Navigant Research Blog

Minimal Fuel Economy Impact from Regulatory Executive Order

— February 6, 2017

The presidential executive order that commands two federal regulations to be rescinded for every new rule enacted probably will not have a direct impact on US Corporate Average Fuel Economy (CAFE) mandates, but that does not mean they will not change. At this time, it seems highly probable that at the very least, penalties for failing to meet the standards to increase fuel economy to 54.5 mpg by 2025 will be significantly reduced, and those targets may be slashed as well. Even if that does happen, it may have only a minimal impact on the product development strategies of the auto industry.

Since the CAFE regulations were already in force, the fact that the US Environmental Protection Agency (EPA) reaffirmed the standards in the waning days of the prior administration mean they are not directly subject to the new order. In addition, section 5(a)(i) of the order also states that:

Nothing in this order shall be construed to impair or otherwise affect:
(i)   the authority granted by law to an executive department or agency, or the head thereof …

The current CAFE regulations were enacted under the authority of the 2007 Energy Independence and Security Act, signed by President George W. Bush, which specifically called for a fleet average of at least 35 mpg by 2020. That would appear to make CAFE at least partly exempt from complete elimination without a corresponding repeal from congress. As of December 2016, the unadjusted fleet average in the US market was at 31.2 mpg. The auto industry would only need to get to 35 mpg to meet the congressional mandate.

Technology Development Will Continue, but…

If the new Secretary of Transportation Elaine Chao opts to scale back the standards or penalties, the industry will still develop fuel economy and emissions technologies to meet standards set by California and the global market. The problem that the industry faces in the US market is an environment of low fuel prices and an increasing consumer preference for less efficient utility vehicles. Faced with the realities of the marketplace, manufacturers are finding it difficult to sell smaller, thriftier vehicles.

If the national standard were reduced while maintaining California requirements, it would provide automakers with the opportunity to meet market demand in regions such as Texas with higher margin products—such as the full-size pickup trucks and SUVs that are favored there—without resorting to incentives to stimulate demand for small cars. This would allow some subsidization of electrified vehicles in those markets that require them.

Uncertainty and Instability

Ford CEO Mark Fields has claimed that having standards that market demands will not support with sales could end up costing up to 1 million jobs. The CEOs of Ford, GM, and Fiat Chrysler met with President Trump days after he took office to discuss this. The industry would also like to see the elimination of separate standards for California, which are possible under a waiver granted by the EPA through a clause in the Clean Air Act.

Rescinding this waiver could prove problematic. It likely could lead to a battle that would end in the Supreme Court. If it became a state’s rights case, it is not at all clear how even a conservative majority on the court would rule.

This is a situation unlikely to be resolved quickly—and the resulting uncertainty creates instability in the business.

 

V2V Mandate Now Unlikely, Impact on Industry Unclear

— February 2, 2017

CodeThe latest in a rapid fire sequence of executive orders signed by the new president this week appears likely to kill the proposed mandate for vehicle-to-vehicle (V2V) communications in the United States. How this will affect the actual market for the technology remains unclear as of this writing, although it will almost certainly slow adoption.

Issued on January 30, 2017, the new order requires that before any federal agency may enact any new regulation, two existing regulations must be rescinded. In addition to the general ban on new rules, the order also requires that the net incremental cost of any regulations enacted and rescinded must be no greater than zero.

The National Highway Traffic Safety Administration (NHTSA) officially published the notice of proposed rulemaking to mandate V2V to the federal register on January 12, 2012. While the proposed regulation is broadly (if not universally) supported in the automotive industry, it nonetheless appears to fall within the scope of the executive order. At this time, there are no clear candidates for regulations to be rescinded if NHTSA wants to proceed with the V2V rule, and it would take time to evaluate which rules to eliminate. That makes it unlikely that the mandate will be enacted under the current administration.

