Navigant Research Blog

Unknowns Narrow for Tesla’s Gigafactory

— July 31, 2014

Tesla Motors announced today that it has started civil engineering work at a site in Nevada for the eventual construction of its Gigafactory – a battery-manufacturing plant that will produce 50 GWh of batteries a year.  Broadcast in a shareholder letter that accompanied Tesla’s quarterly earnings results, the announcement confirmed some rumors but was still extremely short on specifics.   A lot of uncertainties remain about how, where, and by when the Gigafactory will be built.

The first issue is site location.  Tesla has said in the past that it will build the factory in one of five states: California, Nevada, Arizona, New Mexico, or Texas.  It has also said that it will begin development work on more than one site, choosing the eventual location from multiple contenders upon which initial civil engineering work has already been done.  Now we know that the Nevada site outside of Reno is one of those finalists.  Where is/are the other/s?  No word from Tesla on that, but it is pretty easy to identify the five top contenders.  That’s because the Gigafactory will need to be on a main rail line that connects with the company’s Fremont, California automobile factory.  It will also need to be near a large population center in one of those five states.  That leaves the following contenders:

  • Central Valley, California
  • Tucson, Arizona
  • Albuquerque, New Mexico
  • El Paso, Texas
  • Austin/San Antonio, Texas

You can expect the second site to be in one of those areas.  There is still one potential curveball that might come  from Tesla – the possibility that the Gigafactory will be composed of multiple sites: maybe a separator factory in one state, an electrolyte factory in another locale, and a final assembly plant in another.

More to Come

The other piece of interesting information still to be determined is exactly how the Gigafactory will be structured.  No blueprint exists for how to design a factory that is owned by multiple parties: it’s a unique concept that has never been tried before.  One day earlier, Tesla said that Panasonic will definitely be the manufacturing partner for the Gigafactory.  Now the questions are how will the ownership of the site and its equipment be divided, and who will be the other component manufacturing partners? Expect a number of announcements on that end to come out over the next several months.  Among the potential other manufacturing partners that Navigant Research expects to be chosen are a cathode material supplier (such as Nippon Denko or Umicore), a graphite supplier (Northern Graphite, Alabama Graphite), an electrolyte manufacturer (Ube, Sumitomo, or Nichia), and a separator manufacturer (Celgard, Ube, or Toray).  Other materials needed for the batteries, such as lithium carbonate, copper foil, and aluminum casings, will probably be made offsite and delivered by rail.

The final questions are when the Gigafactory will go online and when it will reach full capacity.  Tesla has already said that it hopes that those dates will be 2017 and 2020, respectively, but exactly how the ramp rate works will be interesting to see.  Panasonic has clearly stated that it will invest in the equipment for the factory in a staggered, conservative fashion.  That could lead to a much slower build-up to full capacity than the 3 years that Tesla is claiming.  Regardless of the details of the how, when, and where of the facility, Navigant Research believes strongly that the Gigafactory will be built and will be a successful, potentially revolutionary, manufacturing venture.

 

Buy a Car, Get a Solar Array

— July 29, 2014

BMW Canada is betting that electric vehicle (EV) drivers want to further reduce their carbon footprint by going solar.  The company’s new electric i3 comes with an added purchase incentive for Canadians: a 10% discount on a home solar system (only available in Ontario, Quebec, and British Columbia).  BMW partnered with Toronto-based PURE Energies, which will provide the solar home evaluations, panel installation, and relevant paperwork.

BMW Canada’s e-Mobility Specialist, Blair Dinsdale, stated in a press release that the solar energy offer “was designed to cover the exact amount of power you would use in the car, based on sun access in Canada.”  According to PURE Energies, a 6 kW system (24 panels) in Canada produces roughly 7,000 kWh of electricity per year.  The BMW i3 gets an estimated 100 miles of range per 27 kWh of electricity, as per the U.S. Department of Energy.  Thus, with a 6 kW solar system, a homeowner could drive the i3 nearly 26,000 miles per year exclusively on home-produced solar energy.

A Literal Sunroof

A February 2014 survey conducted by the Center for Sustainable Energy in California found that 32% of EV owners in the western United States already have solar panels on their homes.  While parts of Canada do not enjoy abundant sunshine, the province of Ontario does offer a feed-in tariff program to help offset the lack of year-round solar energy.

Although combining solar with EVs is not new, the move by BMW to offer direct discounts on a home solar system is a first for the industry, and a smart one.  According to Navigant Research’s 2013 Energy & Environment Consumer Survey, 79% of Americans have an overall positive impression of solar energy and 61% share the same impressions for EVs.  While not all consumers of EVs purchase the vehicle for environmental reasons, the ones who do place great importance on where the electricity to power the car comes from.  And, as you’d expect, EV owners align very closely with solar buyers from a demographic perspective.

Combining solar with EVs makes so much sense that several automakers are now showing prototype EVs with solar panels directly integrated onto the roof of the vehicle.  The Ford C-Max Solar Energi and the Sunswift eVe have built-in rooftop panels.  If BMW’s approach proves successful, we could see Tesla and SolarCity creating similar offers in the future.  For more information on solar and EV synergy, check out Navigant Research’s research brief, Solar and Electric Vehicle Cross-Marketing Strategies.

 

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, 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 $.184/gallon of gasoline and $.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, and those who drive AFVs pay no tax per mile driven, despite that they are using the same roads as owners of less fuel efficient conventional vehicles who bear more of the tax burden.  As 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 specifically 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.

 

The Humblest, Most Popular EV on the Planet

— July 15, 2014

Neighborhood electric vehicles (NEVs) are a less famous sub-segment of the more familiar class of battery electric vehicles (BEVs), such as the Nissan LEAF.  NEVs are low-speed EVs that are limited to a top speed of 25 mph and to roads that have maximum speed limits of 35 mph; they usually take the form of golf-cart-style vehicles.  Although they get less attention, and advertising, than their larger, faster cousins, NEVs are the most popular type of EVs in use worldwide.  Fleets, including airports, local governments, university campuses, retirement communities, and the military, are the principal users of the technology.  Navigant Research estimates that fleets account for at least 75% of the global NEV marketplace.

 

 (Source: GEM)

The primary market driver for NEVs is the low production cost and purchase price of the vehicle.  Most NEVs are priced between $8,000 and $14,000, compared to $28,980 for a full-sized BEV like the Nissan LEAF (excluding incentives).  The operating costs of NEVs are also very low, since they use electricity to charge batteries that are typically much smaller than those found in BEVs.

Half a Million Strong

While NEVs are affordable, and particularly convenient in fleet applications, they have their flaws.  Being limited to streets with a maximum speed limit of 35 mph is enough to deter the majority of private consumers, who expect full access to all roads.  Combined with poor performance in snow and cold weather, safety concerns (NEVs usually have less safety equipment than full-speed vehicles), and short battery ranges (25-30 miles per charge), the market for NEVs will remain with niche fleets for the foreseeable future.  Nonetheless, this has proved successful, as significantly more NEVs are in use worldwide than BEVs.  Navigant Research estimates that globally 229,166 light duty BEVs were in use by the end of 2013, less than half the number of NEVs, at 542,134.

As battery prices come down and gasoline prices continue to rise, NEVs will likely increase their market share within fleet applications.  Meanwhile, some companies are also looking into using NEVs for carsharing programs.  In this scenario, the vehicles would be used mostly for connecting travel purposes – from homes to public transit stations, for example, or from stations to offices.  Additionally, NEVs are also considered to be the frontrunners for autonomous vehicle technologies – mainly because low-speed EVs are safer and more suitable than full-sized vehicles for testing these experimental technologies.

 

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