Electric cars are on the rise, but what is their future? Several technologies are competing and thus several market segments are emerging, which differ both by uses and by purchase prices and operating costs. The major manufacturers have opted for very different strategies. Among the main obstacles to faster development, there are infrastructure issues, as well as a the existence of second hand markets, handicaped by questions on batteries and technology obsolescence. Manufacturers thus not only have to deal with technology disruption, but with inventing new business models.
ParisTech Review – There are three electrified engine families, the hybrid, the plug-in hybrid and the all-electric. What are the strong and weak points of each?Béatrice Foucher
– Carmakers have all carefully considered the pros and cons of each engine, just as they regularly analyze changes in the mix of gasoline and diesel. What comes out of this assessment? To make it short, existing options correspond to different ways of using your vehicle.
The first hybrid vehicles, such as early versions of the Toyota Prius, combine a conventional internal combustion engine with an electrical supplement, but they only consume one type of primary energy: gasoline. Pure electric driving is marginal. The energy consumed by such electric motors is produced in several ways: by recovering energy from braking, or, at cruising speed, by converting part of the energy emitted by the engine, which is directly fed into the electric engines. Under normal conditions of use, these vehicles reduce – albeit modestly – energy consumption and CO2 emissions. The conventional internal combustion engine allows for long distances, but it does not benefit from the competitive cost of grid electricity.
All-electric vehicles like Renault’s Zoe correspond to a different use. These cars are relevant for drivers who drive their car on a daily basis but whose trips but do not exceed 150 km per day. The vehicles used for this type of commuting (between home and work, shopping or school) are often the second family car, which is rarely used for long trips. These vehicles must be recharged from the grid, which can be a real economic advantage, but they require the presence of charging infrastructure. Customers mainly recharge at home (80% of charges) and occasionally in the street or at the workplace. The great advantage of these vehicles is the low marginal cost per kilometer.
Plug-in hybrids differ from first-generation hybrids in that they are also able to use electricity from the domestic grid. Capable of being de facto all-electric for daily travel, but with a very powerful heat engine for long trips, they will be the “Swiss army knife” of the car of tomorrow: a little more expensive, but you can do everything with them.
Thus several market segments are emerging, which differ both by uses and by purchase prices and operating costs. Some carmakers will manufacture all types of cars and, segment by segment, will have to optimize supply according to their clients. Others will have to specialize more. The automobile landscape will be electrified in a proportion that will vary depending on customer segments. Each offer will thus correspond to an optimized “customer use”.
Does this mean that the choice of car manufacturers will be based on the current habits of their customers?
Yes, and this is precisely what has led Renault to opt for the all-electric, which corresponds to the use made of our cars. This is not a stubbornness to prove that we are right against everyone else: it is a strategy and a brand message. We have always provided innovation at a reasonable cost, this is our brand identity. Our customer center of gravity is between European segment B and segment C, that is to say between urban subcompacts (like the Renault Clio, Ford Fiesta, Peugeot 208 or Audi A1) and compacts (e.g. Renault Mégane, Toyota Corolla, VW Golf and the Volvo C30). This is where the credibility of the Renault brand resides. We are recognized for our expertise in midsize cars: when you buy a Clio, you are buying “the” reference on the European market.
Other manufacturers have strengths in other segments and will make different choices. What is certain is that in the European context, in the future all vehicles will be, if not electric, at least electrified, for example through stop & start systems (a stopping and restarting device that uses a suitable automatic starter) or through energy storage devices.
Why such a massive switch to electric? One can consider that this is an inevitable trend in the long run, but there are also constraints in the shorter term. In Europe, these constraints are notably of a regulatory nature: electrification appears to be the only way to reach the new, strict car emissions limits before 2020. For example, we know that by 2020 each brand will have to comply with a threshold of 95 grams of CO2 per kilometer. To give you an order of magnitude, Renault, which is already at a very good level, was at 135.7 g/km in 2011. To achieve 95 g, we will have to fight on all fronts. Manufacturers will continue to reduce the consumption of internal combustion engines, although great achievements have already been made. But we still will have to electrify starting from compacts, on the European C segment (Golf, Mégane) and probably smaller cars as well.
For all-electric and plug-in hybrid vehicles, the issue question of charging stations is obviously central. Yet despite the political will around to promote electric vehicles, it seems that the infrastructure does not follow. As if we were locked in a vicious circle “no electric cars, no plugs” and “no plugs, no electric cars.
”The situation is very uneven and varies from one country to another. The most advanced countries in Europe are Germany, the United Kingdom, Spain and Portugal. Public authorities there have proved proactive and reactive, while for their part energy providers were offensive to install terminals – I’m thinking of RWE in Germany, ChargeMaster in the UK or Effacec in Portugal, who have invested in public infrastructure, but the list is not exhaustive.
