Navigant Research Blog

The Bigger Implications from the Think Bankruptcy

— June 30, 2011

Norwegian based Think Global AS is in bankruptcy. We have heard this news before (four times actually). The company’s latest variation launched in Europe in 2010 and had the wholly owned subsidiary, Think North America manufacturing battery electric vehicles (BEVs) for the United States in Elkhart, Indiana. But last fall, it started to run into financial trouble.

Rumor has it that by the end of 2010, Think had about 500 of its BEVs, the City, unsold (which is low considering they announced production of 2,500 vehicles last October). By March 2011, production of the City had stopped in Finland, ending glider manufacturing for Think North America. If the rumor of unsold vehicles is true, then Think NA claiming that the production stoppage would have little impact on their operations was likely true. But in the end, it appears that the stoppage may have had more to do with a lack of funds than it did an excess of inventory (though too much inventory often leads to too little funds).

There has been a lot of press on the Think bankruptcy and Ener1’s losses. Think NA claims to be able to survive the bankruptcy (and since the company that has been through bankruptcy four times, they might know a thing or two about surviving it). However, I am skeptical. So, the question many are asking is whether this spells a broader trend in the plug-in vehicle world. In my opinion, there are definitely lessons to be learned from Think.

First, the size of the vehicle is important. Think’s City is a tiny car, even by European standards. For comparison, the vehicle is about a foot and half longer than a Smart ForTwo (123.7 and 106 inches, respectively) and about three feet shorter than a Ford Fiesta (160.1 inches). This spells trouble for Think NA, as this size of two-door vehicles is typically not as popular among Americans. In Pike Research’s reports on “Plug-in Electric Vehicles” and “Hybrid Electric Vehicles for Fleets”, I point out that electric vehicle segments often limit the appeal to both consumers and fleets. To add weight to this, I can point to a recent press release from GfK stating that they found that U.S. demand for compact cars (such as the Ford Focus or Honda Civic) grew to 18% in May 2011, while demand for subcompact cars (such as the Ford Fiesta or Honda Fit) remains flat at less than 4%. In other words, the compact car sized Nissan Leaf and Chevrolet Volt more appropriately match current consumer demand trends with lengths of 175 and 177.1 inches overall, respectively. Subcompact “city” BEVs will be relegated to very small niches simply due to their architecture.

The second challenge facing Think and many other start-ups is price. With a retail price of $36,495 (including destination charges), a quick, back-of-the-napkin calculation of total cost of ownership puts the Think City at about $38,095 before federal incentives over 120,000 miles, compared to $33,269 for the Ford Fiesta with 31mpg at $4/gallon gas prices. Assuming the purchaser qualifies for the full $7,500 incentive, the City would be less expensive, but it is not a huge savings when compared to the larger, four-door, Fiesta. Think’s prospects look even worse when compared to its larger BEV competitor, the Nissan Leaf.

And there’s the rub for new brands like Think. A niche vehicle that does not offer unique and compelling features or specific positioning in the marketplace is not likely to last long, particularly if that brand cannot offer savings over other BEVs. Being a “city” vehicle in and of itself is not a unique enough position in today’s market. The Tesla Roadster has done well because despite its price, it has a unique proposition in the market. The Nissan Leaf and Chevrolet Volt are both doing well because they have broader appeal and are more appropriately sized to reach a bigger market. Even these two are niche vehicles in the compact car segment, which had sales of over 1.4 million vehicles in 2010.

Think has financially failed despite sales of just over 1,000 vehicles since 2010 and what appeared to be solid financing. This should serve as a shot across the bow for other start-ups who need to clearly define their unique position in the North American or European markets.


Using Fuel Cells to Reduce Commercial Airlines’ Fuel Consumption

— June 30, 2011

Aircraft manufacturers are looking at fuel cells as another tool to reduce emissions and fuel consumption in commercial aviation. This sector is a challenge for any new technology since the airline industry is so heavily focused on cost control and risk aversion. So it was interesting to see Airbus recently announce a new partnership with Parker Aerospace to develop a fuel cell auxiliary power unit (APU) for its next generation single aisle aircraft. The fuel cell would replace the turbine APUs used today for on board electrical power, mainly on the ground to provide cabin amenities when the engines are off, but also in the air. The goal is to develop a demonstrator unit which would then undergo flight testing by around 2015. The hope is that the unit would be sufficiently proven to hand off to developers of the next generation A30X plane and incorporated directly into the new plane’s design.

It is not hard to see why Airbus would be interested in replacing ground based APUs. Jet fueled turbines are noisy and polluting. Replacing them for APU purposes would help with voluntary efforts in Europe to make airport ground services more environmental. But perhaps more importantly, it would reduce fuel consumption and save money.

Fuel consumption for commercial aircraft represents a tremendous expense to the airlines and is only expected to get worse. Looking at just the United States, the U.S. Energy Information Administration (EIA) projects that, over the next ten years, annual U.S. jet fuel demand will rise from 2,551 trillion BTUs to 2,811 trillion. This will occur in spite of the expected increases in aircraft fuel efficiency. The EIA also expects jet fuel prices to increase steadily from 2011 onward, in contrast to a drop that occurred in 2009 and 2010. Based on EIA data, fuel costs for global commercial air travel in 2011 will be a staggering $106.4 billion (in 1987 dollars) and will more than double by 2021, hitting $256.7 billion.

Add to this picture the possibility of on-going volatility in fuel prices and it is easy to see why a more fuel efficient aircraft would be attractive to the airlines. Indeed, it appears this was a key factor in Airbus’ securing more than 1,000 orders for its latest A320neo, which features a new, more efficient engine. It is hoped that a fuel cell APU could reduce fuel consumption by 10-15% — mainly on short to medium flights where the aircraft can spend more time on the ground than in the air.

