Did you hear how GM has had to recall 6,000 vans and SUVs due to faulty steering gear that could lead to a loss of steering control?  No?  How about when the company asked for the roughly 8,000 Chevrolet Volts on the road to be taken to a dealer for adjustments to the battery packaging?  Needless to say, that Volt story got a lot more play than the steering gear recall.  Although this may be unfair, as recalls are incredibly common – the U.S. Department of Transportation has an entire website devoted to them – and the Volt situation was not even an official recall, it is not surprising.   New vehicle technologies will tend to attract extra scrutiny, as consumers look to see whether they work and opponents look for a misstep.

This recall issue highlights just one reason why it is so difficult for a start-up company to succeed in the car market.  Unfortunately, the news has been full of stories on start-up EV and PHEV technology manufacturers and battery companies filing for bankruptcy or experiencing serious troubles.   Aptera Motors, Bright Automotive, Azure Dynamics, Th!nk Global (which was briefly owned by Ford about ten years ago) and Ener1 have all filed for bankruptcy over the last nine months.  The Fisker Karma plug-in sedan has been reportedly been plagued with problems including an embarrassing breakdown during a Consumer Reports test.  These stories confirm to me that it is not merely difficult to succeed as a new entrant in the automotive industry, it’s next to impossible.

To begin with, making roadworthy vehicles is hard. This may seem obvious, but it’s surprising how advocates for new, clean vehicle technologies are willing to convince themselves that a newcomer with little experience in large-scale manufacturing can quickly start producing attractive, safe, reliable vehicles.  Add in the development and integration of a new propulsion technology and this becomes even harder.  Consider the need to make it affordable, and you’ve reached a degree of difficulty that is impossible to surmount without huge financial resources and a lot of time to develop a market-ready product.

The Long View

Because it’s hard, companies have to be equipped to deal with technological hiccups.  GM is in a much better position to ride out its Volt battery problems than Fisker and A123 are with the A123 lithium ion battery recall.  A123 has estimated that it will spend $55 million to replace the battery packs for five of its customers.   That is over one third of the company’s estimated $149.4 million market cap as of today.  By contrast, GM is expected to pay around $9 million to fix the Volt battery issue; the company’s market cap as of today is estimated at $39 billion.

Also, while the bad PR is going to hurt Volt sales, GM is better positioned to recover than a start-up company that may be depending on its one and only product.  To its credit, A123 acknowledged responsibility and has promised to replace the batteries.  However, its stock has fallen and the company is now the target of a class action lawsuit filed by shareholders, leaving some analysts wondering if A123 will be able to secure the additional capital it needs to pay for the battery replacements..  Fisker also quickly fixed the problem with the Consumer Reports’ Karma, but there are lingering questions about the company’s viability, especially given the Karma’s $108,000 price tag.

Finally, even if all goes well with a product introduction, there is a natural risk associated with forecasting demand for a new technology, as noted by my colleague Dave Hurst.  Again, the companies most likely to be able to take the long view on a new technology, withstand bouts of bad PR, and marshal the resources to fix any problems are the big auto companies.  I don’t think we are going to see a start-up company ride in on a white horse and remake the automotive industry.  Like it or not, we have to depend on the big legacy auto companies to make the shift to electrification or other alternative technologies (although whether they have to be pushed or will jump is another matter).  Fortunately, there has been some good news from the auto OEMs recently.  Ford has announced it is expanding its electrified vehicle development facility, and the new Toyota Prius C hatchback is moving briskly in its first three months of sales.

The United States has been working on various safety-related “V2X” applications since 1999, when the FCC set aside spectrum (the 5.9 GHz band) for short-range vehicle to vehicle (V2V) and vehicle to infrastructure (V2I) communications (“V2X” simply includes both of those categories).  After more than a decade of R&D in this area, developers can finally see a pathway to commercial viability, but the finish line is still several years away.  The time it’s taking to get this technology to market a was a cause of some concern at the recent “V2X for Auto Safety and Mobility” conference, in Detroit, in part because Congress has recently considered opening up the 5.9 GHz band to other, unlicensed uses.  It appears that this is partly a reaction to a sense that safety V2V applications haven’t moved as quickly as had been hoped in 1999, so Congress is now eyeing the valuable bandwidth.

