Navigant Research Blog

Toyota Bets on Fuel Cell Vehicles

— October 26, 2012

Toyota declared in September that it’s watering down its battery electric vehicle (BEV) plans by cutting back the production of the small Toyota eQ (known as the Scion iQ stateside).  The company has been hesitant on the idea of powering a vehicle solely by battery and currently only has plans to sell the updated RAV4 EV in California, so the move is not that surprising.  Instead Toyota is emphasizing its plans for fuel cell development.  The company currently operates a test fleet of fuel cell vehicles based on the Highlander SUV, and plans to deploy its first mass-market FCV in 2015.  Pike Research’s 2011 Fuel Cell Vehicles Report forecasts that the North American market for fuel cell vehicles will grow from around 9,600 vehicles in 2015 to more than 53,000 in 2020.

In retreating on BEV development, Toyota is making the bet that hybrids and plug-in hybrids are the greatest growth opportunity in the near term, and hydrogen vehicles, not BEVs, will be the greater opportunity for the future.  Considering the lackluster sales performance of BEVs vs. hybrids (HEV) and plug-in hybrids (PHEV) over the last 2 years, it seems like a safe bet.

Sales of Plug in Vehicles, North America (2011 & 2012)



2012 (YTD)

(Since 1/1/2011) Cumulative













Source: Pike Research

Most BEVs skirt the edge of a 100-mile range, stretching up to the $100,000 Model S, from Tesla, which can go nearly 300 miles on a single charge.  EV advocates and battery manufacturers have long insisted that a battery breakthrough on the horizon will triple battery ranges while drastically reducing battery costs.  Regardless of how far the BEV can go on a full battery, however, it still takes hours to recharge instead of the minutes it takes to refill a conventional gas vehicle.

Toyota’s hydrogen vehicles can already achieve ranges and refill times comparable to conventional gas vehicles, but they have challenges of their own, including high vehicle costs, high fuel costs, and a lack of refueling infrastructure.  The costs of the vehicle technologies and fuel can be reduced through economies of scale, but the real challenge lies in infrastructure development requiring hefty investments.  According to the U.S. Department of Energy’s Alternative Fuels Data Center (AFDC), there are nine publicly available hydrogen refueling stations in the nation, mostly in southern California.  By comparison, there are more than 4,600 publicly available EV charging stations.

The ultimate question is which technology will develop faster.  Will hydrogen infrastructure be added in a manner that makes advanced vehicle battery development unnecessary, or will batteries achieve a breakthrough that makes refueling with either liquid or gaseous sources obsolete?  Toyota’s actions indicate that its executives believe a battery breakthrough is unlikely.  If the company is right, its efforts will pay off handsomely; if not, the Japanese maker will cede increasing portions of the alternative fuel market share to smaller and more enthusiastic EV believers such as Nissan, Renault, and Tesla.


In the Right Cities, EVs Are the Right Choice

— October 26, 2012

As detractors are quick to point out, it is not difficult to create a case against the widespread adoption of battery electric vehicles (BEVs).  The high cost of the vehicle, limited driving range, and steep learning curve for automakers in marketing to consumers present obvious challenges, which is why without a leap forward in battery technology, BEVs are destined to be a small fraction of the automotive fleet.  Therefore, it’s not a surprise that most of the large automotive OEMS (Renault and Nissan excepted) are taking a cautious approach to launching BEVs.

Despite these hurdles, BEVs can be highly satisfactory, if not superior, vehicles for certain driving cycles.  For short driving trips in urban environments, driving electric can be a convenient and, in many cases, cost-effective mode of transport.

With the recent introduction of the Scion iQ EV, Toyota has joined Daimler as a major OEM offering an electric commuter car aimed at a relatively narrow audience.  The limited production (only 90 planned to be offered in the United States this year) commuter car will be targeted at car sharing and campus fleets.  Toyota has interestingly attempted to “right-size” the battery,  just 12.5 kilowatt-hours, to keep the cost down.  The company claims that this reduced sized pack will provide approximately 50 miles of range, a much shorter distance than Daimler’s Smart ED or the Nissan Leaf.

