Lessons from Detroit Conference on Plug-in Electric Vehicles

If I could sum up last week’s conference on electric vehicles in a single sentence, it would be this: I’m now certain that my kids will grow up driving electric cars.

Advocates have been saying it for a while, but now all sides of the debate—including automakers, utilities, venture capitalists, and policymakers—are saying it too: electric-powered automobiles are the real deal, and we’re on the cusp of the biggest transformation in automotive history since the invention of the internal combustion engine.

This may come as no shock to readers of Gas 2.0, but the complexity and number of major players involved in making this happen is not easily grasped. This is why the conference, called The Business of Plugging In, brought a diverse, all-star cast of speakers to Detroit.

A few of them are featured in next month’s Inc. Magazine, which does a fantastic job of describing what’s being called the ‘Electric Car Ecosystem.’ It looks something like this:

Electric cars must be built (by automakers and new venture-backed start-ups), supported by a supply chain of new components (like batteries and new types of electric motors) as well as new manufacturing capabilities, which are all being made possible by major grants (from state and Federal government). The cars will be fueled by electricity (provided by utilities) in a fashion that must not overwhelm the power grid (and aggravate consumers and utility companies), and will ideally be sourced from new low-carbon power (like wind and solar) in a way that intelligently connects the car to the grid and the web.

It’s the new interconnected car.

The Business of Plugging In did an excellent job of presenting the entire ecosystem as a system of interelated parts. Without re-hashing the entire conference, there are a few important points and major themes that should be highlighted:

Electric Vehicle Infrastructure:

• Concern over charging infrastructure for electric cars should not be seen as an impediment to their immediate adoption. While there are major considerations for the long-term, things are ‘good enough to get started’. Most of these cars will sit long enough to charge by a simple 110V plug—something that at least the 53 million garage owners in the US have access to. That’s not a niche market, that’s huge.
• Studies have shown that the US can handle tens of millions of electric cars charging during off-peak nightime hours with our current infrastructure. We don’t need fancy Smart Grid features to make this happen, since it’s easy to do this (now) with timers that only allow charging during certain times.
• However, adding a 220V plug (like the one powering your dryer) for an electric car is like adding a few new homes to the grid. Plugging in 5 or 6 cars at 220V during summertime peak load would (as of today) cause local blackouts.
• Adding a 220V plug to your home may require additional cost. While most homes are wired for this (for the dryer), you still have to make a plug accessible to the car, and this has to be professionally and safely wired (this is called Level 2 charging). Worst case scenario is an added $1,000 cost impediment to the consumer (and the time for installation).

Electric Vehicle Battery Cost:

• Cost in the form of battery technology is the biggest impediment to widescale production and adoption of electric vehicles, for both consumers (who balk at anything over a $10,000 premium on new vehicles) and automakers (who need profit margins).
• But battery cost is not so high that it’s a deal-breaker, and it will come down quickly. According to estimates, the battery in the Chevy Volt costs roughly $8,000. Look for that to drop nearly in half by version II.
• This isn’t the first time cars have seen expensive new components. Just take air-conditioning units, which when first introduced added $4,000 to the price of the vehicle.
• Henrik Fisker, CEO of Fisker Automotive and a panelist at the event, maintained that the cost of the battery should be made inconsequential to consumers, through whatever means necessary. If that requires innovation on every part of the vehicles (3,000 parts in the Fisker Karma for example) to bring down price, so be it (although this does come from a man selling an $87,000 luxury plug-in).
• A Toyota spokesperson noted on one of the plenary panels that blended-mode hybrids (those that constantly optimize between gas and and electric motor usage, like the Prius) are cheaper to produce because they require smaller electric motors and other components (which you need to propel a fully electric-vehicle to freeway speeds). Henrik Fisker countered that consumers are really ready for a ‘radical departure from the norm,’ only offered by fully electric plug-in vehicles.

Who will buy electric vehicles?

• It’s almost taken for granted that there will be many early adopters who rapidly snatch up initial plug-in hybrids offered by the major automakers.
• Richard Curtin of the Institute of Social Research at University of Michigan, noted that his research found a $10,000 premium barrier for car buyers. That is, the closer the price increase over comparable models gets to $10k, the less buyers can justify it, and over $10K the market evaporates.
• Curtin also found that average consumers are incredibly bad and incorporating future operating costs into their economic analysis, and instead consider only up-front costs. He also found that ‘Attitude toward the environment’ was the #1 factor in predicting willingness to buy a plug-in hybrid.
• Mr. Fisker, who will be selling a ‘lifestyle vehicle’, stated that there are those who want to ‘project their responsibility to society and the future,’ and these consumers don’t really care about the premium. This is probably true—just try asking the average Prius owner sometime whether the investment in fuel economy paid off for them.

Who will supply batteries for electric cars?

• While only a couple of the top 20 battery companies vying for primacy in the automotive sector are based in the US, we still have significant potential to become a leader in the space.
• Michigan is hungry: after deciding two years ago to retool their economy with policy incentives for battery manufacturing and R&D, this year the state won almost half of Federal Stimulus money earmarked for batteries—$1 billion of $2.4 billion—which will help at least 14 projects get off the ground.
• Using smart policy incentives, Michigan was also able to entice both A123, whose batteries are used in power tools and a sparing number of Toyota Prius retrofits, and LG Chem, which is making lithium-ion battery cells for the Chevy Volt, to construct manufacturing plants in the area.

General Wesley Clark, who keynoted at the event, said he hoped this conference would serve to launch a revolution in the automotive industry.

Disclaimer: General Motors flew me out for this event. All images copyright Clayton Cornell.

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