Navigant Research Blog

Six Questions Regarding Tesla’s Gigafactory

— February 27, 2014

This week, Tesla revealed the first details about its plan to build an enormous battery factory to provide cells for its future electric vehicles.  Among the revelations: the factory will be powered primarily by its own solar and wind power parks; it will produce more than 50 gigawatt-hours (GWh) of battery packs a year; and it will cost $6 billion to build.  To kick things off, Tesla also filed to sell $1.6 billion worth of convertible bonds today.

While these are intriguing details, there’s still a lot to determine about what this factory will actually look like.  Here are my questions about the Gigafactory:

Why isn’t California one of the states being considered for the plant?  The company named Nevada, New Mexico, Arizona, and Texas as potential host sites.  To build the batteries in a different state and then ship them to California, even by rail, will add considerable cost to the batteries.  Why not locate the factory at or near the company’s vehicle assembly plant in Fremont, California? My guess is that environmental regulations for such an enormous factory are one negative factor weighing against California.  That leads to a second question: Where will the cars be built?  The batteries coming from this factory will be going into Tesla’s next-gen passenger car, not the Model S or Model X.  That means that a car factory could also come along with the battery plant.

How much wind and solar will be needed to supply power to the plant? A battery factory making 50 GWh of batteries will require enormous amounts of electricity – some for the actual making of the batteries and some for the initial charging of the batteries that is the last step in the manufacturing process.  This could require as much as 1 GW of renewable energy projects.  Is the price of those installations factored into the stated $6 billion cost of the factory?

Where will the extra 15 GWh of batteries come from? In the slides that Tesla distributed, the manufacturing capacity of cells was stated as being 35 GWh.  But the manufacturing capacity of packs was stated as being 50 GWh.  So where will the extra 15 GWh of cells come from?  From other battery company factories throughout the world? From more Gigafactories?

Why is this factory so cheap? $6 billion doesn’t sound very cheap.  But it actually pencils out to a little more than two-thirds the cost, on a per GWh basis, of other large battery factories.  Clearly, the large scale of the factory will make equipment purchases cheaper.  Nevertheless, the estimated cost of the factory seems extremely low and brings into question whether Tesla and its battery partners have some new manufacturing innovations up their sleeves.

Why wasn’t Panasonic mentioned in the news release? Most observers assume that Tesla will build the factory with Panasonic, which makes all the cells for the Model S and the upcoming Model X.  However, the news release only stated that the car company’s “manufacturing partners” will help finance and build the factory.  Is it possible that another battery supplier is inserting itself in between Panasonic and Tesla?

How much will the cells cost once the factory is up to scale? Tesla CEO Elon Musk has stated in the past that Tesla buys its cells for between $200 and $300 per kilowatt-hour (kWh).  The slides distributed with the Gigafactory announcement claim that the facility will be able to cut the costs of the battery packs by 30%.  But how much of that comes out of cell costs versus price cuts in the other equipment in the pack?  Does this get Tesla down to $175 per kWh? To $100 per kWh?

There’s no denying that this is a bold venture.  If the company manages to follow through on these plans, it will construct the biggest factory in the world (not just for batteries, but for anything).  And it will yet again echo Henry Ford’s spirit with a 21st century version of the original megafactory, the River Rouge complex.

 

Demand Response Will Improve EV Economics

— February 17, 2014

With EVs selling in the U.S. by the thousands each month, their collective impact on the grid is getting increasing attention from utilities that are looking to reward EV owners for helping to balance power supply and demand.  EVs give power providers a new resource for smoothing peak loads and contending with the rising amount of variable power produced by renewable solar and wind assets.

For several years organizations such as the SAE, IEEE, and SGIP have been creating standards to enable smart grid equipment to communicate with EVs and their charging stations. This “smart charging” technology will delay or ramp up vehicle charging in response to changing grid conditions, including through demand response (DR) programs.  According to Navigant Research’s Vehicle to Grid Technologies report, by 2020 EVs enrolled in commercial DR programs will be able to curtail up to 272 MW of peak load in North America, which will come in handy on those hot afternoons when power demand outpaces supply.