Auto OEMs, Tier 1 suppliers, communications companies and the usual smattering of consultants and associations gathered in Detroit to talk about connected vehicles, machine to machine (M2M) and vehicle to infrastructure connectivity.  Or, as one attendee put it, “We are building the Internet for the road.”

Since this event was U.S.-focused, much of the discussion was on safety applications.  This focus separates the United States, to some extent, from the other ITS markets in Europe and in Asia where sustainability and mobility are big drivers.

The US Department of Transportation is helping to drive the technology forward with its Safety Pilot Driver Clinics, which are helping industry test out some of the safety applications.  These are designed to get driver feedback on several automated safety applications in anticipation of a ruling by the National Highway Traffic Safety Administration (NHTSA) in 2013 on passenger car V2V.  The applications being tested include blind spot warnings; systems that tell the driver to slow down in response to a slowing vehicle in front of her; and notification when a car ahead that the driver cannot see is slowing down.  (As a not overly tall woman who has trouble seeing over all the SUVs on the road, this last one strikes me as especially useful.)  While these systems may simply warn the driver, the end goal is clearly to have the vehicle respond without driver intervention.

The trial is designed to find out how drivers respond –do they find the safety measures helpful or off-putting, and do the V2V applications work correctly (for example, eliminating false warnings)?  The results have not yet been announced, but the DOT representative at the V2X show indicated that, so far, drivers have responded favorably and even indicated they might be willing to pay for these applications.  That is a key point, as the general sense among the OEMs in attendance is that consumers won’t pay for safety features.  Indeed the whole question of how to get anyone to pay for V2X ran through the entire show.  A speaker from Battelle discussed one way to get public agencies to pay for V2X: mileage-based user fee programs.  I’ve talked about these in an earlier blog, on ideas to replace the gas tax.  The speaker described Minnesota’s “test drive” of this system, using smart phones installed in the vehicle.  Participating drivers receive invoices based on the number of miles driven and a varying fee schedule.  While this could help spur public agencies to invest in V2X technology, a smartphone cannot be used for most safety-related apps, which require much faster response time than cellular networks can provide.  Ultimately, the safety applications may simply end up as standard equipment if NHTSA decides to require them in its 2013 decision.

Earlier this year, the California Air Resources Board (CARB) completely revamped its passenger vehicle emissions control regulations. The new Advanced Clean Cars program, which covers model years 2017–2025, combines several regulatory schemes into the new program: the Low Emission Vehicle (LEV) program, which governs tailpipe regulations for light duty vehicles; the Clean Fuels Outlet regulation, a largely dormant effort to promote alternative fuel availability; and the most famous, or infamous, component, the ZEV mandate requiring automakers to produce vehicles with no tailpipe emissions.

California already has a reputation for marching to a different drummer, and this new program confirms that stereotype.

First, while it is now practically verboten to talk about carbon reduction at the national levels of U.S. government, California is openly embracing the idea.  Previously, the LEV and ZEV programs only addressed criteria pollutants.  The Advanced Clean Cars program expands the regulations to cover greenhouse gases (GHG) emissions.  By 2025, under the new regulations, passenger cars’ CO2 emissions will drop 34% from that of 2016 models.  The program is intended to help reduce GHG emissions in the state to 80% below 1990 levels by 2050.  In its scope and ambition, the new program resembles the carbon reduction goals and strategies being enacted in Europe more than anything happening elsewhere in the United States right now.

Second, the ZEV mandate remains a top-down, “technology forcing” regulation, contra a general preference for policies that simply allow new technologies to flourish.  While opponents of the ZEV mandate have painted it as an inflexible government “stick,” the Air Resources Board has always been open to modifying the mandate in response to changes in the technology landscape.  This flexibility helps explain the mandate’s remarkable resilience.  Consider that it was enacted in 1990, when the Soviet Union was intact, Tim Berners-Lee had just proposed something called the World Wide Web, and the Toyota Prius was just a gleam in an engineer’s eye.

The Air Resources Board has reconfigured the mandate to support the state’s 2050 GHG emissions target. CARB claims that the only way to meet the target is if ZEVs make up around 87% of the passenger vehicle fleet in California by 2050, as shown in the graphic below.

