Evaluation of Hybrid Vehicle Business Strategies 12/4/2006 Should Next-Generation Hybrids Use Li-Ion or Batteries? Fixed Plan: Design new platform using Batteries Currently cheaper Chemistry is close to limits imposed by fundamental material properties Flexible Plan: Design new platform using Lithium-Ion Batteries Enables a flexible platform: Limited electric range (plug-in hybrid), conventional hybrid, or a mild-hybrid Costs likely to drop over time, but may stay higher than throughout the life of the project Technical risk due to questions about battery durability 1
Model Overview Project Lifetime: 18 Years Demand for a vehicle is a function of its NPV NPV = (Lifetime savings on fuel - HEV Price premium Vehicle Parameters (Shaded = Flexible Options): Vehicle Config FC. Imp % of Mi Electric MPG Gallons Saved/Yr Price Premium Full Hybrid, 40.0 125 $2,500 Mild Hybrid, LI 15% 36.6 90 $2,500 Full Hybrid, LI 40.0 125 $3,300 PHEV-10, LI 2 50.0 200 $5,000 PHEV-20, LI 3 67.1 238 $6,000 Key Uncertainties 1.) Gas Price Volatility: -Assume $2.75 start point -0.5% growth per year -1 volatility Gas Price (Cents/gal) 350 300 250 200 150 100 50 Source: EIA 0 Aug 20, 1990 May 16, 1993 Feb 10, 1996 Nov 06, 1998 Aug 02, 2001 Apr 28, 2004 2.) Technology-driven cost reduction: -Assume 1.75% per year baseline -Analyze sensitivity to different rates -Analyze effect of volatility using Monte Carlo Cost ($/kwh) $3,50 $3,00 $2,50 $2,00 $1,50 $1,00 $50 $ Source: NIST Cost 1991 1992 1993 1994 Spec. Energy 1995 1996 1997 1998 1999 2000 2001 200 150 100 50 0 Specific Energy (Whr/kg) 3.) Regulatory Structure: Subsidy/Rebate Programs - Test 0, $0.25/gal, and $0.50/gal rebates 2
Demand Model 1,000,000 900,000 800,000 700,000 600,000 Market Share 500,000 400,000 300,000 200,000 100,000 0 -$1,000 -$500 $0 $500 $1,000 $1,500 $2,000 $2,500 $3,000 $3,500 $4,000 Vehicle NPV Sales volume is normally distributed around NPV = $1000, with Std Dev = $1200. Max. Sales = 1,000,000 vehicles Integrated System Model: (Shaded = Model Inputs) Price of Fuel Regulatory Measures Profit Batteries Per car Fuel economy Operating Costs Demand Material Efficiency Battery Material Battery Costs Vehicle Cost Upfront Costs # of Cars 3
Build Strategy as a Function of Gas Price $3,000 $2,500 PHEV-20 $2,000 $1,500 Vehicle NPV $1,000 $500 Full Hybrid PHEV-10 Best Flexible $0 -$500 -$1,000 Mild Hybrid -$1,500 $2.00 $2.50 $3.00 $3.50 $4.00 $4.50 $5.00 Gas Price ($/Gal) Lattice Calibration: Models Fuel Price Volatility Initial Value of gas (per Gal): $2.75 Volatility (per year): 1 Rate of Appreciation (per year): 0.5% 0.70 0.60 EV, Pd 1 = $2.83 PDF for Lattice EV, Pd 6 = $3.29 Project Duration Length of 1 period: 18 yrs 3 yrs Probability 0.50 0.40 0.30 0.20 Yr 6 Yr 5 Yr 4 Yr 3 Yr 2 Yr 1 Yr 0 0.10 $ $2.00 $4.00 $6.00 $8.00 Gas Price 4
Results: Lattice Evolution of Fuel Price Probability 1.00 0.90 0.80 Li-Ion (Flexible) 0.70 0.60 0.50 Period Li-Ion 0.40 1 136,034 195,727 0.30 2 170,957 224,961 0.20 3 218,270 252,413 0.10 4 243,660 276,802 5 278,577 298,580 0 200,000 400,000 600,000 6 800,000 296,803 318,261 1,000,000 Sales Volume Total 1,344,300 1,566,745 is the best option: It has a sizeable advantage over mid-range price scenarios. LI does better at high-gas prices, but the advantage in terms of sales is slim At Li-Ion price reduction >2.5%/Yr, Flexible strategy is better Total Project Sales (M) 2 18.00 16.00 14.00 12.00 1 8.00 6.00 4.00 2.00 1% 1.75% 3% $2.00 $2.50 $3.00 $3.50 $4.00 $4.50 $5.00 Fuel Price ($/gal) 5
At >$0.40/gal rebate, flexible strategy is better Rebate = $0.50/Gal 1.00 0.90 0.80 0.70 Probability 0.60 0.50 LI CORR 0.40 0.30 0.20 0.10 $0 $800 $1,600 $2,400 $3,200 $4,000 Sales Weighted Fuel Savings (M$) Period 1 2 3 4 5 6 Total Inflexible $575 $661 $741 $813 $877 $935 $4,602 Flexible $400 $566 $755 $857 $996 $1,066 $4,639 Conclusions Under most moderate scenarios, the strategy is preferable If lithium-ion batteries drop in cost at higher-than-expected rates, or if aggressive regulatory structures are implemented, the flexible strategy becomes a better choice. 6