infrastructure As in general within electric vehicle business, there are lot contradictory opinions also how the charging will take place in the future. Some say fast charging will be necessary, others mean that fast charging effects the battery negatively. Again there are opinions that in the future the whole charging should be realized with inductive charging, i.e. without cables. Here Frost&Sullivan s forecast regarding the different types and technologies of charging stations until 2015. Finpro 45

Infrastructure Regulation and Standardisation issues Comprehensive standards and norms have to be created to ensure the vehicles can be easily connected to the power network in order to recharge the energy storage system. The goal must be to establish worldwide standards in order to avoid market fragmentation and to reduce costs (economies of scale). Standards and common interfaces (e.g. vehicle-to-infrastructure) need to be agreed upon quickly for Europe as a whole to avoid a fragmented pattern of local competing and incompatible solutions. This would provide European industry with a unique opportunity to establish themselves as world leaders in electrically chargeable vehicles and related transport systems. Pilot projects around the world are currently testing the acceptance of different infrastructure and business models Source: Roland Berger Finpro 46

Infrastructure Regulation and Standardisation issues Technical issues with a need for EU-wide harmonization: Standardization (plug, phases, data protocol) Cross-national compatibility (re-charging abroad should not be different to recharging at home) Data protection (personal, business) Safety requirements for recharging/discharging places Safety requirements while recharging/discharging the battery, e.g. short circuits Charging cable at the car or at the recharging station Technical approval body for recharging places Periodic inspections & maintenance of recharging places Liability clarification Convenient billing systems. Meanwhile there is an intensive international standardisation work running at ISO, IEC and CENELEC with regard to the relevant standards for connectors, charging stations and the communication interface. Finpro 47

New Business Models The changes in the industry will create a number of opportunities for innovative companies. This includes companies whose products cover several steps of the new mobility value chain, i.e. mobility service providers. The providers of new services can come from a number of different backgrounds. They may be completely new to the business but have a strong understanding of the key business dynamics companies such as Better Place, for example. Alternatively, they may already be active in one section of the existing mobility value chain, as is the case with OEMs and utility companies. Several new and already existing services can be offered to increase EV profitability even OEM s may act as mobility providers Source: Roland Berger Finpro 49

New Business Models Selling Miles instead of Cars. There are lot of ideas of pursuing new electric mobility concepts. E.g. in California, a start-up called Better Place is addressing the entire value chain for a modern mobility system based on renewable energy sources. Launched few years ago, Better Place is working on the creation of a comprehensive infrastructure for the operation of electric vehicles. Following the concept used to attract mobile phone customers, Better Place plans to provide its customers with cars at discount prices or even for free. Customers would then pay for the distances traveled, with their invoices based solely on the actual number of kilometers driven. Better Place believes it can provide customers with a better kilometer-based leasing deal for electric vehicles than can be obtained for a vehicle with a combustion engine. Here, battery stations designed like gas stations would enable batteries low on energy to be quickly exchanged for fully-charged ones. Better Place has entered a partnership with Renault-Nissan and plans to work with local energy utilities to establish energy infrastructures in various countries. The first electric car-based systems are expected to be up and running by 2011. Finpro 50

New Business Models From product to services; usage instead of ownership; selling miles instead of cars. Most of the experts agree that electromobility will shift the business model from owning a car to using the mobility. E.g. car sharing, fractional ownership and discount rental as a model to fulfill modern mobility demands A big transformational change can be seen in BEV car-sharing services such as the Petit Renta in Japan, the Car Clubs in the United Kingdom and the Autolib and Liselec in France. With the support of their governments, these car-sharing services have seen dramatic growth. Membership in Car Clubs reached 100,000 in 2009. In these models, since BEVs are shared and often used for short trips within the city, their limited driving range is not much of a drawback. If more people look to rent BEVs rather than to own them, BEV manufacturers may shift sales resources from B2C to B2B sales, such as car-sharing companies. Another effective method of connecting BEVs with other transportation infrastructure is through Intelligent Transportation System (ITS) technology/telematics. Currently, ITS/Telematics is used for smoothing interactions between road traffic systems and traffic control signals. In the future, interactions are likely possible over a wider operational area including other public transportation infrastructures. For instance, ITS/Telematics could help customers search for charging facilities nearby and give them access to reviews and other information related to the reputation of these facilities. Even from remote places, owners of BEVs could control the charging speed and view real-time state of charge through ITS/Telematics technology. Finpro 51

New Business Models Mobility integrators to offer innovative mobility solutions Example of new business model out of the box: Telekom Austria has decided to turn its public telephone boxes -- which are in danger of becoming obsolete anyway thanks to mobile phones -- into battery recharging stations for electric cars. Finpro 52

New Business Models Car sharing as one of the solutions for the new kind of mobility demand Source: Roland Berger Finpro 53

New Business Models Even charging stations offer different kinds of new business models. Utility companies are very active in many countries, e.g. in Germany, where they act as a kind of integrator. But earning logic still missing for utilities. Lot of new business models even within the charging station business, still today unclear who makes the business here (e.g. payment solutions) Finpro 54

Conclusions Picture for the future in electromobility is still very unclear. That explains why the market predictions are so contradictory and the opinions about the winning technology (e.g. BEV vs. fuel cell) vary a lot. Electromobility will thoroughly shake up the automotive industry. It will create many opportunities for innovative companies, but also pose serious risks for both established and new players Lot of new business models within electromobility. Earning logics are evolving but still vague. Coordinated collaboration between the industry, the research community, governments and customers is needed. Battery electric vehicles earlier to the market (ca. 2011 ->) than fuel cell vehicles (ca. 2115 ->) Standardization at European and global level are of crucial importance for technology and market preparation of electric vehicles. Future electromobility will be a lot more than just vehicles themselves -> Discover and conceptualize the services! Finpro 56

Conclusions for Finnish industries The success of individual players will very much depend on how well they understand the market dynamics of their specific section of the value chain. Electromobility raises a number of very critical questions for any market participant, and the answers to these questions i.e. the individual business strategy will differ from company to company. Partnerships are crucial for success. To become a part of the ecosystem faster, in some cases the best solution will be M&A instead of organic growth. Instead of developing the product/service in Finland, it might be better in many cases to cooperate in the early stages of different pilot/research projects, and develop the offering with foreign partners abroad. Develop the products/services with a market driven, instead of a technology driven, focus. Understand the market development and what already has been done, do not reinvent the wheel It might be easier to begin in those countries that do not have a strong local OEM automotive history and closed ecosystem (e.g. Switzerland easier to enter than Germany) For new players outside the automotive sector, it might be easier to begin with other new market entrants (e.g. e-car specialists) instead of the big traditional OEM s New entrants are often much more agile and dynamic Big OEM s have a tendency to use their existing suppliers, and are mostly not willing to deal with smaller newcomers outside the business and without references. Also they expect large capacity - even from prospective partners. Finpro 57