Utilities are slowly removing humans from the DR equation through automated demand response systems.  According to Navigant Research’s recently published report, Automated Demand Response , roughly $13 million is expected to be spent on ADR globally in 2014, with investment rising to $185 million in 2023.

ADR Spending by Region, World Markets: 2014-2023

 

(Source: Navigant Research)

EVs connected to charging equipment using service provider Greenlots’ software platform will be able to participate in demand response thanks to a software upgrade.  Greenlots announced last week that the OpenADR Alliance has certified its SKY EV charging platform as compliant with OpenADR 2.0b, a standard that utilities are rallying around to send pricing information and demand response signals.

Utilities compensate demand response participants when they voluntarily reduce their consumption, which in the case of EVs could include payments to “site owners” where the vehicles charge, automotive companies (which can aggregate the power consumed by EV drivers) and the vehicle owners themselves. While slicing the revenue this way reduces the money available to EV owners, the payments could reduce the cost of vehicle charging and make EVs a more attractive purchase.

For example, employers could offer free or heavily discounted EV charging to workers who agree to participate in the company’s DR program.  Electricity vehicle charging amounts to only 25-30% of the cost of gasoline to power a vehicle, and dropping the “refueling” cost to close to zero would shorten the payback of switching to electric drive.

In the future, utilities could take advantage of this new grid-to-vehicle communications platform to prevent transformer overheating, which is expected to be the most common problem for the grid caused by the proliferation of EV charging.  However, because of the cost of adding sensors to transformers that would detect stress, utilities are likely to wait until the current installed equipment fails before replacing it with EV-friendly technology.

 

Audi’s Strategy to Enable Carbon-Neutral Driving

— February 16, 2014

Audi recently announced that results from testing of the company’s synthetic liquid fuels, or e-fuels, indicate that e-fuels perform significantly better than conventional fuel counterparts in conventional vehicle internal combustion engines.  The company subsequently announced that it will broaden its e-fuels initiative through its partnership with French biofuels company Global Bioenergies.  Audi’s e-fuels initiative is unique, as no other major automaker has pursued the development or distribution of gaseous or liquid fuels – carbon-neutral or not – for the transportation market.

Audi plans to produce e-gas and, through a partnership with Joule, e-diesel and e-ethanol.  The company also intends to produce e-gasoline through a partnership with Global Bioenergies.  The purpose of this initiative is to provide drivers of Audi vehicles with carbon-neutral driving options as a selling point for its gasoline, diesel, and/or compressed natural gas (CNG)-powered vehicles.  However, Audi drivers worldwide may be physically unable to fill up with the carbon-neutral synthetic fuels developed by Audi due to a lack of refueling stations.  The automaker will enable Audi drivers to indirectly contribute to increased amounts of carbon-neutral synthetic fuels into the overall fuel pool through what amounts to offsets.

Powered by E-Gas

An example of how Audi’s strategy works is its production of e-gas, the e-fuel closest to market.  E-gas is produced from the electrolysis of water, which produces hydrogen, which is then combined with waste CO2, producing methane as a synthetic natural gas substitute.  The e-gas production facility is powered by wind turbines and uses concentrated waste CO2 from a nearby biogas plant.  The production and consumption of e-gas using this system generates no new carbon emissions.  The e-gas is then piped into the greater natural gas network at the e-gas production facility in Werlte, Germany.

Early adopters of Audi’s forthcoming CNG- and gasoline-powered vehicle, the A3 G-Tron, will be able to buy quotas of e-gas upon purchasing the car.  This allows them, through an accounting process, to say their Audi is powered by the carbon-neutral e-gas produced at the plant.  This offset option will only be available to European customers though, as light duty CNG vehicles have failed to catch on outside of Europe primarily due to a scarcity of CNG refueling stations.

