Navigant Research Blog

Hybrids Need a Refresh

— September 18, 2014

Worldwide sales of hybrids through August were off 9% over sales during the same period in 2013.  The drop contrasts starkly with the last 3 years, which have seen January-August sales rise 65% from 2011 to 2012 and 24% from 2012 to 2013.  While the market for hybrids is certainly not going away – 2014 sales will likely hit 400,000 by year-end – it is becoming significantly more competitive, and expansion outside of the midsize hatchback segments that hybrids crowd is just not happening.

Toyota’s introduction of the Prius family in 2012, alongside a market for plug-ins that was limited to few costly models, signaled a revival of the hybrid market.  Since then, though, plug-in makers have cut costs sharply, and the number of available models has grown considerably.  Only 1/20th the size of hybrid market in 2011, sales of plug-ins are now one-quarter of hybrid sales.  Meanwhile, the difference between hybrids and conventional gas- and diesel-powered vehicles in terms of fuel economy is shrinking.

Weight Loss

Driven by Corporate Average Fuel Economy (CAFE) standards, automakers are introducing vehicles with stop-start systems that are already widely popular in Europe and have significant weight reductions through materials engineering and engine downsizing.  Tracked by the University of Michigan Transportation Research Institute (UMTRI), the average new vehicle sold in the United States hit 25.8 mpg last month ‑ 5 mpg higher than the 2008 average.

All of this means that, for new hybrids to succeed, they must show significant fuel economy savings over conventional competitors ‑ and at a price point significantly lower than plug-in rivals (minus government subsidies).  Or they must be new: they have to fill a segment outside the densely populated small hatchback or offer cutting-edge technologies that can grab some of the spotlight that Tesla, Nissan, BMW, and Chevrolet eat up with each new plug-in electric vehicle (PEV) introduction.

Ford has announced it will introduce a new dedicated hybrid – another small hatchback — to compete with the Prius in late 2018, and industry sources believe that Hyundai may also soon join the fray.  But the wisdom of these introductions is questionable if current trends continue.  Breaking into the cross-over market, as plug-ins are poised to do next year with the Model X and Mitsubishi Outlander PHEV, would do much to keep hybrids relevant.  Bringing a diesel hybrid over from Europe would also help capture car buyers’ imaginations.


How Can the United States Pay for Road Upkeep?

— July 17, 2014

More vehicles throng U.S. roads each year, expansion necessary to support them and with less money to fund road repairs.  The root of the problem is that road construction funds are largely derived from taxes on gasoline and diesel fuel, and U.S. consumption of both is declining and will continue to decline.  The increasing fuel economy of new vehicles combined with rising penetrations of alternative fuel vehicles (AFVs) is having a marked impact on U.S. fuel demand.

In the upcoming report Global Fuel Consumption, Navigant Research forecasts that liquid fuels (gasoline, diesel, and biofuels) consumed by U.S. vehicles will decrease from approximately 160 billion gallons in 2014 to around 104 billion gallons in 2035.  Meanwhile, forecasts from the Navigant Research reports Light Duty Vehicles and Medium and Heavy Duty Vehicles indicate that the U.S. vehicle fleet will grow from approximately 250 million to nearly 270 million in 2027 before beginning a slow decline.

More per Gallon

If the status quo funding mechanism is maintained, annual federal gasoline and diesel tax revenue will decline from current levels of about $30 billion to near $20 billion in 2035.  Meanwhile, over the same time period, the fleet of vehicles in use will grow by 10 million.  However, in the near term, the federal Highway Trust Fund and Mass Transit Fund are headed for insolvency before the end of the year.

A number of short-term funding options have been proposed that will likely push a decision on a long-term solution out past the November mid-term elections.  However, one long-term solution emerged last month from two U.S. senators who proposed raising the federal gasoline and diesel tax by $0.06 per gallon over 2 years and then indexing the tax to inflation for following years.  The tax has been stagnant since 1993, at $0.184/gallon of gasoline and $0.244/gallon of diesel.  Raising it would probably be the easiest long-term solution to implement, since the machinery for tax collection is already in place.

