The Auto Industry and the Fuel Economy Challenge Presented by: Alan Baum Principal West Bloomfield, MI July 12, 2011
The Ongoing Move to Higher Mileage Vehicles Higher gas prices and regulatory changes are leading automakers and consumers to increase their desire for higher mileage vehicles and this will continue even as prices of these vehicles increase, given their higher level of fuel economy which will result in net savings for consumers. While various forms of electric vehicles receive the most attention, mileage improvements are most critical in internal combustion engines, which will continue to be the dominant power plant for years to come. Although diesel engines have not been accepted by consumers (often due to misconceptions or limited availability), they offer significant promise. To the extent that the industry can lobby for changes in emissions regulations, they should find acceptance. 2
US Sales Shares by Powertrain Type Diesel 2.7% Hybrid 2.4% 2011 Plug In 0.0% Full Electric 0.0% Hybrid 3.3% Diesel 3.5% 2015 Plug In 1.4% Full Electric 1.3% Gas 94.9% Gas 90.5% Source: Baum and Associates The growth rate in hybrids, plug ins, and full electrics is strong, but over 90% of the fleet will still be powered by gasoline powered engines by 2015. Increasing gas prices and/or changes in regulatory policy in the area of fuel economy, incentives, and diesel emissions will lead to higher alternative fuel shares, particularly after 2015. 3
OEM Product and Powertrain Plans 4
Meeting Fuel Economy Standards at While the Volt is a key part of GM s strategy, the Company is taking a number of other approaches including its Two Mode hybrids, mild hybrids, and enhancements to the internal combustion engine. Chevy Volt GMC Yukon Two Mode Hybrid Buick LaCrosse eassist Small cars and a broad range of CUVs represent additional approaches. Chevy Spark Chevy Cruze Buick Encore GM is leveraging its global resources for vehicles and powertrains including its Opel division which has significant responsibility for both vehicle design and powertrain. The Volt technology will be applied in a number of GM s products to leverage the investment and the goodwill GM hopes the product will generate. The Buick LaCrosse eassist technology is a low cost/moderate reward approach, with highway mileage of up to 37 miles per gallon in a near luxury vehicle. GM has decided not to embrace the full electric technology, since it believes the extended range of the Volt will provide the consumer with more flexibility. 5
Fuel Economy of the Source: GM via Automotive News Green Conference, June 2011 6
Owner Usage of the Source: GM via Automotive News Green Conference, June 2011 7
Meeting Fuel Economy Standards at Ford has expanded and enhanced its small car range with the 2012 Focus (offered almost identically worldwide) and Fiesta and smaller CUVs that will better meet market demand for higher mileage vehicles. 2012 Ford Focus Ford Fiesta Ford EcoSport Ford has bet the farm on smaller vehicles and smaller engines which is a high risk/high return strategy, but of course corresponds to the requirements to meet higher fuel economy. Bringing the consumer along to this approach is central to Ford s strategy and requires an effective marketing approach. Ford F150 Ford EcoBoost Ford C-Max Ford s EcoBoost is a leading edge product which is offered in a variety of displacements and in a variety of products including the F150. Ford s strategy is to use this product to reduce the displacement of its engines and provide performance and fuel economy that customers desire and will pay for and they are. Ford is well positioned in regular hybrids (e.g., Escape and Fusion), but is also moving into the plug in and full electric market with the forthcoming C-Max, which will only be available in these forms. 8
Hedges its Bets Source: Ford via Automotive News Green Conference, June 2011 9
Meeting Fuel Economy Standards at Chrysler s management transitions over the years have resulted a powertrain offering that is less fuel efficient than that of the industry. Sergio Marchionne and his team understand this and have moved aggressively to improve the company s offerings. The Fiat 500 is now available and represents a niche product designed to generate excitement for Fiat in particular and Chrysler in general. Fiat 500 Pentastar engine Dual clutch transmission Chrysler s existing I4 engine family and its V6 Pentastar engine represent improvement from prior products. Fiat s MultiAir technology is being added to many of these products in order to improve emissions and fuel economy. A dual clutch transmission (in partnership with ZF) is coming soon and will be offered in high volume with production in Kokomo, IN. Chrysler is moving conservatively in the area of hybrids and electric vehicles, in large part due to its past and current financial situation. Current management is looking at a small number of situations, but the company is clearly a follower in this regard. Chrysler could be a leader in diesel technology given its link to Fiat, which is a global leader since its key markets are in regions where diesel engines are common. 10