Not Dead Yet

However, even in the absence of a regulation, the industry is still likely to move forward with deployment of V2V and vehicle-to-external (V2X) technologies. General Motors is planning to launch V2V in the next few months on the Cadillac CTS, and supplier Delphi has already begun production of the hardware for this application. Many other automakers and suppliers also support the deployment of V2X communications to enhance drivers’ situational awareness for improved safety.

V2X also provides an important additional layer of real-time information to supplement the line-of-sight data provided by the sensors for automated driving. Most of the automakers and suppliers working on automated driving see the addition of V2X as critical to ensuring the robustness of these systems by providing a means for vehicles, pedestrians, and other participants in the transportation ecosystem to signal intent to each other.

Navigant Research’s Connected Vehicles report projects annual global sales of nearly 70 million light duty vehicles by 2025 with factory installed V2X capability based on dedicated short range communications (DSRC) technology. DSRC was projected to be the primary technology used for V2X in most markets, but in the absence of a US mandate, the adoption rate is now expected to be slower.

Cellular Technologies

There will be significant pressure from communications carriers to utilize cellular technologies in place of Wi-Fi-based DSRC. Currently, 4G LTE technologies are inadequate for the low latency required for V2V applications. New 5G systems are targeted to achieve the same sub-10 ms latency of DSRC but these are still in development with no finalized standards. Broad deployment is not expected until the early 2020s.

Achieving the maximum benefit of V2X communications requires a critical mass of vehicles in use to be equipped. Given the long development lead times in the auto industry and slow turnover of the fleet, these requirements will likely push out the benefits of V2X for several more years into the later 2020s.

If industry leaders in the use and development of DSRC technology (including but not limited to GM, Toyota, Honda, and Delphi) proceed with their deployment plans and see it as a competitive advantage for improving safety, projections of universal adoption on new vehicles may still be met by 2025. However, the only thing certain right now is that we are likely facing a period of much greater uncertainty over the next several years.

 

Chevrolet Bolt Shows GM Is Serious About Making the EV Mainstream

— January 30, 2017

Electric Vehicle 2A decade ago, the documentary Who Killed the Electric Car? chronicled General Motors’ (GM’s) decision to repossess all of the existing EV1s from the small but loyal group of customers that had been leasing the pioneering battery electric vehicle (BEV). Ever since, skeptics have doubted the company’s true commitment to making BEVs—the Volt had an internal combustion engine, and the Spark EV was viewed by most as a compliance car. Wonder no more, because the 2018 Chevrolet Bolt demonstrates that GM is committed to making the BEV mainstream.

While Tesla has made big promises with the upcoming Model 3, GM has pulled ahead by now delivering Bolts to customers. Sales of plug-in EVs (PEVs) have fallen far short of the projections made when automakers revealed the first wave of modern BEVs at the beginning of the decade. Nonetheless, cumulative sales for Tesla, GM, and Nissan are beginning to approach the 200,000 level that will trigger a phaseout of federal tax credits. When that happens, the effective price for consumers will jump by $7,500, and PEVs will truly have to stand on their own merits in order to attract buyers.

Lessons Learned

As the first dedicated BEV developed by GM since the EV1 in the early 1990s, GM has applied lessons learned from its prior efforts and observations of what has happened with competitors. “The Bolt program was launched more than 4 years ago with a decree from then-CEO Dan Akerson to deliver an appealing car with a 200-mile electric range and $30,000 price point,” said Stuart Norris, managing director of the GM Korea Design Studio. Norris’ design team, along with the engineering teams in South Korea and Michigan, had a clean sheet of paper to work with.

Seeing the global market trends of increasing urbanization, the growth of ride-hailing services, and the rising consumer preference for higher-riding crossover vehicles all helped to define the general form factor of the Bolt. Advances in battery and electronics performance and cost enabled the team to meet their targets.

A comparatively small footprint in line with B-segment models like the Honda Fit means the Bolt occupies less space on the road. At the same time, its tall stance means there is ample room for at least four adults in its 95 cubic foot passenger volume. Smart packaging means it actually exceeds the 94 cubic feet of cabin volume in the much larger Tesla Model S, and it’s easy to get in and out for passengers of ride-hailing services like Lyft, in which GM is an investor.