U.S. Federal Gasoline/Diesel Tax Revenue and Vehicles in Use, United States: 2014-2035

(Source: Navigant Research)

What this proposal has in ease of implementation, though, it lacks in political appeal and fairness.  Taxes are a bitter pill for any Republican member to swallow, and pushing through a hike on gasoline and diesel, no matter how small or sensible, is likely to be impossible.  Additionally, as the tax stands now and the proposal will maintain, motorists who drive newer fuel efficient vehicles pay less tax.  Those who drive AFVs pay no tax per mile driven, despite the fact that they are using the same roads as owners of less fuel efficient conventional vehicles who bear more of the tax burden.  Since the tax was designed to make those who use the road pay for the road, the above scenario is an unintended consequence to the advantage of alternative fuel and fuel efficient vehicle owners.

Dollars per Mile

In early 2009, Secretary of Transportation Ray LaHood recommended that the federal government should look into a vehicle miles traveled (VMT) tax.  The VMT tax would clock vehicle owners’ mileage and then tax them on a per-mile basis.  While this solution would not be easy to implement, it would be a fair way of collecting taxes in line with the original purpose of federal gasoline and diesel taxes.  It could also be used as a tool to manage traffic along specific congested corridors.

Despite the suitability of a VMT tax, it is unlikely it will emerge as a legitimate policy option in the near term, due to a lack of political support and a tested method for implementation.  Rather, owners of older conventional vehicles will likely pay more at the pump – or traffic is only going to get worse.


EV Emissions Reconsidered

— July 2, 2014

Quantifying the degree to which plug-in electric vehicles (PEVs) improve ambient air quality conditions over conventional gas or diesel-powered vehicles is an important, but difficult, question to answer.  An interview with Electric Power Research Institute’s (EPRI’s) Marcus Alexander, who will discuss the preliminary findings of a study seeking to clarify how PEVs affect environmental conditions at EPRI’s Plug-In 2014 Conference in San Jose, demonstrates the complexity of this subject.

Much of the calculation has to do with where the PEV is driven, as this dictates the carbon intensity of the electric grid used to power the vehicle.  However, in most locations throughout the United States and the globe, the operating emissions of a PEV versus a conventional vehicle on a per-mile basis lean either substantially or marginally toward conventional vehicles.

However, there are nuances to this equation beyond simple pounds of pollutant emitted per unit of energy consumed.  For instance, when a conventional vehicle consumes a gallon of gasoline or diesel, the pollutant emissions calculation is fairly straightforward.

Net Zero

Additionally, the pound of pollutant emitted varies considerably from the mobile source (vehicle) to the stationary source (power plant).  For example, Alexander states that carbon monoxide and volatile organic compounds are more tightly linked to vehicles than power plants, while sulfur dioxide emissions are associated with fossil fuel combustion at power plants.  Supplanting gas or diesel miles driven with electric miles driven can therefore reduce emissions of particular pollutants while increasing others.

However, when a PEV consumes a kilowatt-hour (kWh) of electricity, it may have a net zero impact on pollutant emissions, depending on a complex interaction of emissions regulations and available generation capacity.  Growth of wind generation over the last decade has created excess capacity, often at night when the wind blows strongest and demand is lowest.  Data from the U.S. Energy Information Administration (EIA) indicates that in 2012, net generation exceeded net load by around 2.3%.  Navigant Research estimates in the report Electric Vehicle Market Forecasts that nearly 300,000 PEVs will be in use in the United States in 2014.  Assuming an average annual PEV mileage of 12,000 and the EIA’s projections on electricity energy demand in the United States, PEVs would represent less than 0.03% of total U.S. electricity demand.

