What If The Hybrid, Plug-in Hybrid, And Pure EV Markets Are Only Segments That Become Saturated Before Economies Of Scale Are Achieved?

by Jack Lifton on April 13, 2009

in Batteries, Hybrids & EVs

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It’s been a common practice for carmakers to first introduce a new vehicle “type” in limited production as a marketing test. There have been, for example, the Corvette, the Thunderbird, the Aquacar, the Edsel, the Pinto, The Chevrolet Vega, The Cadillac Cimmeron, the American Motors Alliance, the Chrysler K-car, the Chrysler Minivan, the SUV, The GM EV1, the Toyota Prius, and so on.

Few of the very, very, expensive marketing gambles for OEM auto makers have ever paid off, or even repaid their tooling costs, viz the second edition of the Thunderbird by Ford. This explains why auto makers are reluctant to try out totally new car types or radical “under the hood changes”, the benefits of which need to be explained to non-technical customers. The reluctance of any major car maker to put a pure EV or a lithium battery-using vehicle on any kind, into even limited production, is an old story not a new one.

Invisible changes in the construction of motor vehicles that affect their expected performance need to be explained, or, in cases such as catalytic converter, excused, by the marketing arms of the OEM auto makers.

Health and safety changes in the construction of automobiles have been not market-driven but caused mostly by government action, i.e., legal coercion. The catalytic converter, airbag, shock-absorbing interior trim, and shock-absorbing bumpers all add cost or weight or both and some, such as the catalytic converter, reduce performance.

One change, however, the demand for higher fuel efficiency, has been caused both by economics – those of fuel price – beyond the control of the OEM automotive industry, and by political coercion due to the response of the political class to pressure from well-organized activist groups known generally as environmentalists. They justify their activity by saying it is for the greater good in that it will decrease the emission of man-made greenhouse gases, which themselves are classed as a “cause” of “global warming.”

The goal of the major car makers is to produce a personal vehicle powered by something other than a hydrocarbon-burning internal combustion engine (ICE) which, nonetheless, gives the same performance and range as the ICE-powered car. This goal of the automakers has proved to be impossible, if the alternate powered personal vehicle is to be sold for the same price as its predecessor!

Therefore the major automakers have devised a strategy to break the market into segments, each of which satisfies a niche. First of all, utilizing the properties of lithium-ion batteries as they have come to be understood, the majors will produce a small limited range, low performance, “city car” for daily driving to work and for shopping. Second, they will produce a longer-range, higher performance vehicle using the well-documented properties of nickel metal hydride batteries, in a hybrid drive train combination with a small low emission gasoline or diesel engine, for the mass market for customers who live beyond the city or use their cars for work. Third, they will produce expensive high-performance decent range cars for customers who want performance and can afford it.

The key problems at the lower end of this product range are the cost of lithium-ion batteries and their so-far unproven durability and safety. These low range, limited-performance vehicles, using lithium-ion batteries, are simply not cost competitive with their ICE or even with their lead-acid battery using equivalents.

In the largest segment, the long range, good performance general purpose personal vehicles, the hybrids using nickel metal hydride batteries are production-limited by the limited production of the key component metal, lanthanum, for their batteries. If a lower cost lithium-ion battery could be developed for hybrid power train use, it would quickly make the hybrid the most attractive option for the electrification of longer-range, better performance, general use personal cars. I believe that both types of batteries will be used in hybrids until and if the development of the lithium-ion battery improves its cost of manufacturing dramatically.

Finally the high performance long range electrified vehicle will always be a tiny segment for the wealthy consumer. The only point to its development is the possible impetus this will give to the development of a lower cost lithium-ion, or other type, of battery. Since this is not a goal of the small manufacturers of these luxury cars, such a spinoff is unlikely.

Long range, freight-hauling, road-using vehicles will for the indefinite future be powered by ICEs, so the development of more fuel-efficient ICEs will continue.

The only possible way that the OEM automotive industry can develop and beta test all of the electrified vehicle types, for all of the segments identified above, is by a massive infusion of money from government. Unfortunately government cannot supply innovation or select the best path to innovation.

This means that the American OEM automotive industry may just become a test bed for politically-driven choices. It’s difficult to see a profitable car industry as a result of government product-choice management.

I think that for the foreseeable future, we will have a variety of types of electrified vehicles on the road, subsidized by tax credits and direct grants. I doubt that electrified vehicles will attain the 20% of the market predicted for 2020 by Exxon-Mobil, but even if that comes true their will be as many as 120 million vehicles powered by ICEs also produced in 2020. I wonder if GM or Chrysler will be in the global top 10 in 2020? Somehow I doubt it.

In summary, the low end of the market for electrified vehicles, the city car, will be saturated only if a low cost city car is put on the market; the large general purpose personal vehicle market cannot be saturated by electrified vehicles, because of natural resource limitations for nickel metal hydride and costs of lithium-ion batteries; and the high end of the electrified vehicle market will be quickly saturated, because it is tiny and can be satisfied by hand-made, very expensive batteries.

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