Navigant Research Blog

Tesla Direct Sales Banned in Another State

— October 28, 2014

In mid-October, Michigan governor Rick Snyder signed legislation that effectively bans Tesla’s direct-to-consumer sales business model in the state.  Direct sales of cars are also currently banned in Texas, Maryland, Virginia, and Arizona, and limitations are in place in Georgia and Colorado.  Despite these setbacks, Tesla has overcome battles in Minnesota, Massachusetts, North Carolina, and recently New Jersey.

The reason Tesla’s sales model has been banned has been explained many times, including past Navigant Research blogs, found here and here.  The most critical factor is that Tesla’s direct model leaves established car dealerships out of the business transaction.  This supposedly gives Tesla an advantage over other automakers (like General Motors, which supports the Tesla bans) that must sell their vehicles through dealerships.

As Tesla sales continue to grow, state laws protecting dealerships will come into sharper focus.  Automakers and dealers will have to adapt to legislative reforms accordingly.  Given that, it’s harder to imagine a future where Tesla is forced to sell through dealers than to envision one in which all automakers are able to set up similar direct-to-consumer sales models as they see fit.  Some automakers are already adding more direct pathways for consumers to communicate directly with the automaker on vehicle specifications and deliveries.

Time to Evolve

Under these changing conditions, automotive retail must adapt to the new, information-based, time-efficient market or become structurally obsolete.  Consumers now have more knowledge, power, and control over their vehicle purchases than ever before, and future car buyers will be far more autonomous.  Greater transparency around vehicle costs, automaker inventories, and financing mechanisms enabled by the Internet shifts the bargaining chips heavily in the consumer’s favor.

The disconnect between established dealers and automakers and the new tech-savvy, well-informed consumers will only become more pronounced if state dealer associations focus on campaigning against Tesla rather than pushing industry adaptation.

 

Big Retailers Boost Home Energy Management

— October 28, 2014

Home energy management solutions have struggled to gain much traction beyond early adopters and consumers enrolled in a sprinkling of utility programs for demand response.  That could be changing as more retailers push connected home devices that have advanced energy controls as a component.

Best Buy, for example, has been selling a handful of smart home products for several years, and for a time it tested dedicated home energy management sections in three of its locations.  But now the electronics retailer plans to set up new connected home departments within about 400 of its 1,400 stores.  These new sections are expected to show up around Thanksgiving, and will be staffed with blue-shirted experts who will be trained to offer smart home solutions for homeowners.  Products on the energy side will include smart thermostats from Nest and Honeywell and smart lighting controls from Philips and Belkin, ranging in price from about $50 to $350.

Out on the Floor

Beyond hardware products, Best Buy will also highlight services for the connected home from a variety of providers, including Comcast, DirecTV, Time Warner, ADT, and others that can tie the hardware to services geared toward automation, security, and energy management.  This could be a key to wider adoption of home energy management, since many people have not heard much about energy management services.

Other retailers, such as Walmart, Lowe’s, and Home Depot, offer similar products and services for increased home automation, security, and energy management.  Office supply giant Staples now offers Connect, which combines a hub with a single mobile app to connect door locks, thermostats, and lighting for homeowners or small business owners.

One of the main inhibitors to growth for home energy management products and services has been a lack of awareness among consumers, as noted in Navigant Research’s Home Energy Management report.  This current wave of retailers promoting a variety of solutions to create a more intelligent home should help increase customer knowledge and drive adoption.  It will likely take a couple of more years to reach widespread consumer adoption, but this current retail push is a start.

 

As Rail Congestion Crimps Coal Supplies, Calls for Expansion Grow Louder

— October 27, 2014

Even as power plant operators are warning of coal supply shortages come winter, the U.S. government has predicted that congestion on the nation’s railways is likely to get much worse in coming years.

Increased freight traffic traveling by rail – particularly crude oil from the Great Plains and grain from a bumper crop this year – has led to significant bottlenecks across the railway network, the Government Accountability Office (GAO) said in a report issued in September.  Rail traffic has reached the levels last seen in 2007, before the global recession, and “recent trends in freight flows, if they continue as expected, may exacerbate congestion issues in communities, particularly along certain corridors,” the GAO concluded.

Sounding a more dire warning, Hunter Harrison, the CEO of Canadian Pacific, said during a recent analyst briefing that the entire North American railway system is headed toward a cliff.  “We’re quickly approaching a time where none of this works,” Harrison said, according to The Financial Times.  “We cannot continue to go down the road that we’re going down and be successful and not have gridlock beyond anything we’ve experienced before.”

