Navigant Research Blog

Tesla, the Darling First Child

— June 21, 2012

Though many startup companies in the electric vehicle (EV) industry have either struggled to survive produce a profit, or insure investors of their products’ worth (or all three), one company has consistently bucked the trend of disappointing news: Tesla Motors.  In 2008, the company first began selling its first-generation all electric Tesla Roadster and since then has placed more than 2,000 of the high end EVs worldwide.  The Roadster is largely credited for restarting the EV revolution, and since its debut, no other manufacturer has been able to replicate a model with similar electric range and style.

The company struggled to make its first deliveries, but has largely overcome its early production troubles.  By all accounts, it is not just surviving; it’s thriving.  Recent news items include preorders of next year’s Model X all-electric crossover, netting the company more than $40 million overnight.  In other company news, Tesla will begin repaying $465 million to the U.S. Department of Energy (DOE) in December and has decided to begin deliveries of its more than 10,000 reserved Model S sedans one month earlier than previously forecasted.

Amid this good news, don’t forget that Tesla has never made a profit and by some current estimates, its 2Q 2012 will be its most unprofitable quarter since it went public in 2010.  However, starting a car company from scratch requires an enormous investment, and Tesla is not anticipated to earn a profit until 2Q 2013.

Having an estimated date for profitability is more than quite a few upstart EV makers and their upstart suppliers can boast.  No doubt, the promise of profitability is making Tesla attractive to investors.  Bursting Tesla’s balloon a bit, John Petersen, in a guest post on Greentech Media, describes the company’s growing popularity in the last 2 years as part of a “hype cycle,” in which interest in a company grows before an event and recedes afterwards.  For Tesla, the Model S may be that event.

Or, it may not be for two important reasons: 1) Tesla is the darling first child of the EV revolution and 2) the company continues to push the EV envelope.  People like the underdog, and despite being the first child, Tesla has kept the underdog image as the big auto makers, GM, Nissan, and Toyota, have crept into the company’s EV space.  The Model S may also be considered the company’s equivalent of Apple’s iPhone 4s, and the Model X (due out in 2013) would be the iPhone 5; meaning the hype is not going away with the Model S.

Tesla’s Model S deliveries begin on June 22.  As is customary with Tesla, a great deal of publicity has surrounded the event and the company has even put a ticker on its website, counting down the seconds to the moment that CEO Elon Musk will hand deliver the keys to the first owners.  The magnitude of this fanfare and its fan following is not uncommon among new PEVs, but it isn’t the end of the Tesla hype machine.  Let’s hope the Model S delivers on all its grand expectations, but let’s also be mindful that this is only one of potentially many new models to be delivered by the darling first child.

 

Prepaid Metering: Another Power Shift?

— June 15, 2012

The National Consumer Law Center (NCLC), whose tagline is “Advancing Fairness in the Marketplace for All,” is opposed to prepaid utility service, which my colleague Marianne Hedin has written about here previously.  The NCLC asserts in its recently released report, “Prepaid Utility Service: Rethinking Prepaid Utility Service: Customers at Risk,” that prepaid utility service programs are putting low- and moderate-income households’ health and safety at risk, and that the associated costs are regressive.  Yet, a recent report from EcoAlign, an energy and environment marketing agency that surveyed 900 customers, found high satisfaction responses from consumers on prepay programs for cost containment, convenience, and control over energy consumption.  This is not without some apprehension though; these same consumers also raised concerns about fear of service disconnection, higher rates, and the fees associated with prepay.

(Source: National Consumer Law Center)

If the EcoAlign survey is on target and consumer and NCLC issues can be mitigated, utilities have an opportunity to integrate their AMI/AMR systems with their meter and billing servers to reduce delinquent payments, reduce collection costs and effort, and hopefully improve customer satisfaction.  By now, though, industry watchers know the lessons learned from the intense backlash experienced against smart meters in Texas and California: relatively few numbers of upset customers can successfully channel their dissatisfaction into a widespread social media campaign that can have significant consequences for utilities.  Utilities have been denunciated, protested against, and subjected to negative headlines over smart meters, and, unable to circumvent the firestorm, have seen resulting changes in regulatory policies and been compelled to modify programs and deployment plans.

In 1962, President John F. Kennedy made a speech that included what would later come to be called The Consumer Bill of Rights.  He said that there are four basic rights: the Right to Safety, the Right to be Informed, the Right to Choose, and the Right to be Heard.  Backlash against the utility industry is an expression of these deeply held rights.  However, for many customers, choosing their electricity provider is not an option.  This phenomenon is likely the reason that, when customers are dissatisfied with costs and service offerings, they don’t begrudgingly switch providers, but entrench to get their concerns publicly aired and addressed by higher authorities.  Because of this, consumer advocacy organizations, like the NCLC, play a heightened role in consumer protection.

The NCLC is asking utilities to acknowledge that their programs could have negative consequences on economically challenged families, and dispense with transaction fees, drive down the costs for those who prepay, and work to reduce risks related to health and safety concerns when offering these programs.  Utilities have the option to leverage the advantages that consumers might see in a prepay offering, including the ability to budget around their consumption of energy.  There are challenges, however, and utilities that are implementing or considering these programs, especially in combination with sophisticated smart meter capabilities, are wise to develop a model that focuses on reasonable rates and fair treatment of prepay customers.