France, meanwhile, has a much slower development than its neighbors at this stage, which is surprising when one considers the power of the French electricity network and the relatively low price of its electricity. With the exception of the private company Autolib, which has set up 5,000 charging stations in the Greater Paris area – and that is remarkable – and of dealers in Renault’s distribution network, the French deployment is still far from adequate, which we strongly regret. In 2009, the government had set a target of four million charging points (including 400 000 in the public service) for 2020, for two million plug-in vehicles. This goal will not be achieved. However, a budget of € 50 million was made available by the government since January 2013, which should speed up the process.
Autolib in Paris
In some countries, there have also been many private initiatives. One thing is certain: when an energy provider is involved in the development of electric vehicles in a positive manner, so much so that it believes in the project and chooses to invest in it, things work. But such commitment is not self-evident: for electricity suppliers, for example, the fear of demand peaks on local power grids can be a slowdown factor. This is a question that will indeed arise when we have a lot of fast charge terminals (22 kW and above). However we are still a long way from getting there...
But since we are talking about Europe, we must also raise the question of the homogeneity of the charging station estate – and here we find some squabbling between France and the rest of Europe. The French Parliament has passed laws that require type 3 sockets (secured with shutters) in the habitat, while all others have opted for a shutterless socket (type 2). The French standard was strongly pushed by Schneider, a powerful world-class French electrical appliance manufacturer, and as a result French cars charge with a plug that is not used in any other country. This difference in approach is clearly an obstacle to the development of the electric vehicle market, although in practice this is only a problem for drivers who live near a border – they must have two cables, which results in a small overhead for driver and manufacturer alike.
The European Commission has proposed harmonizing standards around “type 2”, but France is resisting it. Favoring security is a choice that can be argued for, but it can block the development of electric cars, especially Renault’s Zoe. We have thus asked the French government to promote harmonization. The ongoing debates on standards must not slow down infrastructure investors. The same issues arise in the United States or Japan, where there are two opposing standards as well.
The rise of the electric car will remain theoretical as long as consumers have second thoughts about the infrastructure and stability of the technology. Is the public ready to take the plunge?
Buying an electric vehicle also encompasses an emotional choice, with the pleasure of being ahead, and of aligning one’s ideas with one’s actions. The majority of current users see themselves as pioneers and certainly do not want to backtrack.
But if we consider the future development, we must think differently and, especially, we must assess the very real obstacles that are hindering the development of electric vehicles. Customers notably point out the lack of infrastructure. When they are on the road, they see no “electrical service stations” yet nor charging points where they can recharge their car. This creates anxiety. However, when questioned in detail, we see that they intend to charge either at home or at their place of work, at least for commuting. What about longer trips? Obviously, the visual presence of charging terminals would be a plus. For the autonomy effect, there is a 200 km psychological barrier, although such a distance, for a great many drivers, far exceeds their actual daily trips. On average in Europe, the customers we are targeting drive between fifty and sixty miles a day. But the fact of not being able, in their minds, to drive a longer distance still worries them. This remains an a priori mental block that needs to be addressed.
What are the other sticking points?
Price used to be one. But since the Zoe was put on the market there has been no more criticism or mental block associated with it. However second family cars are often second hand, so we need to continue to work on the cost of electric vehicles and thus on their selling price.
This makes it mandatory to innovate: either on technology, to develop cheaper vehicles, either on commercialization models that can offer real leeway very quickly. For instance, one of the obstacles is the price of batteries. We have developed a business model in which the price of the battery can be subtracted from the selling price of the vehicle. The battery is paid on a monthly basis, this basis being consistent with monthly consumption. Moreover, customers have a “lifetime” warranty on the battery and they also are entitled to associated services.
Third obstacle, the existence of a second-hand market that reassures the first buyer. This market does not yet exist, and it will take time to develop. Removing the battery from the price of the car and renting it also constitutes a guarantee in this case, and one less concern in the prospect of resale.
Finally, in the minds of prospective buyers a measure of uncertainty remains regarding the sustainability of the technical design of the vehicles currently on the market. Technology will indeed evolve, but at a slower pace than what we experience with electronics, so don’t worry, electric vehicles purchased today will still be in the running in five years! A very interesting point also, surveys have shown that women are more sensitive than men to this risk of obsolescence.
Given this state of mind, isn’t the choice of all-electric reckless?
It is true that the all-electric vehicle is one that is most dependent on infrastructure. 100% dependence. Someone driving a hybrid who doesn’t find a charging terminal is not optimizing the car’s consumption but can drive. Whereas the driver of an all-electric cannot. So we're back to the question of charging infrastructure, which is key for the penetration of the all-electric vehicle. This infrastructure is to be set up by investors both public and private. We must give them all good reasons to invest in these areas. However let us not forget that replenishments are mainly made at home, which saves users the trouble of going to the gas station, an act which as we know constitutes an inconvenience for all drivers.
