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Electrification in car industry to increase; Greatest challenge is high cost of batteries in range €10,000 to €15,000
By Michael Hennigan, Founder and Editor of Finfacts
Apr 22, 2010 - 6:29:03 AM
GM's Chevy Volt: Nissan has announced in the US that its Leaf electric car will sell for $32,780 … well below GM’s Chevy Volt’s sticker price of $40,000. When a $7,500 federal tax credit (which the Volt would also be eligible for) is offset, that gets the price down to just more than $25,000. The Volt fuel targets are 50 miles per gallon (gasoline), 4 miles per kWh (electricity). When the battery is drained, the gasoline engine kicks in to generate electricity, powering the electric motor. Nissan’s Leaf is expected to be on sale in Ireland for approximately €30,000, a price that has led Forbes magazine to hail the Leaf “as more likely to be a sales failure than a sales success.”
The degree of electrification in the car industry will increase steadily over the coming years. More and more vehicles will be powered partly or fully by electricity in future. However, rapid structural changes are unlikely as many general problems surrounding electromobility have yet to be solved. Probably the greatest challenge in this context is the high cost of batteries which are currently in the range €10,000 to €15,000.
It has been claimed that Ireland is "poised" to become a European leader in electric transport, following a comprehensive partnership of the Irish government, the Renault-Nissan Alliance, and ESB, the nation’s largest electricity utility, and announcements of tax credits - - those who purchase electric cars will be eligible for a €5,000 grant, and will be exempt from the vehicle registration tax.
However, the gap between political wing bagging and reality is often wide and the target that 10 per cent of Ireland’s vehicles will be electric by 2020 with 2,000 electric cars on Irish roads by 2011; 3,500 charging points available nationwide by December of 2011; 30,000 in 2020, is good news for supporters of the Green Party as they add this initiative to home insulation on their unimpressive laundry list of what are viewed as "achievements."
Green Minister Eamon Ryan said last week: “Ireland will be among the first in the world with this kind of nationwide infrastructure. It’s bold, ambitious, and will show Ireland as a global leader in the green economy.”
What nonsense! The cars are manufactured elsewhere and most of the electricity will still be generated by fossil fuel and we await others to design efficient batteries!.
In a commentary, Deutsche Bank economist, Eric Heymann, says there is no doubt that times are changing in vehicle manufacturing. Over the next few years, vehicle electrification will increase steadily. The share of mild-hybrid and micro-hybrid vehicles is rising worldwide. And soon there will be plug-in hybrid cars and purely battery-powered vehicles entering the market – albeit in small numbers. All major carmakers have intensified their R&D efforts in this area. The large power companies have also been "electrified" by this development. Parts suppliers are looking for ways to benefit from the trend. And companies with know-how in battery technology are sensing big business opportunities, too.
The drivers of electromobility are well-known: rising oil and petrol prices as a side-effect of the finite nature of "black gold", strict regulation - - for instance in the EU - - of CO2 emissions of cars, changes in consumer preferences as well as competition in the car industry have triggered this trend reversal away from fossil fuels to electromobility.
Quick structural change unlikely
Despite these long-term trends, rapid structural changes in car manufacturing are unlikely. The reasons are legion. The decisive issue at present is the fact that batteries are still too heavy, bulky and, above all, expensive. Costs per battery currently amount to a minimum of €10,000 to €15,000. As electricity is not free either, one would have to drive about 250,000 kilometres for the battery to pay for itself - - provided it does not have to be replaced along the way. Compared with this cost disadvantage, other unsolved problems of electric vehicles look almost insignificant: for many users the range of electric vehicles is still too small, and the life of the expensive batteries too short. Moreover, batteries take a long time to be recharged, not all security issues have yet been solved, the infrastructure (e.g. charging stations) is still in its infancy and power generation also causes CO2 emissions. Nonetheless, some articles on electromobility seem to suggest that there will be a plethora of battery-powered cars on offer tomorrow which the average consumer can afford (without any kind of subsidy). However, even small purely battery-powered cars will probably cost no less than €30,000 for some time to come. At the end of the day, companies and politicians will have to manage public expectations wisely. Should the currently very high expectations regarding electromobility be quickly disappointed, this would be counter-productive for the long-term success of this promising technology.
The Saudi Arabia of Batteries: Bolivia has the world's largest reserves of lithium, with CNBC's Brian Shactman:
Government subsidies – a balancing act
Heymann says to make it absolutely clear: he does not wish to convey any doubts as to the medium to long-term prospects for the success of electricity-powered cars. However, structural changes in this sector will take up to two decades, especially as there is still considerable potential to boost the efficiency of both petrol and diesel cars. A farewell tribute to the combustion engine would certainly be premature. Moreover, other alternative fuels such as gas or bio-fuels are likely to gain in importance, too.
The economist says all the same, the race for pole position in the transition to the age of electric cars has begun. China, for instance, has set itself the ambitious target of building roughly one million battery-powered vehicles per year from 2012. To meet this target, massive subsidies will be granted to the car industry and car buyers (as is the case in other countries, by the way). In terms of the ecological impact, though, this is a questionable plan. First, most of China’s electricity is generated by coal-fired plants which would mean large-scale CO2 emissions. Secondly, in the case of electromobility the CO2 mitigation costs by far exceed the threshold of €1,000 per tonne of CO2 and are thus exorbitantly high. At present the price of CO2 in EU emissions trading is approximately €13 per tonne. First and foremost, China’s strategy is politically motivated: the country wants to be one step ahead in battery technology - - and actually stands a good chance of achieving this goal.
Heymann says in this environment it is not easy to find the best way to promote electromobility - - especially in a country such as Germany where the car industry plays an important role. It cannot be in the governments’ interest that the leading car-manufacturing nations enter into an incentive competition, but the risk of this happening cannot be ignored. What should the government do? Direct grants for purchasers of electric cars to the tune of several thousand euros are not only very expensive but also problematic in ecological terms as there are in fact many considerably cheaper ways to reduce CO2 emissions. It would be better to promote basic research or provide political support , e.g., for the development of technical standards. Other conceivable options are preferential treatment of battery-powered vehicles on the road – for example by granting them exclusive use of dedicated lanes.
In the longer run, though, electromobility should be able to work without subsidies. To this end, enormous technological progress would have to be achieved and economies of scale generated over the next few years. This will hardly be possible without cooperation across the entire value-added chain in the automotive sector. To make battery-powered vehicles attractive to the mass market without subsidisation, the cost of batteries would have to fall by approx. 70-80%. This cannot be achieved over the short term but will take several years. Moreover, the other challenges mentioned above will have to be met.
Eric Heymann says, all things considered, it will be a balancing act for the sector’s R&D departments to achieve progress with electromobility without at the same time neglecting improvements to conventional propulsion methods, which will remain important for many years to come. And the effects of the latest recession will not make this an easier task, either.