Outside of Europe, similar programs are expected to emerge alongside Audi’s development of liquid e-fuels.  The end markets for these fuels are significantly greater than those for e-gas, since the vast majority of vehicles worldwide are powered by liquid fuels.  However, these e-fuels are still far from reaching the market.  Actual implementation of Audi’s carbon-neutral strategy outside of Europe is therefore limited in the near term, barring a significant increase in CNG infrastructure options.   But the promise of Audi’s and its partners’ work on liquid e-fuels may significantly speed development and adoption of carbon-neutral fueling options, holding  significant implications for the vast majority of vehicles in use powered by conventional petroleum-based liquid fuels.

 

Self-Driving Cars and Real-World Roadways

— February 16, 2014

On a recent weekend road trip, I took the opportunity to consider the practicality of an autonomous vehicle doing the driving. The 300-mile journey involved single-lane twisty country roads, dual carriageways (in U.S. terms, a four-lane divided highway), and motorways (freeways). The first part of my journey took place on a narrow country road with speed limits that ranged from 30 mph through small villages to 60 mph on the open stretches. On this route, there were very few opportunities for passing, so the driving process was relatively straightforward. A combination of the latest advanced driver assistance systems (ADAS) should be able to cope with such a drive with minimal driver input.

The next part of the journey took place on a dual carriageway, and again the driving process was quite simple, requiring that my vehicle stayed within well-marked lanes, kept to the speed limits, and avoided running into the back of slower vehicles.  All these functions could be handled by adaptive cruise control, lane keeping, and traffic sign recognition.  The one activity that would need a new system is lane changing to move to the inside lane when not overtaking. Blind spot detection would be a partial solution to this, but it would also need some highly sophisticated decision-making software.

Smoothing the Flow

The bulk of the driving took place on the U.K. motorway system, and the satnav in my car proved that it could handle giving directions to navigate the quickest route. Driving on motorways is where the benefits of autonomous vehicles would be more widespread. For some of the journey, traffic moved along briskly at the speed limit, but as vehicle volumes increased, there were periods where all lanes of traffic slowed down. If all the vehicles in the outside lane used adaptive cruise control, the traffic flow would be much smoother, and some traffic jams would be eliminated.

So the three main parts of my journey could have been handled effectively by technology that is available today. Intersections, however, represent more of a challenge. Simple traffic lights at a crossroads are not too difficult, but some roundabouts are a different matter, and will require considerable development of decision-making software. While the mechanics of driving can be replicated today, the role of the driver cannot. There are many considerations involved in driving, such as estimating closing speeds of vehicles in front and behind to decide whether it is appropriate and safe to change lanes. Anticipating what other drivers will do is another useful driving skill. It may be that an artificial intelligence system that can learn from experience will be a key component of the self-driving vehicle of the future.

10 Years Out

Some of the more advanced autonomous driving features that I outlined above will be coming to market in the next few years. As long as they are treated as driver assistance features, I believe they will be very attractive to customers and will contribute to safer and more efficient road travel. Full details about all the systems are described in Navigant Research’s recent report, Autonomous Vehicles. However, the jump to fully autonomous driving that can handle any situation remains at least a decade away. We can forget about catching up with emails or sleep while the car does the driving for many years, but the number of crashes due to driver error will surely be reduced, and soon.

One consideration for governments at present is how to encourage the development and implementation of this advanced driving technology. On one section of the trip, there was an alternative toll road to the standard highway. It appears that the majority of drivers prefer to travel on the free roads even when road work causes lane narrowing and speed limit reductions. It would improve revenue if more people used the toll road, so perhaps an incentive for drivers who use ADAS would make sense. A toll road that offered higher speed limits for vehicles with self-driving capability would both generate demand for the technology and increase road revenue.

I am looking forward to discussing these and other autonomous vehicle issues with industry colleagues at the upcoming Autonomous Driving 2014 conference in Berlin, Germany, February 27-28, 2014. I hope to share Navigant Research’s perspectives on the topic and learn more about other aspects of this rapidly evolving technology. Let me know if you will be there.

 

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