The advanced lithium ion battery in a plug-in electric vehicle (PEV) accounts for as much as one-third of the vehicle’s cost. Without government incentives, PEV premiums can top $10,000 over a similar conventional gas-powered vehicle. Even with lucrative government incentives, EVs are still a hard sell. However, automakers are diligently working out ways to bring purchase costs down so that potential owners can absorb the PEV initial purchase costs over time.

In Europe, automakers Renault, Daimler, and Mia Electrique have pioneered the battery lease option, whereby PEV owners buy the vehicle but lease the battery for a monthly fee. In the states, automakers have not warmed to the idea, instead offering cheap lease deals with low signing dues. That could change, beginning when Daimler deploys its smart fortwo ED to the United States next month with a battery lease option.

In Europe, the battery-leasing option for the fortwo ED reduces the vehicle’s purchase price by over $6,700, but requires the vehicle owner to pay roughly $83 a month for the battery. In other words, the purchase price discount accounts for about 80 monthly payments. Under the lease agreement, Daimler, which retains ownership of the battery, ensures its life, thus easing concerns PEV owners may have over battery longevity. Theoretically this option also enables Daimler to find additional value from the batteries by reusing them for stationary energy storage applications once they’ve been removed from the vehicle. The appeal of the offer is clear, as around 97% of the fortwo EDs bought or leased in Europe have included this option.

Swap It Out

Battery leasing has also been pursued by battery swap developers like Better Place which has deployed more than 50 battery swap stations for national networks in Israel and Denmark, and the State Grid Corporation of China (SGCC), which has more than 200 battery swap stations in various Chinese cities. These two companies take the battery lease concept a step further by literally separating the battery from the vehicle. Their business models require both companies to keep excess batteries on hand to supply customers. This allows them to generate additional revenues from the unattached batteries through grid-tied energy storage services.

The major challenge to the battery swap business model is that each company needs automakers to develop vehicles compatible with their systems, and few have. Renault has built the Fluence Z.E. to be compatible with Better Place’s system, while Chinese automakers Kandi Technologies, Zotye, and Zap Jonway are building or have built PEVs compatible with the SGCC system.

The terms of Daimler’s battery lease option for the states have not yet been released. Even without the option, the fortwo ED will be the lowest-priced highway-capable PEV available in the United States, with a $25,750 MSRP before federal and state incentives. When coupled with government incentives and the lease option, the fortwo ED will have a significant impact on the world’s strongest market for PEVs.

If the lease is as enticing in Europe as it is in the states, then other automakers will take note and more battery lease options for PEVs will follow. Nissan has already announced it is entering the fray as it plans to sell the LEAF with a battery lease option in the United Kingdom this year.  As automakers become more comfortable with the idea of battery leasing, they will also become more comfortable with developing vehicles that are battery swap-capable, allowing a third party like Better Place to manage the battery liabilities, lease arrangements, and the recycling.

The electric vehicle (EV) industry got off to a slow restart in 2010 and has had its share of highly publicized missteps (e.g., Fisker, CODA, and A123), but it has already made many contributions to the economy.

First off, sales of plug-in electric vehicles in the United States generated revenue of around $1.7 billion in 2012, and Tesla Motors alone generated revenue of more than $300 million in the fourth quarter.  Sales of plug-in vehicles are up 145% this year compared to the first quarter of 2012, with more than a dozen models on the market.

Then there’s the investment in charging infrastructure equipment, which was around $92 million in 2012.  That does not include payments to electric contractors for installation work or the permitting fees that go to state and local governments to get approval for installation.  Expenditures on commercial and residential electric vehicle supply equipment (EVSE) are expected to exceed $172 million in North America and more than $713 million globally during 2013, according to data from Navigant Research.

Total Installed Commercial EVSE Stations by Accessibility and State, Top 10 U.S. States: 2012

(Source: Navigant Research)

EV charging is now available across the United States at more than 20,000 locations, which are bringing in money every day through pay-for-charging events.  Not all of the equipment providers will survive – consolidation is natural in any rapidly growing industry – and any companies that fall by the wayside should not be viewed as indicators of the broader failure of the industry.  While some of the seeds of the Department of Energy-funded EV infrastructure did not take root, the investment has been critical to increasing consumer adoption of EVs.

Another beneficiary of the EV industry is the solar industry.  As outlined in Navigant Research’s recent report, Solar and Electric Vehicles Cross Marketing Strategies, many car dealerships, including Chevrolet, Ford, and Nissan dealers, are installing solar as a visible sign to consumers that they are environmentally conscious and so that they can offer emissions-free charging to EV customers.   Many of the early EV adopters live in single-family homes and are installing solar arrays to offset their energy consumption.  In many cases the solar panels are capable of providing more than enough electricity for their EVs throughout the year.

It is easy (and headline grabbing) to focus on the failures, but that ignores the many jobs that have been created and the new and established business ventures that are poised to take off now that the industry has made it through its rough infancy.