On to Chicago, Slowly

Like a slow train spotted in the distance, this fall’s tie-up of train traffic has been anticipated for years.  The domestic oil & gas boom, centered in the Bakken formation in North Dakota, has had ripple effects across the upper Midwest, the Rocky Mountains, and the Pacific Northwest.  Chicago, where all seven of the Class I railroad companies have major yards, is one of the biggest bottlenecks.  Rail transport is relatively low-cost and emits less CO2 than shipping by plane or truck, but investment in rail infrastructure has been slow.  Producers and consumers of coal, in particular, have traditionally been trapped in exclusive contracts that give them little leverage in negotiations with rail providers.  In September, Democratic Senator Jay Rockefeller of West Virginia introduced the Surface Transportation Board Reauthorization Act, which would increase the authority of the Surface Transportation Board, which regulates railroads, to force them to remedy service delays and justify rate hikes.  Lawmakers chided rail executives at a September 10 hearing in Washington for their failure to anticipate and keep up with increased demands on the railway system.

The problem is especially acute for mines in Wyoming’s Powder River Basin trying to ship coal to customers.  Big coal-burning utilities have already begun running coal plants at below capacity in order to conserve coal stocks.

Ship Gas, Not Coal

Some of this alarm is likely overstated; no one has suggested that coal plants are actually in danger of running out of fuel this winter.  And despite the transport constriction, the price of Powder River Basin coal remains stubbornly low; the price of a ton has dropped 8%, to $10.80, according to Bloomberg.  As a matter of national policy, it makes sense to reduce shipments of dirty coal by diesel-burning trains to supply aging power plants that are quickly becoming uneconomical anyway.  Meanwhile, tight coal supplies will inevitably lead to louder calls for other types of energy transport infrastructure: namely, natural gas pipelines.

There are good reasons to invest in expanding the nation’s railway infrastructure; shipping more coal is probably not one of them.

 

Partnering Takes the Pain Out of Paying for EV Charging

— October 27, 2014

At the dawn of the modern electric vehicle (EV) era (way back in 2010), EV industry participants recognized that a simple way to pay for vehicle charging was critical to EV adoption.  In fact, I recall having conversations with at least one international payment processing company back then regarding the need for a central clearinghouse for EV charging payments.  I described this segment as a small niche that would grow into a major opportunity over time.  Neither that company nor others chose to start building the necessary relationships.  But today, after years of considerable talk and little action, progress is finally being made as charging networks are collaboration and payment clearinghouses are starting to emerge.

During the past half-decade there have been numerous tales of the frustrations of EV drivers who carry multiple cards to be able to access competing proprietary networks.  The Hubject consortium in Europe has been leading the charge to make charging more consistent by simplifying customer authorization, and the group recently announced a method that enables mobile phones to pay for EV charging.

The PayPal Factor

The intercharge direct system is powered by online payment system PayPal.  Drivers scan a QR code on the charging station with their phone, which connects to the intercharge website where PayPal and other payment options are offered.  Customers who have a contract with an EV services provider can pay their existing rates, and more importantly, EV drivers without a contract can still access any of the 3,000 charging stations that support intercharge.

Things have come full circle for PayPal, which was founded by EV maker Tesla Motor’s founder, Elon Musk.  (Note the irony that, since Tesla offers free charging at its charging website, PayPal largely won’t come into play for its customers.)  PayPal is an effective backend payment system, since it’s used globally for small payment amounts.  PayPal is currently being used in the United States for EV charging payments by General Electrics’s WattStation, and in October ChargePoint announced that it would begin accepting PayPal as well.

Reducing the cost and hassle of roaming between EV charging networks will increase the use of public charging stations, which will result in more charging stations being made available, and in turn higher levels of EV adoption.

Makers Make Progress

Efforts to expand EV charging in the United States are slowly paying off, thanks in part to the work of the EV manufacturers themselves.  Nissan is offering free public charging to buyers of the LEAF and convinced competitors ChargePoint, Car Charging Group, AeroVironment, and NRG to each support its EZ-Charge card.  BMW’s ChargeNow program offers a single card for paying at stations from ChargePoint and NRG’s eVgo network, as well as other partners internationally.

Not all partnerships in the area have worked out; ChargePoint launched an ill-fated joint venture with ECOtality in 2013 called Collaboratev that would have streamlined payment processes across both networks, had ECOtality not gone bankrupt only a few months later.

While proprietary payment systems make business sense for the charging networks, they hurt more than help EV owners and automakers.  If the expected millions of EVs are to rely on public charging, roaming between networks should be as simple as roaming between mobile phone networks or getting money from any ATM.  These recent developments provide hope that such interconnections are starting to emerge.

 

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