Practical and Appealing

Performance is a big Tesla selling point, especially the oft-heralded “Ludicrous” acceleration. However, the much larger external dimensions and mass of the Model S mean that it’s not so nimble on twisty mountain roads or as maneuverable in tight urban areas like San Francisco. At half the price of the least expensive Model S, the Bolt doesn’t offer quite the same thrust, but with 200 horsepower and 266 lb.-ft. of instantly available torque, the Chevy still gets to 60 mph in under 6.5 seconds. More importantly, it handles both mountain passes and urban centers deftly, and based on a first drive, use of the low mode with its extra regenerative braking can boost the vehicle’s charge range well beyond the EPA-estimated 238 miles.

The launch of the Bolt and Model 3 has inspired other automakers to rethink their EV plans and boost the planned range to over 200 miles. If everyone can make their EVs as practical and appealing to drive as the Bolt, we may finally see a surge in sales that makes the emissions-free vehicle a mainstream reality.

 

Perception vs. Reality: CES and the North American International Auto Show

— January 19, 2017

Connected VehiclesIf there is any one lesson that we should all take away from 2016, it’s the confirmation that perception does not necessarily equal reality. What people perceive to be the truth is often the most important part of their decision-making, a concept now shown in the auto industry’s seemingly increasing participation in the International CES and apparently declining interest in Detroit’s North American International Auto Show (NAIAS).

There has been a lot of consternation in Michigan recently about the impact that CES has had on the Detroit show over the past decade. The two events tend to run back-to-back over the first 2 weeks of January. I was on hand in 2008 when then-General Motors CEO Rick Wagoner was the first major auto executive to keynote at CES after demonstrating the autonomous Chevrolet Tahoe, which won the DARPA urban challenge the prior year. While more automakers and suppliers than ever took part in CES this year, GM actually took a pass for the first time since Wagoner’s speech.

While the Detroit Auto Dealers Association, which organizes the NAIAS, is concerned that manufacturers are increasingly favoring CES, the issues of the auto show are largely unrelated to what’s happening in Vegas. Auto shows are consumer events designed to showcase all of the latest products available for sale, and media previews show what is arriving in the coming months.

With rare exceptions (like 2016, when Chevrolet unveiled the production version of the Bolt EV), new production vehicles are almost never shown at CES. The electronics show is a business-to-business event that isn’t open to the public; instead, the industry flocks to Las Vegas to talk up technology.

NAIAS Is About Reality; CES Is About Perception

For many years, the financial market’s perception of the auto industry has been that of old-school manufacturers of commodity widgets. The view of Silicon Valley and technology companies is that of innovators on the bleeding edge that are poised for explosive growth. Thus, you have investors pouring billions of dollars into startups every year; most of those companies getting all of that investment fail without ever producing anything noteworthy while burning through cash.

Meanwhile, the modern car is one of the most complicated and technologically sophisticated devices ever created and is produced by the latest cutting-edge processes. The industry that produces them employs tens of millions of people globally directly and indirectly, generating trillions of dollars in revenue and tens of billions in profit. Yet the industry gets little respect and low market values.

The presence of the auto industry at CES is designed to reach a group of media that cover companies like Apple, Google, Microsoft, Amazon, and Facebook alongside countless startups, the same media that investors follow. The goal is to change the perception of the auto business from one that looks like it came from the dawn of the industrial revolution to one that innovates on a daily basis.

That’s not a message you can get across by showing off the refreshed Ford F-150, even though it may be packed with far more technology than anything from Silicon Valley. That’s a message you communicate by demonstrating automated cars in Las Vegas traffic jams; partnership announcements with chip designers like Nvidia won’t reach its intended audience in auto shows in Detroit, Frankfurt, or Geneva. These shows have issues to address, but the fault doesn’t lie in Las Vegas. It’s all about perception.

 

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