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.
Tags: Carbon Emissions, Clean Transportation, Electric Vehicles, Smart Transportation Program
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