Meeting Fuel Economy Standards at Honda is unusual among the major manufacturers in that it has a very limited product lineup, largely based on two platforms anchored by the Civic and Accord. Honda Civic Honda Accord Honda s fuel economy has always been among the best in the industry given its heritage as an engine company that has applied its prowess to a variety of products. Honda s Insight has not met sales expectations and has failed to challenge the market position of Toyota s Prius. The CR-Z hybrid has been a disappointment given its high price and relatively modest fuel economy increment relative to non-hybrids. Honda Insight Honda CR-Z Honda is adding more hybrids to its product line, as well as a full electric product and continues work on the FCX Clarity, a vehicle powered by fuel cells. 11
Meeting Fuel Economy Standards at Nissan was a late comer to alternative engine technology, but has staked its reputation on the all electric Leaf. The technology will be offered in a number of other Nissan, Infiniti, and Renault (outside the US) products. Nissan 370Z Nissan Altima Nissan Leaf Nissan is a major player in the CVT market, based on its relationship with JATCO, its in-house supplier. CVTs improve fuel economy on the order of 5%. Continuously Variable Transmission 12
Meeting Fuel Economy Standards at Toyota is the leader in regular hybrids and these products will continue to be a key portion of the company s strategy, with several products currently offered with hybrid technology and more to come. Toyota Prius Toyota Camry Hybrid Lexus HS 250h Lexus RX 450h Lexus has launched the CT 200h and a larger and smaller Prius are also forthcoming. Toyota will continue to leverage its leadership in hybrids by offering the technology on other mainstream products. Toyota has had a brutal couple of years due to its quality issues and the tsunami, and new products and technologies are a way to change the subject. Besides expanding its hybrid offerings, it will soon launch a high volume plug in as well as a number of full electrics with a RAV4 being developed in partnership with Tesla. Toyota is looking to leverage Tesla s battery technology as are other automakers. Toyota RAV4 EV 13
Meeting Fuel Economy Standards at Hyundai has gained share with strong marketing, improved products which have strong design tendencies, and a number of powertrain innovations. On the Sonata, only four cylinder engines are offered, with a four cylinder turbo for those desiring higher performance. Designing the vehicle without a V6 option allowed for less weight in the vehicle and a number of other fuel saving characteristics. Both the Sonata and the Kia Optima are now available with a hybrid powertrain. Hyundai Sonata Hybrid Hyundai and Kia are also looking at plug ins. Hyundai has recently shown improvement in fuel economy across its product line, with its final Model Year 2010 rating higher than all other mainstream automakers (although its absence from large trucks certainly contributed to the result). The company has also attracted attention by pledging fuel economy of 50 miles per gallon by 2025. 14
Meeting Fuel Economy Standards at VW is the leading seller of diesel engines in the U.S. (excluding the large diesels in full size trucks) with the Jetta reaching shares of 30 to 40 percent. VW Jetta Diesel Forthcoming full electric vehicles include the small Up! and the Golf and hybrids including the Jetta and the currently available Touareg (also offered as a diesel). Audi e-tron Audi will offer the A6, A8, and Q5 in hybrid form and the e-tron (R8) as an electric. Porsche offers the Cayenne as a hybrid, which will soon be joined by the Panamera. Porsche Cayenne 15
The Electric Vehicle Market, Now and in 2015 16
Definition of Electric Vehicles Our definition of electric vehicles includes the following: Regular hybrid vehicles (e.g., Toyota Prius) Plug in hybrid vehicles (e.g., Chevrolet Volt) Full electric vehicles (e.g., Nissan Leaf) Fuel cell vehicles (e.g., Honda FCX Clarity) 17
US EV Sales by Type, 2011 EV Type # of Models Volume % of EV Market Regular hybrid 36 311,100 90.6% Full electric 14 18,500 5.4% Plug in 3 13,600 4.0% Fuel cell vehicle 0 0 0.0% All Electric Vehicles 53 343,200 100.0% These vehicles represent 2.6% of total projected vehicle sales. Full electric 5% Fuel cell vehicle 0% Plug in 4% Regular hybrid 91% 18
US EV Sales by Type, 2015 EV Type # of Models Volume % of EV Market Regular hybrid 59 492,400 54.9% Full electric 39 192,200 21.4% Plug in 22 207,000 23.1% Fuel cell vehicle 7 4,900 0.5% All Electric Vehicles 127 896,500 100.0% * These vehicles represent 6.1% of total projected vehicle sales. Fuel cell vehicle 1% Plug in 23% Full electric 21% Regular hybrid 55% 19
US EV Sales by Volume Range, 2015 % of Total EV Models % of Total EV Volume Volume Range # of EV Models EV Volume Probably not available 13 10.2% -- 0.0% Under 1,000 31 24.4% 14,700 1.6% 1,000-4,999 39 30.7% 85,300 9.5% 5,000-14,999 27 21.3% 209,000 23.3% 15,000-49,999 14 11.0% 272,500 30.4% 50,000 or more 3 2.4% 315,000 35.1% Total 127 100.0% 896,500 100.0% 1,000-4,999 10% Under 1,000 2% Probably Not Available 0% 5,000-14,999 23% 50,000 or more 35% 15,000-49,999 30% 20
