Navigant Research Blog

Toyota Reveals Fourth-Generation Prius, Sticks with NiMH

— September 25, 2015

Toyota did not invent the idea of a hybrid electric vehicle (HEV)—that honor goes to Ferdinand Porsche with one of his earliest creations at the turn of the 20th century. Toyota did not even invent the modern power-split HEV architecture—that being a concept developed and patented by engineers at TRW in the late-1960s. However, like Apple, which has taken ideas such as graphical interfaces, mp3 players, and smartphones and then refined them into viable consumer products, Toyota was ahead of its time with the 1997 debut of the Prius. After recently selling its 8 millionth HEV, Toyota has just revealed the fourth-generation of the groundbreaking original hybrid, and hopes it will spur renewed popularity for the concept.

Toyota has done an admirable job of leveraging electronics, motors, controls, and battery technologies developed for the Prius across its lineup, from the subcompact Prius C to the luxury Lexus LS600h sedan. Much of that technology is also being applied to fuel cell and battery electric vehicles, helping to bring down the costs of those powertrains.

NiMH Batteries

Building on that heritage is also part of this new Prius, as Toyota continues to be the last major automaker to use nickel-metal hydride (NiMH) batteries while others have switched to lithium ion (Li-ion). According to Navigant Research’s Automotive Fuel Efficiency Technologies report, hybrids are expected to account for about 10% of the North American market and more than 30% of the Western European market by 2024, as manufacturers try to meet new efficiency and emissions standards. To do so, they will have to drive down costs to make the technology palatable to consumers.

Over the past 2 decades, Toyota and its joint venture partner Panasonic have made large investments in production capacity for NiMH batteries and likely have the lowest costs in the industry at this point. Toyota’s continued use of NiMH batteries for the mainstream Prius and the just launched Lexus RX450h, reserving Li-ion for the even more efficient Prius Eco model and the upcoming plug-in hybrid electric vehicle (PHEV), is one example of how Toyota is able to sell more of the most efficient vehicles than any other manufacturer.

Despite continuing with what many consider outdated battery technology, Toyota claims to have improved the energy density of its cells. Along with an internal combustion engine that is now claimed to have thermal efficiency of more than 40%, and lighter, more efficient hybrid system components, Toyota is projecting a 10% overall efficiency improvement for the mainline Prius (approximately 55 mpg combined). It has not yet revealed details about the Prius Eco, but media reports suggest it may achieve 60 mpg combined.

Looking Forward

The 2.4-inch longer Prius retains its now iconic egg-shaped profile while blending in some more dramatic design cues from the fuel-cell-powered Mirai. Toyota’s New Global Architecture (TNGA) provides the Prius with a new double-wishbone rear suspension that should help improve its traditionally uninspiring driving dynamics. After announcing in 2014 that it would deploy active safety features across its lineup, the Prius is now available with the Toyota Safety Sense package that includes automated pre-collision braking, pedestrian detection, lane departure alert with steering assist, adaptive cruise control, and automatic high beams.

Through August 2015, HEVs have only accounted for 2.3% of U.S. sales, with plug-in vehicles grabbing another 0.63% and the electrified vehicle segment with less than 3%. If automakers are to achieve future emissions and efficiency targets, they need to follow Toyota’s lead with the new Prius and combine increased efficiency with a broader value proposition to attract customers.


GreenCo in the Red: NRG Reset Highlights Tenuous Solar Model

— September 21, 2015

On September 18, NRG Energy announced a restructuring designed to firm up the balance sheet of its core business and move the cash-losing solar and electric vehicle charging businesses into a new company, dubbed GreenCo. NRG’s stock has fallen by a third this year, and with interest rates poised to rise, investor pressure forced the move.

NRG CEO David Crane said in a webcast that the company will provide GreenCo with a $150 million revolver through 2016, adding that NRG believes “Now is neither the time to abandon GreenCo nor to transfer its full value to someone else, but it is very much the time to impose a new higher level of financial rigor on GreenCo befitting the type of capital discipline imposed on entrepreneurial startups by venture capitalists.” Crane also noted that formal efforts are underway to find GreenCo a strategic partner.

Selling the Upside or Saving Itself?

Back in early 2014, I wrote a blog suggesting utilities invest in solar and highlighted NRG’s (the non-utility) aggressive moves in the sector. I noted that many telecoms that invested in cellular early and consolidated (rather than divested) today find that business line to be their largest and most profitable.

But 18 months later, the losses at GreenCo have become too much for NRG’s investors to stomach. I looked at other public solar companies and, sadly, analysis of SolarCity’s financials don’t fill me with hope, either. The long-term lease model and aggressive marketing employed by solar firms recently have ballooned losses and reduced working capital, and long-term debt has grown.

Now, like solar, the cellular industry in the 1990s was particularly capital-intensive, and free cash flow losses for many were huge. But once the networks were built, cellular has turned into a nicely profitable business. Will that same dynamic prove true as the solar industry matures?

Who Should Own Solar Panels?

The difference between the telecom/cellular dynamic 20 years ago and the uneasy utility/solar relationship today is at least partially due to the fact that individuals—or even the Walmarts of the world—weren’t out buying their own cellular towers and building their own networks in the nineties in order to save money with AT&T or Verizon. It wasn’t an either-or proposition; for a long time, most people had both cellular phones (which were great when they worked) and landline phones.  Of course, cellular phones dominate today, and many people no longer find a need for a home phone.

But if I put solar panels on my home today, that creates an immediate, permanent reduction in the amount of power I buy from the utility. Other critical differences include the fact that the cellular network grew exponentially in value as it became truly nationwide; solar will remain a much more local/regional business. And cellular is regulated at the national level by the Federal Communications Commission, while electric utilities all have to contend with their state-level regulatory bodies.

