Navigant Research Blog

Tesla Direct Sales Banned in Another State

— October 28, 2014

In mid-October, Michigan governor Rick Snyder signed legislation that effectively bans Tesla’s direct-to-consumer sales business model in the state.  Direct sales of cars are also currently banned in Texas, Maryland, Virginia, and Arizona, and limitations are in place in Georgia and Colorado.  Despite these setbacks, Tesla has overcome battles in Minnesota, Massachusetts, North Carolina, and recently New Jersey.

The reason Tesla’s sales model has been banned has been explained many times, including past Navigant Research blogs, found here and here.  The most critical factor is that Tesla’s direct model leaves established car dealerships out of the business transaction.  This supposedly gives Tesla an advantage over other automakers (like General Motors, which supports the Tesla bans) that must sell their vehicles through dealerships.

As Tesla sales continue to grow, state laws protecting dealerships will come into sharper focus.  Automakers and dealers will have to adapt to legislative reforms accordingly.  Given that, it’s harder to imagine a future where Tesla is forced to sell through dealers than to envision one in which all automakers are able to set up similar direct-to-consumer sales models as they see fit.  Some automakers are already adding more direct pathways for consumers to communicate directly with the automaker on vehicle specifications and deliveries.

Time to Evolve

Under these changing conditions, automotive retail must adapt to the new, information-based, time-efficient market or become structurally obsolete.  Consumers now have more knowledge, power, and control over their vehicle purchases than ever before, and future car buyers will be far more autonomous.  Greater transparency around vehicle costs, automaker inventories, and financing mechanisms enabled by the Internet shifts the bargaining chips heavily in the consumer’s favor.

The disconnect between established dealers and automakers and the new tech-savvy, well-informed consumers will only become more pronounced if state dealer associations focus on campaigning against Tesla rather than pushing industry adaptation.

 

Partnering Takes the Pain Out of Paying for EV Charging

— October 27, 2014

At the dawn of the modern electric vehicle (EV) era (way back in 2010), EV industry participants recognized that a simple way to pay for vehicle charging was critical to EV adoption.  In fact, I recall having conversations with at least one international payment processing company back then regarding the need for a central clearinghouse for EV charging payments.  I described this segment as a small niche that would grow into a major opportunity over time.  Neither that company nor others chose to start building the necessary relationships.  But today, after years of considerable talk and little action, progress is finally being made as charging networks are collaboration and payment clearinghouses are starting to emerge.

During the past half-decade there have been numerous tales of the frustrations of EV drivers who carry multiple cards to be able to access competing proprietary networks.  The Hubject consortium in Europe has been leading the charge to make charging more consistent by simplifying customer authorization, and the group recently announced a method that enables mobile phones to pay for EV charging.

The PayPal Factor

The intercharge direct system is powered by online payment system PayPal.  Drivers scan a QR code on the charging station with their phone, which connects to the intercharge website where PayPal and other payment options are offered.  Customers who have a contract with an EV services provider can pay their existing rates, and more importantly, EV drivers without a contract can still access any of the 3,000 charging stations that support intercharge.

Things have come full circle for PayPal, which was founded by EV maker Tesla Motor’s founder, Elon Musk.  (Note the irony that, since Tesla offers free charging at its charging website, PayPal largely won’t come into play for its customers.)  PayPal is an effective backend payment system, since it’s used globally for small payment amounts.  PayPal is currently being used in the United States for EV charging payments by General Electrics’s WattStation, and in October ChargePoint announced that it would begin accepting PayPal as well.

Reducing the cost and hassle of roaming between EV charging networks will increase the use of public charging stations, which will result in more charging stations being made available, and in turn higher levels of EV adoption.

Makers Make Progress

Efforts to expand EV charging in the United States are slowly paying off, thanks in part to the work of the EV manufacturers themselves.  Nissan is offering free public charging to buyers of the LEAF and convinced competitors ChargePoint, Car Charging Group, AeroVironment, and NRG to each support its EZ-Charge card.  BMW’s ChargeNow program offers a single card for paying at stations from ChargePoint and NRG’s eVgo network, as well as other partners internationally.

Not all partnerships in the area have worked out; ChargePoint launched an ill-fated joint venture with ECOtality in 2013 called Collaboratev that would have streamlined payment processes across both networks, had ECOtality not gone bankrupt only a few months later.

While proprietary payment systems make business sense for the charging networks, they hurt more than help EV owners and automakers.  If the expected millions of EVs are to rely on public charging, roaming between networks should be as simple as roaming between mobile phone networks or getting money from any ATM.  These recent developments provide hope that such interconnections are starting to emerge.

 

Electric Turbochargers: The Next Big Thing in Fuel Efficiency

— October 23, 2014

The key to the next major advance in internal combustion engine fuel efficiency could well be the electric turbocharger.  At a recent fuel economy technology showcase at the U.S. Environmental Protection Agency (EPA) National Vehicle Emissions and Fuel Lab in Ann Arbor, Michigan, Valeo showed off the motor-driven turbo it will supply to an unannounced automaker.  The first production applications are scheduled to begin arriving in 2016, according to the company.

The aggressive expansion of fuel efficient technologies, such as electrification, multi-speed automatic transmissions, and engine downsizing, has played a major part in increasing miles per gallon.  The average fuel economy of the American new light duty vehicle fleet has improved by almost 25% over the past decade.  Meanwhile, gasoline direct injection and turbocharging have enabled engineers to cut engine displacement by 30% or more without sacrificing the performance that drivers have come to expect.  As of the 2014 model year, approximately 75% of Ford gasoline and diesel engines globally are turbocharged while 85% of Volkswagen engines are boosted.

