The advanced lithium ion battery in a plug-in electric vehicle (PEV) accounts for as much as one-third of the vehicle’s cost. Without government incentives, PEV premiums can top $10,000 over a similar conventional gas-powered vehicle. Even with lucrative government incentives, EVs are still a hard sell. However, automakers are diligently working out ways to bring purchase costs down so that potential owners can absorb the PEV initial purchase costs over time.

In Europe, automakers Renault, Daimler, and Mia Electrique have pioneered the battery lease option, whereby PEV owners buy the vehicle but lease the battery for a monthly fee. In the states, automakers have not warmed to the idea, instead offering cheap lease deals with low signing dues. That could change, beginning when Daimler deploys its smart fortwo ED to the United States next month with a battery lease option.

In Europe, the battery-leasing option for the fortwo ED reduces the vehicle’s purchase price by over $6,700, but requires the vehicle owner to pay roughly $83 a month for the battery. In other words, the purchase price discount accounts for about 80 monthly payments. Under the lease agreement, Daimler, which retains ownership of the battery, ensures its life, thus easing concerns PEV owners may have over battery longevity. Theoretically this option also enables Daimler to find additional value from the batteries by reusing them for stationary energy storage applications once they’ve been removed from the vehicle. The appeal of the offer is clear, as around 97% of the fortwo EDs bought or leased in Europe have included this option.

Swap It Out

Battery leasing has also been pursued by battery swap developers like Better Place which has deployed more than 50 battery swap stations for national networks in Israel and Denmark, and the State Grid Corporation of China (SGCC), which has more than 200 battery swap stations in various Chinese cities. These two companies take the battery lease concept a step further by literally separating the battery from the vehicle. Their business models require both companies to keep excess batteries on hand to supply customers. This allows them to generate additional revenues from the unattached batteries through grid-tied energy storage services.

The major challenge to the battery swap business model is that each company needs automakers to develop vehicles compatible with their systems, and few have. Renault has built the Fluence Z.E. to be compatible with Better Place’s system, while Chinese automakers Kandi Technologies, Zotye, and Zap Jonway are building or have built PEVs compatible with the SGCC system.

The terms of Daimler’s battery lease option for the states have not yet been released. Even without the option, the fortwo ED will be the lowest-priced highway-capable PEV available in the United States, with a $25,750 MSRP before federal and state incentives. When coupled with government incentives and the lease option, the fortwo ED will have a significant impact on the world’s strongest market for PEVs.

If the lease is as enticing in Europe as it is in the states, then other automakers will take note and more battery lease options for PEVs will follow. Nissan has already announced it is entering the fray as it plans to sell the LEAF with a battery lease option in the United Kingdom this year.  As automakers become more comfortable with the idea of battery leasing, they will also become more comfortable with developing vehicles that are battery swap-capable, allowing a third party like Better Place to manage the battery liabilities, lease arrangements, and the recycling.

Automakers in the United States, Asia, and France have been at the forefront of plug-in electric vehicle (PEV) development since the vehicles hit the mass market reality.  Tesla, Chevrolet, Nissan, Mitsubishi, Renault, and a slew of Chinese automakers have led the charge since 2008, but no German automaker had placed a PEV in a major market until March.

German companies have been hard at work placing hundreds of PEVs in lease-only test fleets and car share programs in the United States and Europe.  The three major German automakers, Daimler, Volkswagen, and BMW, along with their subsidiaries, all announced deployment schedules last month for their long awaited PEVs.

The first German PEV to hit the mass market was Daimler’s smart fortwo ED, which went on sale in March for $25,000.  The ED is the smallest and cheapest highway-capable PEV available in the United States.  Close behind the ED is BMW’s i3, which will have a range of around 100 miles.  BMW has done much to assuage any potential range anxiety by connecting the vehicle’s infotainment system to analyze road topography and real-time traffic data to provide the most accurate range estimate possible.  Buyers of the i3 will also have an option for a small gas engine to accompany the vehicle’s all-electric range, giving it an extra 80+ miles.

Risk & Reward

In 2014, Mercedes, another Daimler company, will deploy the B-Class E-Cell, which has a drivetrain designed by Tesla and a range of around 115 miles.  Germany’s biggest automaker, VW, and its subsidiaries Audi and Porsche will also launch their respective models in 2014: the VW e-up!, the Audi A3 e-tron, and the Porsche Cayenne e-hybrid.  The VW e-up! is a compact battery electric vehicle (BEV) and will be compatible with the SAE DC Combined Charging System, a.k.a. the combo connector.  The Audi A-3 e-tron will be the first German plug-in hybrid (PHEV) and is expected to have an all-electric range of more than 30 miles.  The Cayenne e-hybrid, also a PHEV, will be a crossover and is expected to have an all-electric range of at least 15 miles.

The hesitation by the German automakers to market their vehicles until now carries risks, as the first entrants to the fuel efficiency market have historically retained their market dominance (e.g., the Toyota Prius).  The hesitation, though, might pay off because real world deployments of PEVs have resolved much of the uncertainty concerning PEV acceptance.  March sales of PEVs in the United States were nearly 200% higher than March 2012 results.