New Sources

Further, while the emissions profile of burning 1 gallon of gasoline will stay relatively consistent over time, the emissions profile of consuming 1 kWh of electricity from the grid will change as new generation assets are added to the grid and old assets retired.  In the last 2 years, nearly 15,000 MW of coal generation has been retired, with a little over 5,000 MW added.  Over the same period, 22,000 MW of renewables generation were added.  If U.S. electricity demand stays on the plateau of the last decade, the replacement of aging high-emissions assets in favor of renewables will be much easier, and the grid’s emissions profile is likely to change quickly.

EPRI’s study seeks to quantify these factors and others (such as energy consumption from lithium ion battery development) to provide the most accurate analysis of how existing PEV technologies will influence environmental conditions.  Alexander clarifies that this study, while quite comprehensive, does not investigate potential opportunities presented by PEVs, such as utilizing them for grid energy storage or ancillary services, that have yet to become market realities.  Findings from the study will be fundamental to defining the efficacy of PEVs in attaining a number of U.S. goals for air quality standards and carbon emissions reductions.


Shifting Its Fleet, Toyota Strives for ZEV Mandates

— June 9, 2014

In mid-May, the news broke that Toyota has, for the time being, backed out of battery electric vehicles (BEVs) in favor of plug-in hybrid electric vehicles (PHEVs) and fuel cell vehicles (FCVs).  The company ended production of the small Scion eQ in 2012, and will end production of the RAV4 EV in 2014.  The move is not much of a surprise, since the original plan was to sell only 2,600 RAV4 EVs in California from 2012 through 2014 to comply with the California Zero Emission Vehicle (ZEV) program.  Toyota now plans to stay in compliance by introducing its first FCV in California.  That will be Toyota’s only vehicle falling within the definition of ZEV, as defined by the California ZEV program.

The ZEV program mandates automaker development and deployment of a number of fuel efficiency vehicle technologies to California and seven other states.  A specific regulation mandates that large automakers must sell a minimum amount of ZEVs as a percentage of their total sales in these eight states or be fined for non-compliance. Vehicles falling under the ZEV definition are BEVs and FCVs, and automakers subject to this requirement as of 2013 include Chrysler, Ford, GM, Honda, Nissan, and Toyota.

At face value, these regulations would mean that these six automakers would have to sell around 30,000 ZEVs in 2015 in California alone.  This, however, is not the case.  The ZEV program is governed by a system of credits that may be traded between any automaker or third party.  Therefore, if a large automaker is unable to meet its ZEV mandated requirement in a given year, it may buy ZEV credits from an automaker that has a surplus of credits.

A Sales Challenge

Further complicating this program is the fact that not all ZEVs sold receive the same number of credits.  For instance, a RAV4 EV receives 3 credits, a Tesla Model S receives 4 (it used to receive 7), and an FCV with a range of over 300 miles receives 9 credits.  This essentially means that the sale of one FCV by Toyota in 2015 would be worth the sale of 3 RAV4 EVs.  Therefore, Toyota does not actually have to produce and sell enough ZEVs to reach 3% of its total number of vehicles sold in 2015, as the ZEV program states – which would be good news for Toyota.  It does, however, mean that the company needs to start selling around 1,000 FCVs annually in just California for the next 5 years or it will likely have to start buying ZEV credits.

1,000 FCVs may not sound like much, considering Toyota sold slightly over 1,000 RAV4 EVs last year.  However, FCVs have considerable market challenges that BEVs do not, including:

  • Hydrogen infrastructure is expensive to build and few stations exist today, while electrical infrastructure is cheap and ubiquitous, including in homes.
  • The cost savings of driving on hydrogen rather than gasoline are questionable, while the cost savings for driving on electricity are significant and well documented.
  • Lastly, the first FCVs are anticipated to be far costlier than BEVs.

The advantage an FCV offers is a range over 300 miles and fast refuel times.  Toyota bets this advantage is substantial enough to drive sufficient consumer interest to achieve compliance targets.  If Toyota is wrong, the abandonment of the company’s BEV compliance programs will prove extra costly.


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