There are other potential applications for fuel cells in the commercial aviation sector – including powering ground support equipment and another Airbus-supported project to develop fuel cell electric nose wheel motor for the Airbus A320. Airbus competitor Boeing is also looking at fuel cell technology. These are mainly “behind the scenes” applications and provide a good example of integrating clean technology not as the “silver bullet” that will change everything, but as part of a “smart system” that reduces emissions, noise, and petroleum consumption in a specific environment.


Saying Goodbye to Google PowerMeter

— June 29, 2011

So this week Google abandoned the much ballyhooed PowerMeter project, a web energy management tool that allowed consumers to see their electricity usage in granular (15 minute) intervals, if that data were available. This follows a similar decision by Microsoft to wind down its efforts on the Microsoft Hohm project as well. Both efforts drew significant attention not least because it potentially threatened parts of the business models of myriad home energy management companies and even utilities by making this information available for “free.”

In Google’s announcement on their corporate blog they stated, “momentum is building toward making energy information more readily accessible, and it’s exciting to see others drive innovation and pursue opportunities in this important new market. We’re proud of what we’ve accomplished with PowerMeter and look forward to what will develop next in this space.” One wonders if there was a big “mission accomplished” banner in the background.

Google’s reason for discontinuing the service is no surprise and while some competitors might breathe easier, they are all caught in the same dynamic: “Our efforts have not scaled as quickly as we would like.” Last year we projected that 2011 would not be the “year of the Home Area Network (HAN)” and we recently cut our forecast for Home Energy Management (HEM) displays. Yet there are signs that the “pilot-itis” that has stymied utility rollouts may have an end in sight:

  • Energate, a provider of HEM devices, software, and services, just announced results from some pilots demonstrating very strong energy savings results and enthusiastic consumer response. The pilot at Oklahoma Gas and Electric is being closely watched, as it is especially focused on consumer acceptance rather than technology trials.
  • EcoFactor, another HEM supplier, announced expansion of a residential Demand Response trial that also demonstrated strong results and consumer satisfaction. NV Energy is already working to deploy 20,000 Control 4 energy management and automation systems as well – the largest such deployment in the United States to date – so these solutions are experiencing at least some popularity in the desert.
  • iControl recently announced a $50 million investment round including the likes of Cisco, Comcast Ventures, Intel Capital, Rogers Communications, and Tyco International. iControl represents efforts of various service providers to include energy management in overall home automation and awareness technologies. They are behind the new systems being offered by ADT Security that saw significant TV commercial airtime (I saw these during the recent Stanley Cup finals – Go Bruins!).

Ultimately, Google may have simply lacked the patience (and business model) to stay in the market. Or, some form of PowerMeter may show up as an application within Google’s “Android@Home” initiative, yet another effort at a mass-market home automation networking and application framework (which is the last thing this market needs, but more on that at another time).

It is still far from obvious how (or if) the HEMs and HAN markets will ultimately evolve. Most of the issues I wrote about a year ago remain. But when we said 2011 would not be the “year of the HAN” we also said consumers would start to actually like the smart grid. Indeed this is happening, and not a moment too soon.


Europe Needs to Plug Hole in EV Charging Standard

— June 29, 2011

When plug-in electric vehicles (PEVs) become a staple on U.S. highways, one of the unheralded reasons for the successful comeback will be because early on automakers agreed on a plug standard for basic EV charging. The Society of Automotive Engineers – an international group that is heavily influenced by its North American members – developed and passed the J1772 standard that enables any car to plug into any compliant charging equipment.

Now a Nissan Leaf owner who stops for an afternoon tea with a friend who owns a Chevrolet Volt can use the charging equipment in her garage. This standardization has enabled the installation of hundreds and soon to be thousands of compatible residential and commercial charging stations, thus avoiding the travails of the last wave of EVs when public charging was minimal and only compatible with select models.

So do our friends across the pond in the Old World have the same luxury in preparing for the EV invasion today? Not so much. The standards process there is as messy as a preschool pottery class.

Europe has yet to agree on a regional plug standard, which has the potential to restrain a market of consumers that are likely even more motivated to buy plug-in vehicles than those in the United States. The International Electrotechnical Commission has been working on a plug standard (to be known as IEC 62196-2 Type 2) for several years. This plug would enable charging at either single phase or three-phase AC power up to 43.5 kW that is available in many parts of Europe.

However, various camps in Germany, Italy, and France are at odds on the specification, and a recent meeting to reconcile the differences proved futile. The German automakers are fairly unified around technology proposed by Mennekes Elektrotechnik as well as the European Automobile Manufacturer’s Association. Despite the lack of a European standard, EV charging infrastructure is currently being installed today, with hundreds of street-side charge spots that are “dumb” outlets that provide the available power from household current without the additional safety or smart charging features that will benefit consumers and utilities in North America.

And it only gets worse. The German contingency also wants a single plug standard that could handle fast direct current (DC) charging as well, which would result in a fairly large connector that some view as too unwieldy for consumers to safely operate. In Japan and the United States, automakers and equipment manufacturers believe that two charge ports on the vehicle, (CHAdeMO for DC charging, and J1772 or an alternative plug for residential charging) is acceptable to consumers.

Of all the continents vying to be the leader in PEVs, Europe, with its many automakers, languages, and household current schemes, needs commonality the most. Driving across borders can be done in many areas and requiring PEV owners to carry multiple adapters could discourage the purchase of electrified vehicles as well as the manufacture of charging equipment. Pike Research forecasts that more than 125,000 PEVs will be sold annually in Western Europe starting in 2013, but without the adoption of a standard soon, this market growth could be negatively impacted.


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