For BEV drivers in urban settings, however, 50 miles can more than sufficient.  At a Toyota media event in Denver last week, the University of Colorado at Boulder released a study of Boulder drivers who were given a prototype Prius Plug-in Hybrid.  The study showed that even when range was not an issue (due to the extended range provided by the gas tank), drivers traveled just 22 miles between charging events, with more than half of all trips under 13 miles.  The study found that increasing the number of public charging stations in the city (there are currently less than 10) could increase the ratio of electric to gas miles without having to increase the size of the battery.  Unfortunately for automakers, they don’t have much say in where charging infrastructure is installed, so instead they are targeting sales to regions where there believe their vehicles will be best supported.

While Boulder is a smaller city (about half the size of San Francisco geographically), the 50-mile-range Scion IQ EV or other BEVs can work well as commuter vehicles in larger cities that have considerable charging infrastructure today.  For example, according to the U.S. Department of Energy’s not-quite-comprehensive Alternative Fuels Data Center, San Francisco has approximately 64 public charging stations, which makes it possible to charge in nearly any neighborhood.  BEVs and car sharing can make sense in these cities where parking and gasoline are at a premium.

Until the prices of lithium ion batteries fall, OEMs are likely to take a targeted approach in delivering BEVs to cities where commutes are shorter and plug-in locations are readily available.  BEVs may never be appropriate for more than 10% of drivers, but selling to a niche audience hasn’t prevented the Mustang, the Beetle, or the Cadillac Escalade from being successful.


In New Utility Era, Energy Must Be Optimized

— October 26, 2012

At the Itron Utility Week conference in San Antonio, Texas, LeRoy Nosbaum, President and CEO of Itron, described the forces of regulatory mandates, technological innovation, and customer relationships as “colliding with each other.”  In the United States, energy providers are grappling with mandates while working to improve operational efficiency, protect revenue, deliver reliable service, and conserve energy.  As one of the world’s leading providers of smart meters, control technology, communications systems, and software, Nosbaum asserts that Itron is well poised to help utilities meet these formidable changes.  If Itron’s solutions can help utilities change their habits, he may be right.

Just 5 years ago, when the first iPhone had just been released, the realities of the economic slowdown were not yet upon us, and very few knew who Barack Obama was, dead reckoning on reliable energy delivery made sense.  But today, in the haze of grid modernization and changing industry conditions, utilities must become optimizers of energy in order to survive.  At the Itron event, Lloyd Yates, executive vice president of customer relations at Duke Energy, said this means that utilities must fruitfully partner with customers beyond the meter and empower them to have energy “experiences.”  This requires rethinking fundamental business models and recognizing that more than a century of reliable power delivery guarantees nothing for the future.

In the United States, especially, new patterns in energy supply and demand are emerging.  While many areas of the globe will see rising demand, growth in the United States is expected to be just 0.3% until 2035 (as reported by the EIA).  Compound this with rising rates of domestic oil production and an increase in energy efficiency, and it is clear that utilities face difficult decisions.  Yates articulated the choices a utility will have to make:

  • Continue with business as usual, adapt to anemic growth, and lower expectations among investors
  • Refuse to accept that the industry is in decline, raise rates regularly, and risk angering customers until they are driven to off-grid resources
  • Transform the utility by changing the way energy is generated, while working with regulators and customers to optimize the consumption of energy

Yates believes that for utilities to stay on their current path is a perilous mistake.  Modernizing the grid with technologies that smarten the delivery of power is not enough; the customer must now be part of the equation.  The transformation of the grid also necessitates the transformation of the utility – right to the core of how business gets done.