US EV Sales by Manufacturer, 2015 Manufacturer # of EV Models % of Total EV Models EV Volume % of Total EV Volume Toyota 24 18.9% 328,500 36.6% GM 12 9.4% 123,200 13.7% Ford 10 7.9% 106,400 11.9% Honda 8 6.3% 85,000 9.5% Nissan 6 4.7% 84,300 9.4% Other 67 52.8% 169,100 18.9% Total 127 100.0% 896,500 100.0% Other 19% Nissan 9% Toyota 37% Honda 9% Ford 12% GM 14% 21
US EV Sales, Highest Volume Products, 2015 Make and Model Volume Type Toyota Prius 140,000 Regular hybrid Honda Insight 27,500 Regular hybrid Nissan Leaf 75,000 Full electric Tesla Model S 18,000 Full electric Chevrolet Volt 100,000 Plug in Fisker Nina 27,500 Plug in Honda FCX 2,500 Fuel cell Total 390,500 Leading EVs as Share of Category EV Type # of Models Volume % of Type Regular hybrid 2 167,500 34.0% Full electric 2 93,000 48.4% Plug in 2 127,500 61.6% Fuel cell vehicle 1 2,500 51.0% Total 7 390,500 43.6% 22
Electric Vehicle Offerings at The Karma is currently in limited production and the higher volume Nina is slated to begin production at a former GM plant in Delaware in late 2012. The Nina is a plug in expected to be priced in the $40,000 range. Fisker Karma Electric Vehicle Offerings at The Tesla Roadster is currently in limited production (and will end next year), but the Model S midsize electric vehicle is scheduled for launch at the former NUMMI plant in California in the second half of 2012. Tesla Model S 23
Technology Issues The battery is of course the biggest challenge, with energy density and cost the most important issues. Cost is perhaps the biggest challenge and private and public money is being spent to reduce the cost of the battery. Infrastructure is also an issue, but solutions are on the way from companies such as AeroVironment, Ecotality, Columb Technologies (ChargePoint), Better Place, Sealed Power, and General Electric. Drive units must be improved including upgraded and unique transmission designs such as CVTs, automated manuals, and dual clutch transmissions. 24
Battery Providers and Their Customers Battery Maker Automaker Customers A123 BMW, Daimler, Fisker, GM, Navistar, SAIC, Smith EV BYD BYD, SAIC, VW Continental Daimler Dow Kokam None announced at this time Electrovaya Chrysler EnerDel Fisker, Volvo GS Yuasa Honda, Mitsubishi, PSA Hitachi GM JCI/Saft and/or JCI BMW, Daimler, Ford LG Chem (Compact Power) Ford, GM, Hyundai, various commercial vehicle makers Magna None announced at this time NEC Fuji, Nissan, Renault Panasonic Tesla, Toyota Sanyo (acquired by Panasonic) Ford, Honda, PSA, Suzuki, Toyota, Volkswagen Sony None announced at this time SB LiMotive (Bosch/Samsung) BMW, Renault, Samsung Tesla Daimler, Tesla, Toyota Toshiba Mitsubishi, VW 25
Companies to Watch Beyond the battery, a number of other product areas are important such as electric motors, power electronics, and thermal systems. Companies such as Continental, Magna, Denso, Bosch, Borg Warner, Valeo, Toshiba, and a variety of others are heavily involved in this growing market. Reduced weight of vehicle components is needed throughout the vehicle (thus creating opportunity for suppliers well beyond the powertrain) in order to enable longer battery range. Electronic brakes and steering systems are necessary, resulting in upgraded electric wiring in electric vehicles to meet the power requirements with companies such as Yazaki, TRW, and Valeo leading the charge. Electric power steering is a key component with a number of companies such as Nexteer, JTEKT, NTN, and ZF leaders in this area, with a variety of other companies providing componentry. Cooling of electric vehicles is a huge issue, with Behr a major player in electric water pumps (replacing mechanical versions in traditional vehicles). Behr and Rogers are involved in battery cooling. 26
Forthcoming Standards EPA, NHTSA, and the California Air Resources Board will release a proposed fuel economy rule covering the 2017-25 period by September 30 with final regulations published next year. The current standard of 35.5 miles per gallon (measured differently than under the scheme shown above) is proposed to increase at a 3% to 6% annual rate of increase to 2025, resulting in a range of 47 to 62 miles per gallon. The Administration has proposed the 5% improvement figure of 56.2 and the industry is responding. Two issues are in play: 1) Should there be an interim evaluation (around 2020) and 2) Should trucks be treated differently than cars? The automakers want to minimize their investment (resulting in lower standards), but in the absence of gas tax hikes, these standards are likely to solidify consumer demand. The cost of the standards is hotly debated, but there are two key issues to understand: Automakers and suppliers are and will continue to benefit from a global fleet Most studies indicate that consumers will benefit more from fuel cost savings than be harmed by the up-front cost. Strong standards will catalyze the growing number of domestically-based fuel saving component makers. 27
Alan L. Baum Baum and Associates, LLC 6633 Perham Drive West Bloomfield, MI 48322 U.S.A. Tel: (248) 202-2629 Fax: (248) 855-8019 abaum@baum-assoc.com abaumcons@gmail.com www.baum-assoc.com