More than 7.5 million plug-in electric vehicles (PEVs) will be sold between 2013 and 2020, according to Navigant Research forecasts.  All of those vehicles need to be charged somewhere, which is why the electric vehicle (EV) charging supply equipment market has attracted more than 120 companies, large and small.

These vendors would like each new PEV owner to buy a home charging unit.  Due to a variety of factors, though, the percentage of consumers that choose to do so in future years will shrink.  According to Navigant Research’s 2012 Electric Vehicle Charging Equipment report, the portion of PEV buyers that will purchase a residential charging station will fall from 63% in 2013 to 47% in 2020.  The primary factors influencing this decline include:

• Increasing sales of plug-in hybrid vehicles (PHEVs) with smaller battery packs that can be fully charged via a standard 110-volt outlet overnight
• A greater share of PEV owners living in multi-unit dwellings without dedicated parking spots
• Increased reliance on workplace and other public charging

As the relative sales of residential electric vehicle supply equipment (EVSE) go down, sales of commercial (non-residential) EVSE will by necessity rise.  The chart below illustrates that annual global sales of commercial EVSE will grow to more than 1.5 million units annually while residential EVSE sales will rise to less than 823,000 units.

Residential and Commercial EVSE Unit Sales, World Markets: 2013-2020

                                                                                                 (Source: Navigant Research)

To reach the forecast volume of residential EVSE sales, the cost of purchasing and installing a home charger must go down.  We are starting to see residential EVSE priced in the $600 to $650 range for basic units; the average selling price should fall below $500 by 2016.

Simplify, Please

EVSE maker AeroVironment is reducing the immediate financial impact of buying and installing a residential EVSE by working with dealers to bundle the EVSE cost into the vehicle’s purchase cost.  Through the program, dealers approve potential customers for financing above the price of the vehicle and the EVSE, warranty, and installation costs are added as a capital item.  AeroVironment is launching the program with dealers selling the Nissan LEAF and will expand it to dealers of other brands over time.  The company expects the installation to take 4 days or less, including the time for an inspection.  AeroVironment will also be busy installing residential EVSE in California.  The California Energy Commission recently granted AeroVironment $2 million to install 770 residential EVSEs across the state.

Depending on which state or city an EV owner resides, the permitting process can be a lengthy and onerous process for purchasers and electrical contractors.  According to Navigant Research’s recently published Electric Vehicle Supply Equipment Permitting report, some regions allow a permit to be filed online and offer same-day inspections.  In other places, differences in city and county rules can significantly slow the process.  Currently, very few states have attempted to standardize the process.  Yet, for sales of EVSE to grow as forecast, more states will have to simplify the process.

The ChargePoint/Ecotality joint venture, announced last week, underlined the fact that the EV charging sector is experiencing a bout of consolidation.  Earlier, Car Charging Group acquired New York-based Beam Charging, which will strengthen its presence in New York City.  This will be especially interesting if Mayor Bloomberg’s commitment to add 10,000 public parking spots by 2020 comes to fruition.  Better Place closed operations in North America and Australia.  In the United Kingdom, Chargemaster acquired Elektromotive last year.  These were two of the biggest charging equipment providers in the United Kingdom, so Chargemaster’s move positions the company well for the growing U.S. market.

This inevitable consolidation will continue, and it’s healthy for the industry.   There are too many companies chasing after too small a market right now.  This is not to say the EV charging market is small – please, no more stories on the “dying EV industry” – but Pike Research has found that there are well over 100 companies competing in the EV supply equipment (EVSE) sector globally.  These include not just companies that sell their own EVSE units but also “third party providers” that sell and service EV charging equipment made by others, like CarCharging Group.  Many of these companies are competing primarily for the commercial charging market – that is, units installed for use at offices, fleet depots, apartment buildings, parking garages, and a slew of public facilities like airports and retail outlets.

Globally the market for EVSE was around 180,000 units in 2012.  Half of those were residential units, so that means just 90,000 in commercial sales.  It doesn’t take complicated math to figure out that, if the market were evenly divided among the 100-plus companies offering EVSE, that would be a pretty small revenue base.

Catch-Up Time

Looking at the U.S. market alone, we estimate that sales of commercial EVSE were around 20,000 in 2012.  These units serve a total fleet of plug-in vehicles that reached around 71,000 at the end of 2012.  That is simply not enough demand to maximize utilization of these EV stations.  The PEV market is growing fast, so station utilization will rise and begin to match the expectations of the EVSE providers.  But for the near term, the EVSE market is out ahead of PEV sales, and the market will struggle to sustain the number of players wanting a piece of it.

So more consolidation is ahead, as companies look to secure a single geographic market or expand their portfolio of EVSE offerings by partnering with companies that have complementary technology.  For the moment, the industry would do well to focus its resources on the current EVSE equipment and networks in order to give PEV drivers the most seamless user experience possible.  This means keeping track of the basics, such as making sure equipment is working when drivers show up.  But it also means focusing on “interoperability:” making it easy for drivers to find and use all available EVSE units, something that the industry has been working on – by featuring stations from competing providers on a network app or enabling drivers to pay for charging without needing a network pass – but is still a long way from achieving.