The Adoption of Electrically Powered Vehicles in the U.S.

Case Memo: Plugging In” the Consumer: The Adoption of Electrically Powered Vehicles in the U.S.
Date:
08-31-2013
The non-internal combustion engine (ICE) vehicles consists of hybrid electric vehicles (HEV), plug-in hybrid electric vehicles (PHEV), single-fuel all electric vehicles (EV), and fuel cell vehicles (FCV). Earlier attempts at non-ICE vehicles were faced with many challenges resulting in abandonment of research and development. General Motors (GM) discontinued the EV1 electric vehicle after investing about $1 billion in the development. The Toyota RAV 4-EV, which was popular among environmentalist, was discontinued based on sales not high enough to justify production costs.

The attention that non-ICE vehicles are receiving is driven by environmental concerns, scarcity of fossil fuel, high gasoline prices and others. The environmental concerns stems from the pollution from carbon dioxide emitted from the combustion of fossil fuels. In 2009, the United States used 19.6% of the world primary energy consumption and 17.7% of world carbon dioxide emissions from energy consumption ranking first and second respectively. There is a correlation between the carbon dioxide concentration and the earth’s surface temperature. There is a general increase in global temperature with increasing atmospheric carbon dioxide. The high initial cost of the non-ICE vehicles as compared to ICE versions is also an issue. The cost differential is mainly due to the technology, with battery being a major cost driver. For example, in 2009 the cost of Toyota Camry HEV was $26,160 whiles the cost of a comparable ICE version was $20,445. The price of gasoline in the U.S. is relatively cheap, thus affecting the adoption of the non-ICE vehicles. In 2008, the average retail price of gasoline in the U.S. was $3.25 per gallon, with 14% as tax component. In the same year, the average price of gasoline in the UK, Germany, and France were $7.53, $7.72, and $7.53 with tax components of 161%, 170%, and 154% respectively.

The movement from ICE powered vehicles to the non-ICE powered vehicles was due to signs of oil shortages and air quality concerns. The government responded with the Clean Air Act in 1970 requiring cars to have catalytic converters to reduce pollutants. Other government intervention placing restriction on vehicle emission standards forced the industry to launch research and development projects in battery powered electric vehicles.

There are four major non- ICE design concepts, which are as follows: 
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HEV, the use of on board electricity and gasoline to move the vehicle PHEV, the use of on board electricity and gasoline to move the vehicle and also ability to plug into an external power outlet to recharge the battery.

EV, the use of only electricity to move the vehicle and also ability to plug into an external power outlet to recharge the battery. FCV, the use stacks of electrodes and electrolytes that generates electricity to move vehicle

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The non-ICE vehicle market has gone through rough times in shaping the current, HEV, PHEV, EV, and FCVs. The HEV, PHEV, and EV are different products but share some commonality by way of infrastructural needs. However, FCVs appear to have a lower rate for adoption due to cost involved in providing the necessary infrastructure. The approximate cost of providing installed fuel station for the FCV is $50,000. The comparable cost for the electric plug-in station is $3,000 to $6,000.

Automobile companies need to continue investing in research and development in the non-ICE vehicles. It is their interest to improve fuel efficiency well above the standards set by government imposed Corporate Average Fuel Economy (CAFÉ) standards. A particular attention to improving the range of the vehicle is required. The range of the vehicle is the distance of travel per charge and or full tank of gas. The miles per gallon (MPG) is another attribute which is interrelated to the range. The sales figures provided shows that in November 2009, Toyota Prius had 49.7% of the total 19,334 HEVs sold in the US. Toyota Prius also happen to be the HEV with the highest miles per gallon (MPG) rating at 50. This clearly indicates that the mileage rating is an important attribute of the HEV.

Consider reducing the cost premium on the vehicles and articulating the long-term savings in non-ICE vehicle ownership. The survey response regarding the likelihood of buying a PHEV with fuel savings of 75% shows a steep decline in chances of buying with increasing cost premium.

Develop vehicle for specific driving need by providing different cost options, guided by customer segmentation by driving mission. The high cost of the initial purchase will be addressed by focusing on providing options due to driving needs of the customer. This can be addressed by having different range points which will typically imply reducing the battery packs in the vehicle. Therefore, the price per vehicle can be reduced per specific need. The FCV appears to have a very low possibility of success, hence its research and investment funds will be reallocated. Partner with government, competitors, and other stakeholders to develop the infrastructure to support main stream adoption.

The major cost driver to the non-ICE vehicles is the battery. Therefore by scaling down the cost by driving needs, a prospect with a shorter commute distance can opt for a less costly version of a model with just the right mix. With 2.28 vehicles per household in the US, it expected that household will consider having a non-ICE vehicle in the mix for shorter commute and errands. To discontinue non-promising project will free up human resource and money to be used to improve other investments. The freed up resource will support an increase in marketing related plan and implementation. Together with other government and other stakeholders, incentives will be sought to encourage non-ICE adoption by citing environmental challenges to the country in specific and the earth in general. These strategies overall will improve early the adoption of Electrically Powered Vehicles in the U.S.