 

Europe Spends Billions to Fill Transmission Gap

— June 15, 2012

Frequently, Europe is cited as one of the best markets for energy storage, especially bulk energy storage.  The key drivers for energy storage in Europe center on the region’s rapidly changing energy mix and its ambitious renewables targets.  It’s certainly true that Europe is integrating an impressive amount of renewables, especially intermittent renewables such as wind and solar PV.  Not only will this cause instability on the grid locally, but there will also be congestion issues to deal with as electricity travels along energy corridors in Europe.  This will tax infrastructure, creating significant opportunities for energy storage in Europe to help maximize transmission and distribution infrastructure.

However, the fact is that European officials have seen the writing on the wall, and companies and the EU are investing heavily in infrastructure that can cope with the intermittency and volatility of increased renewables on the grid.  Most of this funding will come via the European Network of Transmission System Operators for Electricity (ENTSO-E), an association of transmission and distribution operators that was formed in 2008.  As shown in the table below, some €104 billion ($130 billion) will be spent on pan-European transmission and interconnection projects over the next 10 years.  That investment in transmission and distribution will reduce the need for extensive storage installations, making Europe a less attractive market for energy storage than it might seem.

Investment Cost Breakdown for Pan-European Transmission Projects 2010-2020
Country

Billion €

Country

Billion €

Austria

1.1

Ireland

3.9

Belgium

1.9

Latvia

0.4

Bosnia-Herzegovina

0

Lithuania

0.7

Bulgaria

0.2

Luxembourg

0.3

Croatia

0.2

Montenegro

0.4

Czech Republic

1.7

Netherlands

3.3

Cyprus

0

Norway

6.5

Denmark

1.4

Poland

2.9

Estonia

0.3

Portugal

1.5

Finland

0.8

Romania

0.7

France

8.8

Serbia

0.2

FYROM

0.1

Slovakia

0.9

Germany

30.1

Slovenia

0.3

Greece

0.3

Spain

4.8

Hungary

0.1

Sweden

2

Iceland

0

Switzerland

1.7

Italy

7.1

United Kingdom

19

(Source: ENTSO-E)

As a part of its unique cooperative approach to energy policy, the European Union has recognized that increases in demand, decommissioning nuclear power plants, and sharp increases in intermittent renewables will require additional investment in transmission infrastructure and greater interconnection throughout the continent.  Approximately 100 projects have been identified and nearly 52,000 kilometers of transmission will be built or refurbished.  The figures above do not include projects of national or regional importance, only projects that will affect greater Europe.  Significant national-level spending and upgrades are expected, for example, within Germany.  Spending levels by nation reflect population size and the need for renewables integration, although Ireland will be investing a great deal to shore up interconnections and will spend a disproportionately high amount over the next decade.

 

Chinese Medicine Revives Undead EV Makers

— June 15, 2012

Despite a global market that has been slower to launch than anticipated, electric vehicles (EVs) still draw a lot of attention and serious capital.  This fact has been exemplified by the persistent investment, and reinvestment, in automakers that have gone belly-up.  The most recent announcement came on June 13th, when a newly formed Chinese-Japanese investment group bought the Swedish automaker Saab.  The investment group plans to convert the company into an all-electric car maker with a planned 2014 deployment to the Chinese market.  The amount of the buyout was not disclosed; a competitive bid for the company by Zhejiang Youngman Lotus Automobile on June 8th was $567 million.

Turning Saab into an EV company is a big gamble, and a 2-year timeline for introducing a model is an ambitious target for an industry that has been consistently late on planned deployments and consistently short on sales goals.  But the Saab makeover is not unusual for an emerging industry full of EV programs that seem to start up, collapse, and re-emerge monthly.

A similar development occurred last month, with the reemergence of Aptera, a Santa Rosa, California-based maker of three-wheel EVs that went under last December.  The company’s assets were bought by a consortium of Chinese and American investors with a major Chinese backer, the Jonway Group, which previously acquired EV-maker ZAP.  The vehicle bodies will be made in China, final assembly will take place stateside, and they’ll be sold under the name Aptera USA.

Another venture that pushes the boundaries of resilience, if not sanity, is TH!NK City.  From 2008 to 2011, the Norwegian maker produced the City, an urban mini EV that was sold in limited numbers to markets in the United States and Europe.  By March 2011 over 1,045 units had sold worldwide, but due to a lack of funds the company filed for bankruptcy in June of 2011 for the fourth time in 20 years.  Yes, the fourth time.

Despite TH!NK’s poor financial record, the company took no time to find a buyer, Electric Mobility Solutions AS.  The car has now started to exhibit some success through a manufacturing facility in Indiana and pilots in Oregon, California, New Jersey, and Indiana.  As of this month, the company has produced 300 EVs in 2012; they are priced from $22,000-$25,000 after state and federal incentives/rebates.

These reawakenings underline the many challenges that exist in the EV industry and the general weakness of the EV market today, but they also demonstrate that investors, particularly Asian investors, believe the nascent market has enough room for startups to challenge established players Nissan, GM, and Mitsubishi.  For EV makers and their suppliers who have never made a profit (Tesla) or are continually toeing the fiscal cliff (A123), there is hope.  And it often seems to come from China.

 

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