Vendors that understand these changing conditions, as well as the dynamics and uncertainties facing their utility customers, can help drive the innovation that is required.  Strategic alliances and partnerships will be an important part of delivering comprehensive solutions that can create “energy experiences.”  Itron has made convincing moves that demonstrate its understanding of these forces, including a partnership with Cisco to provide an open infrastructure and, most recently, a strategic alliance with C3 to deliver energy management services directly to consumers.  These partnerships will help the utility evolve and adapt to a new era where the energy relationships are fully optimized.


Climate Negotiations and the Prisoner’s Dilemma

— October 25, 2012

The next international Climate Change conference is scheduled to take place from Monday, November 26 to Friday, December 7, 2012 in Doha, Qatar.   It follows the widely publicized (and derided) Copenhagen Climate Change Conference in December 2009, which brought together an unprecedented large number of attendees, including about 115 world leaders and more than 40,000 people from all over the world, marking it one of the largest gatherings of world leaders ever outside of New York City.  The objective was to consider climate change and list mitigation actions pledged by developed and developing countries, as well as financial and technological assistance to reduce carbon emission.

Most delegates left the conference disappointed, primarily as a result of the weakness of the Copenhagen Accord, which was not even formally adopted.  Since then, there have been two more annual climate change conferences – albeit less significant ones – plus a series of meetings to try to hash out an agreement about carbon emission reduction targets in order to curtail a global average temperature increase, causing global warming.  None of these negotiations have made much progress.  And, according to a study by environmental scientists Scott Barrett and Astrid Dannenberg of the Earth Institute of Columbia University in New York, published in the October 2012 Proceedings of the National Academy of Sciences, any negotiations at the upcoming Qatar conference are doomed to fail again.

Define ‘Dangerous’

One major reason, according to Barrett and Dannenberg, is that scientists are unable to ascertain what the global average temperature limit is that will constitute “dangerous” climate change.  There is no scientific agreement about what the risks are if the planet warms up an average of 2°C – as opposed to only 1.9°C or 2.5°C – above its average temperature during the pre-industrial era.  There is no absolute certainty that such an increase will lead to catastrophic consequences globally.  Likening climate negotiations to the famous Prisoner’s Dilemma (a hypothetical quandary in which two prisoners held in separate cells must decide whether to confess to a crime or remain silent, so that apparent self-interest clashes with a mutually beneficial outcome), Barrett and Dannenberg have concluded that this uncertainty is likely to affect the prospects for international cooperation on climate change.  “Our research explains the paradox of why countries would agree to a collective goal, aimed at reducing the risk of catastrophe, but act as if they were blind to this risk.  Climate negotiations usually are depicted as a prisoners’ dilemma game; collectively, countries are better off reducing their emissions, but self-interest impels them to keep on emitting … the uncertainty about the location of the threshold turns the game back into a prisoners’ dilemma, causing cooperation to collapse.”

So far, the United Nations (UN) has decided that the relevant threshold is 2°C degrees above the planet’s average temperature during the pre-industrial era.  Carbon emission levels must be curtailed to prevent global warming from crossing this 2-degree limit, or potentially catastrophic – albeit uncertain – consequences will ensue.

In this context it’s interesting to note that UN officials issued a warning on October 14 that grain reserves across the world are dangerously low and that continued severe drought in the United States, or any other food-producing nation, could lead to severe food shortages worldwide.  They expressed their concern that the planet could face a massive hunger crisis.  “Supplies are now very tight across the world and reserves are at a very low level, leaving no room for unexpected events next year,” an economist with the UN Food and Agriculture Organization, told The Guardian.

One would hope that the prospect of widespread famine would provide a strong impetus for world leaders to reach an agreement at the Qatar conference.  Unfortunately it’s no guarantee.  Barrett also suggests that the climate change negotiators themselves should create a system with teeth: one that imposes firm negative consequences for countries if the carbon emissions target is not reached, in order to change the incentives for national governments to take action.


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