Integrating emerging business models and new value chains
41 delegates attended this successful conference in London on 27 April 2010.
The morning session was addressed by Sean long of One North east RDS, Andrew Heiron in charge of the electric vehicle program of Renault UK and Simon Arbuthnot of Ricardo Strategic Consulting.
Simon noted that there is still no clarity concerning which EVs will be winners and which losers, but emphasis is on pure EVs and plug in hybrid PHEVs. A big driver of the plug in options in the UK is the swinging carbon dioxide tax ramp by which if fleets did not change, they will pay Euros 33 billion in extra tax in 2015 which would bankrupt them. He was sure that, in 2025, the main market will be plug in. Later, hydrogen and new biofuels will also have a place. Ricardo does not see one technology winning but EVs will certainly be a significant part - 5-20% of vehicles made in 2020.
There will be new market players, intermediaries and forms of value creation as a result. He noted battery maker BYD in China successfully going into pure and hybrid EV cars. Of course, battery cost is key to pure and PHEVs. Another huge factor is how, on Ricardo's estimates, 35% of vehicle value will be lost by OEMs as they move to electric vehicles, with threats not just to revenue but to differentiation and fixed costs already invested. They even lose about Euros 3.5 billion of yearly after market. He summarised by noting that learning how to make the vehicles is no longer an issue but how to make money out of them is very unclear as yet. What products and services should they offer? Should the end user no longer own the car or at least not own the battery because that is hugely expensive and short lived (eight years?) but resalable for e.g. wind farms at the end of its road life? He sees power train divergence and probably pure EV/PHEV use heavily biased towards city/suburban locations.
Renault with partner Nissan is the only major car company majoring on pure electric cars while other majors are concentrating on mild hybrids with a gentle progression to plug in hybrids and token pure EVs. At this conference, they projected 10% of cars being pure EV in 2020, noting that those with lower figures are tending to increase them in recent months.
Andrew Heiron noted that ARUP also puts pure EV cars overtaking by 2020 but most pundits see hybrids ahead for the decade. He noted that the electric cars being launched in the next few years are mainly small. He aired the dilemma of most dealers selling under ten of the electric cars yearly initially and yet if only certain dealers are allowed to sell them, the others will malign them. The price model being adopted is the have parity with conventional cars after subsidies. The financial benefit to the user comes from lower ongoing cost, most of this being monthly payments for the battery. This is only true if over 100 miles a week are travelled. His figure for conventional vehicles showed that fuel is the main ongoing cost. Relative depreciation is the issue that must also be addressed of course.
The morning discussion session noted that the UK Government gets about £30 billion yearly from fuel tax and questioned what will happen about that. Apparently it becomes and issue when £1 billion of yearly revenue is lost and that means about one million EVs on the road which is a 2020 issue in the UK, not earlier. However, Andrew Heiron of Renault thought that the diesel efficiency of conventional cars will be the main driver of tax issues not EVs. He expects government to tax conventional vehicles more and more to curb carbon dioxide.
Simon Arbuthnot of Ricardo answered a battery cost question by saying that projections on this are a black art confused by East Asian projections often being based on inferior product. Despite a relative lack of incentives for electrifying light commercial vehicles, it was revealed that Renault, Ford, Modec and Smiths are starting by launching models of these because this sector is first mover on EVs. This is because of the green credentials required of the institutions buying these. However, even here it will also be "No one sales proposition meets all requirements".
The UK has about 30 million vehicles and about 10,000 conventional refuelling stations and the question was asked whether this gets turned on its head with even one refuelling station for EVs is needed per car. Surprisingly, the speakers did not know the answer but they thought it would be nothing like one per car and data gained on behaviour using e.g. GPS will be saleable. They could only say that perhaps 75% of recharging will be done at home. The Mitsubishi trial revealed that users were only recharging once every few days and then only partially.
In answer to another question, the panel felt that the UK park of cars will continue to increase albeit at a slower pace but said it is still uncertain whether EVs will mainly be replacement or additional cars in a given household.
Workplace charging is second priority after home charging. Vandal proof charging facilities in the community are a poor third in preference and installations are reflecting this. The severe challenge of resale value - if any - of EVs was discussed including various new ways of measuring aging and therefore value of the car, number of battery recharges being an option. From the audience, Toyota noted that people were so keen to continue to buy their cars outright that the Prius leasing option was withdrawn. Nissan is going the battery leasing route anyway.
Kate Armitage of EDF, which supplies 25% of UK consumer energy, said that there is no foreseeable problem with the grid coping with electric vehicles, though local reinforcement of infrastructure in cities will take place. She estimated that carbon dioxide emissions are reduced by 30% with electric cars even using the UK's relatively polluting power stations supplying the electricity. EDF already runs 1500 electric vehicles and it is installing charging infrastructure for the public. In the home it does not recommend the existing sockets for charging electric cars. Special charging points must be installed.
Transport for London is installing 25,000 electric vehicle charge points across London and EDF is strongly supporting of EVs and their infrastructure. Indeed it believes that eventually, these vehicles will be largely charged off peak and help balance load given the flat power profile of nuclear power stations. However, the EDF charging infrastructure is more a community benefit rather than a source of profit but at least these users are premium customers so the value to EDF goes beyond this. EDF, like others, foresees that the bulk of charging will occur at the home and at workplaces.
Nick Ford of Frost & Sullivan addressed the evolving EV supply and support chain in Europe. He felt that sales propositions may imitate the mobile phone and telecommunications industries. He favours a Euro 350 per month energy package but OEMs will need to target Euros 550-600 per kWh to achieve profitability. 70% of sales will be city cars.
Charging stations will not be an easy business, so other services must be offered by those managing charging stations, such as diagnostics and music downloads. He shared detailed costings of electric car purchase and support vs. conventional cars and his conclusion that viable business models are possible. In cash flow over five years, manufacturers can make Euros 4-4.5 billion, charging station companies can earn Euros 430- 500 million and battery swappers can earn Euros 350-380, so he expects that both OEMs and energy companies will become integrators.
However, the Better Place type of battery swapping during the journey was seen by Frost & Sullivan as becoming less of a priority in most countries in the last year, with no prospect of a standard size and mounting of the battery for now. EDF also felt that battery swapping during the journey is not centre stage and fast charging is not a priority for them either because off peak is the primary focus of EDF. Indeed, she noted that rapid charging stations cost a great deal more. Dagfinn Sivertsen in the audience, who works for a fast charging company Aker Wade Power Technologies, argued that it is essential and likely to be installed along motorways and so on. His taxi chargers in Tokyo are achieving a 30 minute charge. Sean Long described how rapid charging is being introduced in the North East of England in order to reduce range anxiety.
The afternoon panel session was mainly concerned with peak oil expected within ten years, decarbonising of the electricity utilities and complete life cycle costs and environmental impact of electric vehicles which can be poor but every journey starts with a single step.
For more see: Electric Vehicles 2010-2020 The conference uniquely covers EVs for land, water and air and emphasises future breakthroughs. Speakers include big hitters such as Nissan, Fiat (Research Center Fiat), Siemens, the $37 billion BAE Systems (military and non military EVs) and the Automotive Research Center of the US Government (military EVs) and many speakers from East Asia - India, Hong Kong, China and Japan. Early Bird bookers get the $3000 report "Electric Vehicles in East Asia 2011-2021" absolutely free.