Response Time

Part of the concept behind boosted engines is to use smaller engines with turbochargers that provide performance on-demand.  There has always been an inherent time lag, however, between the time the driver presses the accelerator and the generation of enough extra exhaust gas to spin up the turbo and provide boost.  Mechanically-driven superchargers eliminate much of the lag at the cost of substantial friction at higher speeds.

Replacing the exhaust-driven turbine side of the turbocharger with an electric motor provides a number of advantages, most notably in packaging, responsiveness, and operational flexibility.  One of the fuel economy benefits Valeo highlights is the combination of an electric turbo with the cylinder deactivation – i.e., the ability to shut off multiple cylinders under light loads in order to improve fuel efficiency.

The fuel savings achieved by shutting off unneeded cylinders can be quickly lost when driving on roads that aren’t completely flat.  Even a mild grade can cause an engine to switch back to running on all cylinders in order to produce enough torque to maintain speed.  “With an electric turbo, the engine management system can request small amounts of boost on-demand to increase torque while climbing a grade while keeping as many as half of the cylinders inactive,” Ronald Wegener, application engineering manager with Valeo, told me.  “This can yield up to a 10% improvement in efficiency.”

Valeo has developed versions of the device for both 12V and 48V electrical systems so that the turbo can also be used as part of a mild hybrid system during off-throttle conditions.  Intake air flowing through the compressor drives the motor to generate electricity, charging the battery.  Audi is using this as one of the two forms of energy recovery on its Le Mans-winning R18 e-tron race car.  Many of the current crop of Formula One cars have also adopted this approach.  Earlier this year, Audi announced that the next-generation Q7 TDI, scheduled for model year 2016, would be its first production application of the technology.

Shrinking Engines

Electric turbochargers also provide packaging benefits to engine designers.  Traditional turbos require complex plumbing to route exhaust gases to the turbine side of the turbo and feed the boosted intake charge to the other side of the engine.  Disconnecting the turbo from the exhaust allows designers to place the turbo wherever it fits best for packaging and performance.

Executives and engineers agree that while electric vehicles will gain market share in the coming years, internal combustion engines will likely remain the dominant powertrain choice in the transportation space at least through the 2020s.  With engines continuing to shrink, it seems likely that electric turbochargers will account for a growing share of the boosted engine market in the next decade.

 

In Ethanol, Cellulosic Coming To Push out Corn

— October 20, 2014

The last few months have been big for cellulosic biofuels in the United States.  The first of three commercial-scale cellulosic ethanol plants to come on line this year, Project Liberty, opened in Iowa in September.  In July, the U.S. Environmental Protection Agency (EPA) expanded the definition of the cellulosic biofuel pathway to include biogas used for transportation via compressed natural gas (CNG), liquefied natural gas (LNG), or electricity.  At full capacity, Project Liberty will produce 25 million gallons annually; the two other plants scheduled to open this year will run at 25 and 30 million gallons, respectively.  If the plants are successful, this could be the beginning of cellulosic ethanol supplanting corn-based ethanol’s hold in the U.S. biofuel market.

Cellulosic ethanol’s major advantage over corn-based ethanol is that its feedstock is organic material waste rather than food/grain.  This avoids controversial issues regarding food vs. fuel, and minimizes the conversion of arable land to farm land, which experts contend makes cellulosic ethanol far more environmentally sustainable and less politically divisive than corn-based ethanol.  The disadvantage of the fuel is that it’s ethanol.

Flat Gas

Ethanol’s end market is gasoline, primarily used for light duty vehicles in the United States and Brazil.  It can only supply up to 10% of the fuel in a vast majority of the vehicles in use in the United States due to regulatory constraints and reluctance on the part of automakers and fuel retailers to adopt higher ethanol-gasoline blends.  If gasoline consumption in the United States was growing, this aspect wouldn’t be a problem, but it’s not.

In Navigant Research’s reports, Global Fuels Consumption and Light Duty Vehicles, it is estimated that light duty vehicles account for 94% of gasoline consumption in the United States.  Over the next 10 years, the light duty vehicle fleet will become far more energy efficient, thanks to vehicle electrification, vehicle lightweighting, and engine downsizing.  The end result is that the amount of gasoline-ethanol blends consumed in 2023 will likely be 12% less than 2014 levels.

The Cellulosic Edge

Consumption of ethanol is driven by the Renewable Fuel Standard (RFS), which mandates specific volumes of biofuels be blended into the fuel supply.  The standard is adjusted each year to reflect anticipated industry production volumes by biofuel pathway, so that biofuel producers can be assured their product will be purchased by blenders.

Given cellulosic ethanol’s sustainability appeal over conventional ethanol, and the limited market in which these pathways compete, and despite the high cost of cellulosic compared to conventional ethanol, it’s likely that annual adjustments to the RFS will ensure that cellulosic production feeds into the U.S. fuel pool at the expense of conventional ethanol.  That means that the EPA may be inclined to lower conventional ethanol mandates against increases in cellulosic capacity – making cellulosic more valuable to blenders than conventional ethanol.  As a result, conventional U.S. ethanol will likely become an export fuel, going to foreign markets that currently make up a little over 45% of the global market.

 

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