Henrik Fisker, the co-founder of EV maker Fisker Automotive, has resigned his post as executive chairman.  The move is not uncommon, especially in the plug-in electric vehicle (PEV) industry.  Fisker joins Martin Eberhard of Tesla, Kevin Czinger of CODA, and Shai Agassi of Better Place as founders of next-generation automakers who are no longer part of the company they created.  The departure of the founder is often a necessary function of the company’s growth, as visionary perspectives of the market and the product must eventually give way to more market-driven and realistic outlooks.  Little information concerning the specific differences Henrik Fisker had with management is available; however, the circumstances that led to the split are well documented.

Fisker Automotive was founded in 2007 by Fisker and Bernhard Koehler in association with Quantum Technologies, which designed the plug-in hybrid (PHEV) drivetrain for the company’s first vehicle, the Karma.  The company’s goal was to bring the Karma to market by late 2009.  Fisker got a federal loan from the Advanced Technologies Vehicle Manufacturing (ATVM) loan program in 2009 to develop the company’s second vehicle, a lower-cost PHEV, the Atlantic.

The company’s product strategy and business model seemed sound.  Like Tesla, Fisker aimed to dilute the premium price of electric vehicles into the costs of a high class luxury vehicle.  The Karma developed a cult-like following, high profile investors, like Leonardo DiCaprio, and drivers, including Justin Bieber.  Where things went wrong for Fisker was the company’s inability to execute on its ambitious plans, plus a string of misfortune.

The company launched into the teeth of the financial crash and the ensuing recession.  After drawing $193 million on the ATVM loan, Fisker’s credit line froze after it failed to meet specific milestones set as conditions of the loan.  Nevertheless, Fisker powered through and began deliveries of the first Karmas to customers in July of 2011, missing its launch date by a 1.5 years.  Unfortunately the loan and the late start were not the end of the company’s problems.

Bad Karma

Fisker announced a recall at the end of 2011 because of problems concerning the vehicle’s battery pack supplied by A123.  Then, two Karmas mysteriously caught fire in mid-2012 – one while sitting in a garage, the other while parked in a grocery store parking lot.  The fires sparked the second recall to replace the low-temperature cooling fan that caused the fires.  Then the company lost over 300 vehicles to hurricane Sandy in November 2012, not long before its battery supplier, A123, declared bankruptcy.  Production of the Karma was halted indefinitely.

Unfortunately for Henrik Fisker, the company’s troubles are a reflection of the state of affairs in the PEV industry: it’s all about the battery.   Now, like A123, Fisker will most likely become a Chinese subsidiary.  The car and the business model aren’t likely to change; if anything the Karma and possibly the Atlantic could be in store for some much needed good news concerning production.  The luster and appeal of the vehicle, however, could fade along with the company’s founder and champion.

Two Chinese automakers, Dongfeng and Geely, appear ready to adopt the beleaguered U.S.  electric vehicle maker Fisker Automotive into their respective electric vehicle (EV) portfolios.  For Fisker, the acquisition cannot come soon enough, as multiple failures with its battery supplier, the destruction of more than 300 Fisker Karmas in hurricane Sandy, and bad press thanks to vehicle fires have left the company’s production lines idle and money tight.  When the dust settles, Fisker will most likely join the ranks of the western EV companies who on the precipice of failure were bought by Chinese companies.  For the Chinese automakers, the acquisition of Fisker may be the country’s best chance to finally sell a full speed EV outside the Asia Pacific region.

China leads the world in terms of total EV production, but most Chinese-produced EVs are bicycles, motorcycles, low- to medium-speed vehicles, or buses.  The vast majority are sold to the country’s massive domestic market. Meanwhile, the Chinese government has announced lofty targets for production and adoption of full-speed EVs – targets that look out of reach, for now.  Chinese automakers have tried to live up to the targets, but sales have been exceedingly more dismal than markets in Europe, North America, and Japan.  Additionally, efforts to develop a robust export market for the country’s EVs outside of Asia Pacific have been disappointing.

One of the problems is that the market for EVs isn’t large enough to provide Chinese firms the opportunity to compete against domestic and Japanese automakers that have led both North America and Europe for the last century.  In addition, China’s EVs have had difficulty meeting safety standards in the United States and aren’t priced competitively with any EV in their respective classes outside of China.

Made in China

CODA is the first and most productive effort to date.  A remake of the Chinese Hafei Saibo, the car has a 31 kWh battery pack, a range of 125 miles, and a price almost $10,000 more than the Nissan LEAF.  The CODA went on sale in mid-2012 and reportedly sold less than 100 vehicles by the end of the year.  A more visible effort has come from BYD, a Chinese company backed by Berkshire Hathaway, Warren Buffett’s investment firm.  The company has long aspired to make a beachhead in the major European and U.S. markets but has only been able to sell its EV, the E6, to taxi fleets in New York City and London.  The E6 has a range of 185 miles on a battery of 60 kWh.  It costs $58,000 in China and would have a hard time competing against the growing class of EVs with shorter ranges and price points below $30,000.

Buying Fisker wouldn’t mean that a competitive Chinese-built EV has finally made it to the United States or Europe (the Karma is produced in Finland).  However, it would give the Chinese owner the unique opportunity to finally enter the PEV markets in the States and Europe with a vehicle that, despite its problems, has made a decent showing at a reasonable price.  The Karma couldalso  make quite a splash in China where the luxury car market is booming.