"We're bullish on electrification of the industry"
When Tennessee Sen. Bob Corker strolled into the Ford Motor Co. display last week at the Detroit auto show, Mark Fields had his pitch for electric vehicles ready.
The Ford vice president steered Corker toward a display showing the underside of a Focus converted to all-electric power, and pressed a case that Ford and other automakers couldn't make such models happen alone.
"We are really going to need to partner with the government and the electric companies," Fields said. "The infrastructure is key. If you're going from one state to another, where are you going to plug in, what are you going to charge for it?"
It's the kind of conversation that Detroit's executives will have plenty of practice with in the coming years. Between government interest in new technology and last summer's oil price spike to $150 per barrel, automakers see little choice but to push ahead with electric vehicles, despite drawbacks that have no easy answers today.
After years of tests, the technical challenges for automakers to build such models appear manageable, whether for plug-in hybrids, all-electric vehicles or extended-range electric models -- vehicles with engines that generate electric power rather than drive the wheels.
Oil prices have only abated because of the slumping economy, and the wild swings of last year show that growing demand has outpaced any increases in supply. Any sign of economic recovery could send prices soaring again.
"There's an inherent braking mechanism on our economy that's tied to oil and will limit our economic growth," said Deutsche Bank analyst Rod Lache. "This is one of the reasons we're bullish on electrification of the industry."
Lache estimated that based on today's electric prices, an electric vehicle could save a driver who travels 15,000 miles a year about $1,500 annually over an efficient gas-powered car if gasoline hits $4 a gallon.
Yet with higher costs, uncertain demand and reliance on government aid, the march of the electric car may be more of a crawl. The Boston Consulting Group estimates in a new study that even assuming government help, all-electric and extended-range electric vehicles will account for just 5% of the North American market by 2020.
Xavier Mosquet, a senior partner at BCG and head of its Detroit office, said that by BCG analysis, even at last summer's peak oil prices most consumers would face higher costs with the electric vehicles shown so far.
"We think the government will have to give tax incentives or other forms of subsidy to be able to pay for these vehicles," he said.
The highest hurdle remains the cost of the batteries. In its report, BCG estimates that the lithium-ion batteries most automakers are studying could fall to $500 to $700 per kilowatt-hour by 2020, from roughly $2,000 today.
At $500, the battery pack Ford put into a Focus test car for an all-electric conversion would cost $11,500 alone. The pack in the Chevrolet Volt would be slightly less at $8,000 -- almost enough to be covered by the government's $7,500 tax credit.
Even Tesla Motors, one of a handful of companies at the show building electric vehicles today, needs $700 million in federal loans to expand its lineup beyond a low-volume two-seat roadster -- and it touted its technology as a cheaper alternative.
Stefan Jacoby, head of Volkswagen's U.S. division, said he doesn't expect consumers to take to electric vehicles in the near term, especially as gas prices continue to be volatile.
"I think we should be very careful with expectations that ... a market like the United States with 11 to 15 million vehicles per year will switch from one day to the other to electric cars," Jacoby told reporters at the North American International Auto Show last week.
"The batteries that you see here cost at least 8,000 U.S. dollars. Nobody knows how they are in long-term use ... It will take more time to really develop electric vehicles which are reliable for the day-to-day use."
Beyond that, the basic nature of a vehicle with an electric plug will limit their appeal for many years to come. Only Chrysler LLC showed an electric vehicle that wasn't a small car, since even more batteries are needed for trucks and larger vehicles. Ford has said it would build a battery-powered van, but only for commercial fleets.
Researchers at the Institute of Transportation Studies at the University of California-Davis estimated last year that only half of new-car buyers had an electrical plug close enough to where they park to make any kind of plug-in purchase viable.
Based on their study of how people drive, "we estimate that about one-third of U.S. new vehicle buying households have both the required infrastructure and interest to purchase a vehicle with plug-in capabilities," wrote researchers Jonn Axsen and Ken Kurani.
As for where the electricity for the vehicles will come from, most research has shown that as long as drivers plugged in at night -- from 8 p.m. to 6 a.m. -- the load could be met with current power supplies.
The trouble comes if drivers try to plug in during the day, when the power grid can strain to meet demand, especially during the summer. Many utilities are researching "smart-charging" systems, or rechargers that use renewable energy, but all that adds another layer of technology.
GM's decision to bring battery research in-house -- rather than rely on outside suppliers for a key technology -- shows how automakers will have to change their traditional businesses.
The cost to GM of jumping into battery research in the midst of crafting a turnaround plan for $13.4 billion in government loans will have to be offset somewhere, said GM Vice Chairman Bob Lutz.
"We're de-emphasizing other things," Lutz said. "No one's working on a big-block V8 anymore." Detroit Free Press