That doesn’t change the fact that solar will inevitably have a measurable impact on demand for the local utility’s product. Many large regulated utilities are weighing the risks of building community solar projects within their regulated business units; others, like Exelon’s Constellation, are aggressively going for the NRG GreenCo/SolarCity model.

At the end of the day, the differences between utility/solar and telecom/cellular may be greater than the similarities. But if I were a traditional utility watching more and more solar panels take up position on rooftops across my territory, I’d certainly be seeking a way to capitalize upon the trend.


E-Bike Technology Improving Dramatically

— September 17, 2015

As recently as 1 or 2 years ago, most electric bicycle (e-bike) models had a modest electric range of between 15 and 25 miles. Although there are many contemporary e-bikes boasting 40 or more miles of range, Samsung SDI recently blew other products out of the water through the release of its new e-bike battery pack at Eurobike 2015 in Germany. The 500 watt-hour (Wh) battery pack runs 62 miles (100 km) on a single charge and is equipped with Bluetooth compatibility, allowing users to monitor battery life via a smartphone. This new range capability means that a bicycle commuter could ride their e-bike from Boulder, Colorado to neighboring Denver and back without needing to recharge the battery along the way. For those unfamiliar with the route, the Boulder-to-Denver commute takes about 40 minutes (just under 30 miles) without traffic each way by car.

Innovative emerging trends such as improved battery life have helped position the e-bike industry for increased market growth. In addition to increased battery range, combined throttle-control and pedal-assist models, electric cargo bicycles (e-cargo bikes), all-in-one retrofit kits and wheels, 3D-printed bicycles, and the increasing use of e-bikes in police patrol and various security industries have all contributed to a growing market with strong potential. According to Navigant Research, global annual sales of e-bikes are expected to grow from nearly 32 million in 2014 to over 40 million in 2023.

Autonomous E-Bikes

Also started to be tested are autonomous—or self-driving—e-bikes. At the 2015 Eurobike event where Samsung SDI announced its battery pack, startup company CoModule displayed a smartphone-controlled, three-wheel e-bike prototype. The company believes that in the near term, the e-bike could be used to help postal workers with deliveries or park cleaners with garbage collection. The long-term vision is for the vehicle to provide autonomous deliveries in urban city centers.

Although undoubtedly intriguing, autonomous e-bikes appear to be a potentially unnecessary technology that somewhat defies the purpose of a bicycle itself. If no one will be riding it, why even make it a bicycle in the first place? The general philosophy behind e-bikes is that if a rider has long distances to travel, physical limitations, or simply want a faster mobility option, then an electric-powered bicycle is a great way to get some exercise without getting exhausted or pushing physical limitations too far. While the idea of a small autonomous delivery device makes sense, making that device a bicycle with pedals (which presumably no one will use) perhaps requires some rethinking.


Oil Prices Cut Drilling Sector Sharply

— September 17, 2015

Oil drilling rig numbers in the United States have been declining rapidly, down about 57% from a year ago. The total count was 675 as of last week, up one from the week before. This marks the sixth week that rigs have been added by domestic oil drillers, although the numbers are still far lower than they were at this time last year, when the total number of oil rigs sat at 1,575. The rig count is approaching historic lows: the highest historical rig count was 4,530 in 1981; the lowest was 488 in 1999.

The total quantity of oil produced has not decreased nearly as rapidly as the number of rigs. Due to technology advances and greater efficiency, each rig has been yielding more oil production on average. Additionally, fewer rigs are being shut down in the most productive regions—the Bakken, Eagle Ford, and Permian plays. The U.S. Energy Information Administration estimated a decline of 100,000 barrels per day from June to July. This brought production in June to 9.3 million barrels a day. Overproduction in a tepid marketplace leads to further declines in the price of crude oil.

A Double-Edged Sword

The decline in drill rigs is related to declines in the price of crude oil, which has fallen from $98.15 in August 2014 to $45.63 a year later. Despite the obvious decline in drilling sector jobs, there are benefits to the declining numbers of rigs. Drilling rigs tend to use a lot of fuel, and quite often diesel. Recent regulations proposed by the U.S. Environmental Protection Agency limit the emissions produced by a diesel rig, but the real impact on emissions comes from the declining numbers of engines using the fuel. The decline in diesel use has enormous benefits for other sectors of the economy, including a surplus of diesel fuel to be used for agricultural purposes. Consumers in the United States are experiencing lower retail costs for gasoline and heating oil; worldwide, importing countries are also experiencing economic growth due to the lower cost of oil. Yet, the stronger U.S. dollar prevents this growth from being as dramatic as that in the States. Lowered oil prices are positively affecting many oil-importing countries, while negatively affecting the exporters.

Globally, it appears that the fall in oil prices should have a positive impact. Drastic declines in the price of oil tend to shift extra income to consumers, driving global economic boosts. According to The Moscow Times, whenever the price of oil is halved (as evidenced in recent years 1982–1983, 1985–1986, 1992–1993, 1997–1998, and 2001–2002), it is followed by rapid global growth. The inverse is also accurate, with rising oil prices preceding every global recession in the past 50 years. If trends hold true, the current decline in oil prices could lead to greater economic well-being around the world.

Last week, oil prices began to increase gradually, but a 3-day uptick was followed by a $2.10 fall to $47.10 a barrel. This still marks an increase from the $39.57 price of August 26. Perhaps the decline in oil drilling rig counts will not persist so very long, after all.


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