EPRI's Alexander: The Evolving Hybrid Market
Two years ago this week, the average U.S. retail gasoline price was approximately $3.00 a gallon and on the verge of increasing by more than 30% in just four months' time. Given the escalating cost of fuel, sales of new gas-electric hybrid cars were brisk. In fact, waiting weeks or even months to buy one was not uncommon as car dealers struggled to satisfy demand.
Fast-forward to the last week of February 2010 and the average retail price is nowhere near $4.00 a gallon -- although it has regained considerable ground since plummeting in late 2008. Moreover, new car purchases have largely been in the doldrums. Also, the economies of California and other Western states where hybrids were particularly popular have been especially hard-hit by the deep recession. Gone are the days of waiting to find a new hybrid to park in the garage.
"The market has changed very quickly over the past couple of years, and it seems likely that it will continue to change quickly as vehicles are deployed and we are able to see how consumers respond," said Mark Alexander, Manager, Vehicle Systems Analysis, at the Electric Power Research Institute (EPRI) in Palo Alto, Calif. An electrical engineer, Alexander has spent nearly a decade working on the development of prototype plug-in hybrid electric vehicles (PHEVs) and researching hybrid powertrain design, embedded control systems, vehicle simulation, and high-voltage systems. Currently, he focuses on developing hybrid electric vehicle simulations, control strategies, and software for plug-in hybrid and fuel cell vehicles. He also manages EPRI's field test demonstration data acquisition program, including hardware design and data analysis.
The chart below illustrates the volatility of the hybrid and electric vehicle market in recent years.
Although the number of hybrid electrics sold has increased overall, it is dwarfed by the number of conventional vehicles sold during the same period. According to the National Automobile Dealers Association, new light-duty vehicle sales totalled approximately 16.9 million in 2005, 16.5 million in 2006, 16.1 million in 2007, 13.2 million in 2008, and 10.4 million in 2009.Hybrids, PHEVs, and EVs
When examining the topic of hybrids and other vehicles powered at least in part by electricity, it is helpful to consider their relationships to both the electric power grid and the internal combustion engine. The majority of hybrids on the road today -- examples include the Toyota Prius and the Ford Fusion Hybrid – use an electric drive system linked to a gasoline-powered engine that charges the battery. Such vehicles receive no power from the electrical grid.
A newer variety of hybrids, plug-in hybrid electric vehicles (PHEVs) such as the Chinese-built BYD F3DM and the still-unreleased Chevrolet Volt, receive their charge from standard household electrical outlets. The majority of PHEVs are designed to run solely on battery power for relatively short distances. They rely on gasoline-powered engines for longer-distance driving.
A third type of automobile, the nascent electric vehicle (EV), is not a hybrid at all because its only power source is an electric motor. An EV is entirely dependent on the power grid, via household electrical outlets, to provide charge for its batteries. Tesla Motors and other small start-up companies have been founded for the sole purpose of developing EVs; many EVs have not reached the production stage yet, although Tesla's Roadster is an exception. Large automakers are also working to bring EVs to market. For instance, Nissan expects to begin marketing its Leaf model toward the end of this year.Improving Cost-competitiveness
According to Alexander, hybrid manufacturers deserve credit for overcoming technological challenges associated with components such as motors, inverters, and batteries. Although the industrial and commercial sectors had already developed these components, the automakers devoted considerable resources to making them more durable and cost-effective for transportation applications. "There has been significant progress in the past decade in bringing costs down, so that hybrids can now be cost-competitive for many market segments," he said.
An ongoing challenge, nevertheless, is the need to economically mass-produce batteries that can store more energy to power vehicles for longer periods on a single charge. To be sure, a Tesla Roadster managed to travel more than 300 miles on a single charge in an Australian competition last year; but, most production hybrids and PHEVs have a far shorter battery-only range – typically below 50 miles. "In addition to continued cost reductions in motors and inverters, PHEVs and EVs require the development of practical batteries with high energy density," continued Alexander. "There are a number of technologies that are promising for initial deployment of these vehicles, but research and development efforts will have to continue in order to bring costs down and to handle any problems which may occur as batteries are deployed in production volumes."
In fact, Alexander notes that the battery accounts for the largest cost difference between conventional vehicles and electrically driven vehicles – particularly EVs. "There is a large amount of progress being made in this area, but work must continue in order to further bring down these costs," he said, adding that analyzing costs and benefits on a total lifecycle basis is a worthwhile exercise. "Plug-in hybrid electric vehicles and electric vehicles will likely always cost more to purchase initially, but operating costs will be significantly lower, especially if gasoline prices go up," he noted.
The table below displays the results of a November 2009 analysis by Bingham Farms, Mich.-based Vincentric, LLC. It illustrates the cost-competitiveness of hybrids, and it reveals that no hybrids can be financially justified yet based solely on the total cost of ownership figures. However, it also shows that some hybrids offer considerably more value than others. For instance, the overall cost of owning a Toyota Camry hybrid is estimated to be only $720 more than its conventional counterpart; conversely, there is a $22,263 spread between two Lexus models.
The analysis compared the hybrid price premium, or the additional amount one would expect to pay for a hybrid compared to its conventional counterpart. It also shows the cost of ownership differential, which refers to how much more one can expect to spend to own and operate a hybrid rather than a similar gasoline-powered counterpart. Finally, the fuel cost differential is the amount of money a hybrid owner can expect to save in gasoline costs.
In some quarters, energy source has tarnished the "green" credentials of PHEVs and EVs. Some advocates of developing these types of vehicles endorse the goal of weaning the automobile sector from reliance on fossil fuels, but the batteries in these vehicles often obtain their charge from electricity produced at natural gas- or coal-fired power plants. Renewable sources such as wind and solar generate a much smaller proportion of electricity on the grid.
Some have argued that increasing the number of PHEVs and EVs on the road would actually lead to a net gain in the amount of natural gas and coal burned because demand for household electricity would increase. Alexander does not see this as an issue in the foreseeable future given the relatively small number of these vehicles on the road."In the near term, the number of vehicles will be low enough that there will not be significant impacts at the generation and transmission level," he said. "It is possible that some areas will exhibit distribution system impacts as the transformers in specific neighborhoods become overloaded, since customers tend to live near similar customers."
Should sales of PHEVs and EVs eventually begin to rival those of conventional vehicles, Alexander believes that the power industry will be able to accommodate the increased demand for electricity. "In the long term increases in the number of electrically driven vehicles could require changes in generation and transmission, but this load growth is relatively small compared to the size of the electricity system as a whole, so we should have adequate time to prepare for the changes," he said.
Ultimately, Alexander stresses that the competitive landscape for hybrids, PHEVs, and EVs hinges on two key variables: battery costs and gasoline costs. "Unfortunately both are very hard to predict," he said, adding that EPRI is "cautiously optimistic" that battery costs can be significantly reduced. Even under that scenario, the consumer will have to decide whether the vehicles' higher upfront costs relative to those of conventional cars, trucks, and SUVs are justified.
"This would still be a market challenge--consumers typically expect rapid payback and are sensitive to up-front costs," concluded Alexander. "However, providing high customer value can create significant opportunities, particularly if gasoline prices increase."