CONSULTANTS TO THE AFTERMARKET

Bill Wade

 

Seen in the Lab,
Soon on the Street

Over the past few years, we have had the opportunity to work on emerging technologies being developed at several of the nation’s top university think-tanks and incubators.
We have seen generators that have only soapy water as by-product, with the capacity to recharge vehicle batteries on the road. We have seen avgas, jet fuel and diesel created from algae or wood pulp… creating only water as the waste material.
Building on this brush with high energy innovation, we decided to take a look at the effects of the unbelievable speed of commercialization soon street worthy energy ideas will have on the truck market by the year 2020.

By Bill Wade

Wade&Partners

From everything we’ve seen on the drawing boards, consumers will eventually move to cars that are rechargeable. But for the next ten or so years, the purchase price of an electrified vehicle will probably exceed the price of an average gas-fueled family car by several thousand dollars.

This difference is due largely to the cost of designing vehicles that can drive for extended distances on battery power and to the cost of the battery itself. What’s more, the infrastructure for charging the batteries of a large number of electrified vehicles isn’t in place, nor is the industry tooled to produce them on a mass scale.

Fleets may decline to buy electrified vehicles for any number of reasons: the distance drivers can go before recharging may undermine acceptance for all but domiciled fleets. But on a more fundamental level, electrified vehicles will go mainstream at a pace determined by government action:

  • to make diesel more expensive;
  • to reduce the cost of producing, buying, or operating electrified vehicles;
  • or some combination of these two approaches.

As for trucks, even conservative futurists are betting on interference by government. They think that concern over energy security, fossil fuel emissions, and long-term industrial competitiveness will prompt governments to seek a partial solution by creating incentives—some combination of subsidies, taxes, and investments—to migrate the market to battery-powered vehicles.

Electrified vehicles can already address certain niches whose economics could be favorable more quickly, such as bus, delivery and taxi fleets in large cities. Military fleets may lead the way.

We are most intrigued by innovators preparing new products and business models (such as the packaging of battery leasing and recharging costs) designed to make electrified vehicles more attractive to buyers.

Running On Electrons

Electrified vehicles will take off… changing several economic sectors profoundly. Let’s assume that these vehicles will share the roads of the future with other low-carbon options, such as cars running on biofuels and vehicles with more fuel-efficient internal-combustion engines.

The economics of electrified vehicles start with the batteries, whose cost has been declining by 6 to 8 percent annually. Analysts predict that cost reductions will accelerate over the next five years as production volumes rise.

Business innovation could address costs too. In the solar energy market, for instance, generating firms own, finance, install, operate, and maintain solar panels for customers willing to adopt the technology.

The company then charges these consumers a predictable rate lower than the one they paid for traditional electric power but higher than the actual cost of generation. That allows the company to recoup its capital outlay and make a profit.

Innovators are considering similar models to cover the battery’s upfront cost and recoup the subsidy by charging for truck services.

Oil prices have fluctuated especially over the past two years. In the United States, electrified cars will be less expensive on a total-cost-of-ownership basis only if the price of fuel exceeds $4 a gallon.

The proliferation of electrified vehicles will also require an infrastructure. The United States has committed $2 billion in stimulus spending to help companies manufacture batteries and $25 billion for government programs to encourage OEMs to retool their production lines to produce larger numbers of more fuel-efficient vehicles, including electrified ones.

Utilities and Infrastructure Providers

Electrified vehicles could create major new revenue streams for utilities. If twenty percent of the cars and trucks sold in a local market (California) over the next decade have electric drives, recharging them could represent up to 2 percent of total electricity demand. If fleets were charged mainly at night, utilities could satisfy much of this demand without installing any significant additional generation capacity.

However, electrified-truck owners, especially in the early years, could cluster together in certain distribution hubs. The incremental demand may be enough to blow out transformers in these areas and require new investments in power generation.

This incremental peak-time power will almost certainly come from fossil fuels, which will raise carbon dioxide emissions and force utilities to spend more for emission allowances if they can’t get credit for the increased “well to wheel” efficiency of electrified vehicles.

Local Energy Storage on the Grid

The large-scale storage of electricity within electric power grids allows power generated overnight to meet peak load during the day. Innovations using flow batteries, liquid-metal batteries, flywheels, and ultracapacitors could reduce costs by 2020 and make it possible to provide grid storage in every major metropolitan market.

That much storage capacity would be transformative: currently, our power grid tends to use only 20 to 30 percent of its capacity because we build it to meet very high demand peaks. With storage, we can flatten out those peaks, reducing capital requirements for transmission and distribution and making power much cheaper to deliver.

Power companies also could use storage to smooth variability in the supply of weather-dependent renewables, such as solar and wind power, thereby converting them from intermittent power sources into much more reliable ones.

Coal would be key. Without supportive carbon regulations, we are unlikely to see clean coal deployed at scale. Even on current course, coal with carbon sequestration could become cheaper, more reliable, and more widely deployable than many renewable technologies.

Local Smart Grid Power Conversion

Large-scale high-voltage transformers, developed in the late 1880s, set the stage for the widespread development of the electrical grid. Virtually the same technology is still in use today.