To get there, sales of ZEVs must ramp up dramatically from 2018 to 2025.  The mandate essentially requires that 500,000 ZEVs be produced cumulatively as of 2025, reaching 15.4% of new car sales as of 2025.  CARB’s scenario for the ramp-up projects that around 70,000 plug-in vehicles will be sold in California as of 2018.  This figure is close to Pike’s own forecasts for California.  We projected annual PEV sales to reach over 300,000 in the U.S. by 2017, and California will constitute almost 25% of those sales, as projected in last year’s Electric Vehicle Geographic Forecasts report.

Finally, CARB is practically the lone holdout among U.S. policymaking bodies in continuing to support fuel cell technology.  The ruling keeps fuel cells cars on equal footing with battery cars for earning ZEV credits.  More importantly, the board has revamped the Clean Fuels Outlet (CFO) program to support hydrogen fuelling deployment.  The lack of hydrogen infrastructure, and lack of incentives to deploy it absent large numbers of FCVs on the roads, is one of the key barriers to the fuel cell car market.  CARB is using the CFO to address that problem.  The new rule mandates that major refiners or importers of gasoline provide hydrogen fuelling when just 10,000 fuel cell vehicles are on the roads in a particular air basin.  Not surprisingly, this rule is receiving major pushback from the oil companies.

The new program faces a number of challenges.  First, there is controversy over a provision that lets automakers reduce the number of ZEVs they make if they “over-comply” with the overall GHG fleet standard. Second, the ambitions of this new program may come into conflict with the realities of the California state budget.  Third, it’s impossible to predict how the technology mix will really look in 2050.  The California plan essentially requires most of the fleet to be battery- or fuel cell-powered, with all hybrids and conventional gas cars basically obsolete by 2050.  2050 is a long way off and there are all sorts of things that could derail such a prediction, not the least of which is the actual progress of fuel cell and battery technology. But give CARB credit for thinking big.

In a webinar earlier this year, my colleague Kerry-Ann Adamson forecast that that governments will move toward a more prescriptive approach to energy policy.  In other words, they will not simply set broad efficiency or emissions targets but will specifically identify the clean energy technologies to reach those targets.  Examples are Australia, with its recommendations for distributed generation and solar power to meet energy efficiency goals, and the EU countries, which Kerry-Ann says will adopt increasingly prescriptive policies to achieve the EU’s mind-boggling goal of cutting carbon emissions by over 80% by 2050.

We can add China to that list, if reports are accurate that the country is considering putting a cap on energy consumption.  You read that right: a national cap on energy consumption. 

It’s challenging to pin down details of this reported proposal.  From my reading of China’s 12^th Five-Year Plan, which covers 2011 to 2015, the country is still focused on energy-intensity targets, not absolute caps.  The highlights from the English translation that I found are that, from 2010 to 2015, energy consumption per unit of GDP is targeted to drop by 16%, while CO2 emissions per unit of GDP will decrease by 17%.  Another major goal over the next five years is energy diversification.  The plan sets a target for non-fossil fuel resources to rise from 8.3% to 11.4% of primary energy consumption between 2010 to 2015.

Reports of the possible national cap seem to have come from public statements by officials at China’s National Energy Administration (NEA).  According to China Daily, in 2011 a National Energy Administration official said that China was considering a limit on energy consumption for localities, with a goal of “cap[ping] its total energy consumption at four billion tons of coal equivalent by 2015.“  Other reports confirm this.  It has also been reported that renewable energy will be excluded from the cap. 

As yet, I have not seen an official policy announcement with details as to how the cap would be implemented.  Certainly the five-year plan goals confirm that China is hoping to shift from a pure growth mode to a sustainable growth model: the five-year plan also calls for a much less heated 7% growth rate in GDP to go along with the focus on decreasing energy intensity.  But setting a cap on the total energy consumption would be an extraordinary step, albeit one that seems to fit within China’s form of “communist capitalism.”  But in trying to build a more sustainable economy, China still faces many of the same pressures that capitalist democracies face.  For example, large swathes of the country have not developed to a modern standard of living and are not likely to be willing to slow their efforts to do so.  Moreover, energy consumption in China is dominated by coal, one of its few domestic energy sources, and it will not be easy to wean the country off this plentiful energy source.  The Guardian recently reported that the energy cap is provoking much debate from provincial governments that want to grow faster than the national government target would allow.  This will be a fascinating story to watch this year, and even more fascinating to see how China might implement a national cap should such a policy come to fruition.