A typical transformer costs $20,000, weighs 10,000 pounds, and takes up 250 cubic feet. High-speed digital switches made of silicon carbide and gallium nitride have been developed for high-frequency power management use 90 percent less energy, take up only about 1 percent as much space, and are more reliable and flexible than existing transformers. They could replace conventional transformers (at less than one-tenth the cost) and be situated in targeted ‘energy neighborhoods’ by 2020.

Battery Producers Focus on Control,
Not Just Power

For now, battery makers can earn good margins from differentiated battery chemistries that provide a cost, performance, and safety edge. Nonetheless, battery manufacturers face many challenges.

As capacity ramps up, the cells of batteries (their basic elements) will become a commodity, like many other vehicle components. On-board regen systems have already been developed.

Value will migrate from the cell-level chemistry to the level of battery-pack systems, including power- and thermal-management software, and to the electronics optimizing a battery’s performance in a specific vehicle.

Even in the near term, the battery makers can no longer put off some unresolved questions. The most important question may be which part of the value chain of batteries will take on the warranty risk associated with them.

Electron Aftermarket: Shift from Cells to Software

The evolution of the aftermarket for batteries is an open question. Since none of them have been tested in large numbers under the real (and diverse) driving conditions they will encounter over their lifetimes, it isn’t clear yet how much residual value there will be.

Indeed, batteries at the end of their lives may be liabilities, not assets, because of their recycling costs. Ninety-seven percent of the lead in lead–acid batteries can be recycled, but lithium is trickier to handle and currently less valuable than lead.

Leading battery makers are also investing significant sums in R&D for the next generation of battery chemistries. The reason is that the complicated interplay among a battery cell’s core elements (such as the cathode, electrolyte, separator, and anode) determines different aspects of the cell’s performance—for example, power density, energy density, safety, depth of charge, cycle life, and shelf life, which determine the choice of batteries for particular vehicles.

Over time, value will probably shift from the battery cell to the electronics and software of the power- and thermal-management system, which determines a car’s actual performance.

Finally, battery makers should also think about the possibility of moving into new products or services. These might include offerings for transport sectors, such as maritime, locomotives, trucks, and buses. These users might be interested in voltage and frequency regulation, power-management services, and bulk energy storage. All of these applications have very different energy and power density needs, as well as different capital requirements and operating expenses.

Truck OEMs Reinvent their Businesses

Electrified vehicles pose an enormous threat to incumbent truck OEMs, including light, medium and heavy classes. The internal-combustion engine and transmission are the core components they have focused on, while outsourcing the manufacture of many other components and subassemblies.

In a world where vehicles run on electrons rather than hydrocarbons, the OEMs will have to reinvent their businesses to survive. Nonetheless, incumbency is also a strategic strength in this sector. Attackers face significant entry barriers, including:

  • Manufacturing scale (including engineering prowess);
  • End user brand equity (now worldwide);
  • Channel relationships (suppliers as well as dealership networks),
  • Customer relationship management and market research;
  • Access to capital.

Moreover, electrified vehicles open up opportunities for incumbent vehicle assemblers. These vehicles could help them meet increasingly stringent emission regulations and avoid fines. The low-end torque of electric motors can accelerate vehicles more quickly, smoothly, and quietly, which could provide distinctive new value to buyers.

Truck makers could also beat attackers to the punch in tapping assets such as plants and dealership networks to introduce new business models, such as selling transport services rather than products.

Consider the evolution of the downstream business. Will utilities, gas stations, car companies, or other third parties own the recharging infrastructure and the real estate it occupies, for example? Will processing intelligence and data collection sit in the recharging infrastructure or in the vehicle?

OEMs should also think about whether dealers like Rush or aftermarket players like FleetPride will sell (or lease) battery packs and about how the supply chain for electrified vehicles differs from the present one. Demand for lightweight materials will grow, while demand for exhaust and various emission systems will shrink.

Completely New Tech Approaches to HD Vehicles

Compressorless air conditioning … new compressorless air conditioners dehumidify the air with desiccants rather than the traditional “compress/decompress” refrigeration cycle. Both in-cab and refrigerated transport would be turned on their heads… compressor cores anyone?

Electro chromic windows … technology to change the window shading, depending on the temperature difference between outside and inside. In-cab ergonomics and trailer top applications would help control thermal conditions.

OLED signage and signaling could revolutionize the complexities of on-board electronics, for driver ergonomics, identity/advertising and for safety related applications.

Biofuels … With crude-oil prices around $100 a barrel, market shares for biofuels such as cane and corn ethanol have risen rapidly. Although second-generation cellulosic biofuels have proved harder to make than many had hoped five years ago, innovative start-ups focused on cellulosic and algae-based biofuels are starting to create high-margin specialty chemicals and blendstocks, generating cash now and suggesting biofuels at $2 a gallon or less by 2020.

Electrofuel … At the same time, biopharmaceutical researchers are developing pathways that feed carbon dioxide, water, and energy to enzymes to create long-chain carbon molecules that function like fossil fuels at one-tenth the cost of current biofuels.

The key question is whether these new technologies can be scaled. If they can, today’s constraints on biofuels—the declining quality of available land and “food for fuel” trade-offs—may diminish.

Who Knows?

When we started working in the world of product development at the science level… with real scientists and engineers, we were truly dumbfounded (on a daily basis) over the concepts in development. No more. We are now certain that whether we’ve captured all the cogent points here or not, the truck of 2020 will be a marvel.

 

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