For an automotive brand, choosing hybrid or all-electric is a crucial strategic choice. Renault is one of the few major brands to make the second choice.
The Renault-Nissan alliance has positioned itself clearly, since 2007, on the all-electric vehicle segment, with a combined strategy of alliance and product development for each brand. Renault has not explored the hybrid track, while Nissan has been present on that market for a long time, especially in Japan and the U.S.
Our competitors at PSA are present in both the all-electrical and hybridization segments. Renault has made a choice, starting with pure electric, which has now become an integral part of our brand territory. It is a choice that reflects our specialization: we have a strong presence in the B and C car segments, i.e. subcompact and compact cat categories. But these strategies are not mutually exclusive of each other. They all converge towards the same goal, which due to CO2 emission limits has become a necessity: decarbonated personal transportation.
Going all-electric is also a strong choice in terms of innovation. The Zoe, for example, uses all the technologies we already master, but also brand new ones, as the engine, the battery, the regenerative braking system, the heat pump, and the interface between vehicle and driver. An electric vehicle is not just a normal vehicle with an electric motor. This is something new, with different issues. For example, issues related to the dissipation or at the contrary the recovery of the engine’s heat do not arise at all in the same terms, and the overall design of the vehicle is therefore affected. We hope to gain a head-start over the competition. It is better to be first to launch the electric vehicle than to be in the middle of the pack.
The Renault Zoe's battery is located under the car
Batteries are very expensive. How to max out the dollars throughout their lives?
The foundation of our business model is to continuously guarantee customers a battery in working condition, to guarantee them they won’t be left with it once it has run its course. Thus, clients are no longer responsible for their battery: the constructor is. We are the ones who seek to better organize the different stages of a battery’s life. When a client deems that a battery is not providing the desired level of autonomy, we recover it and we provide him with a new one. We recover a battery with a lower charge capacity but that is still usable. We are studying, in partnership with Bouygues within the Renault-Nissan Alliance, how to use it as electricity storage, for example, in green buildings. We also plan uses to store the very intermittent electricity production of wind turbines. And in the end, of course, it is recycled. We still have to build this “third life” market.
Let us talk about markets, precisely. Throughout the world, which ones offer the best opportunities?
There are countries where governments actively support the electric car. In Eastern Europe, you have Estonia, for instance. Temperature is a critical factor: whether it is very cold or very hot, autonomy time varies twofold. In temperate climates, a Zoe can travel 150 km, and about 100 km if it is - 10 ° C (14°F).
It should not be assumed that all countries are going to massively switch to electric vehicles. Our approach is to encourage local initiatives, where they make sense, to encourage pilot testing by customers themselves so they realize that electric makes sense everywhere. For example, in Rio, we're working on a project with Nissan, in view of the 2016 Olympic Games.
Another promising line of action is car sharing, in which a car is used without possessing it, as the Autolib in France. Electric vehicles are ideally suited to the concept. Users are welcoming the two disruptions at the same time: electromobility and a new business model. What is more, except maybe in the U.S. the actual need of a couple is less than two cars per year. Rather than buying a second car, a couple can practice car sharing, paid per kilometer or per hour. Many large and medium cities are eager to invest in such fleets, in particular to develop their environmental profile, and this is happening worldwide.
China is building whole cities and is concerned about the pollution: is it the promised electric Eldorado?
The Chinese are developing a dozen “small” brands of electric vehicles, some of which resolutely regional, are completely unknown abroad. Sometimes a contractor builds a factory and launches a brand in one go: these very cheap, slow-moving vehicles, designed for small-distance commutation are flourishing all over the place. The Chinese have no taboo about electrifying any type of vehicle. Given their ability to plan, they are perfectly capable of imposing the development of electric vehicles and to quickly set it up. They are faced with a very strong pollution issue in large cities, and they must deal with it. So this is of course a high potential market.
What about the highly publicized Israeli project “Better Place” that you partnered?
The starting idea was excellent: when your battery is almost empty, you swap it with a full one in just a few minutes, whereas charging through a 3 kW socket take eight hours. In theory, “Better Place” is the abolition of the constraints of the electric car. Technically, the system is up and running, but commercially, you must have a competitive offer and convince renters that dominate the market. This is a promising idea for a country like Israel, and it is unfortunate that the company was unable to continue.
What about the U.S. market?
In the minds of Americans, buying a hybrid like the Toyota Prius or Chevrolet Volt is an electric car purchase. So a lot of “electric cars” sell in the United States... but with a ratio of only one all-electric for ten plug-in hybrids. However, we must remember the beginnings of the Prius, which was very slow to take off before it enjoyed a spectacular success. And yet the all-electric car is starting much faster! We believe the potential is definitely there.
And in 2030?
The automotive world will be electric by then, with infrastructure present everywhere. We have no choice but to respond to the increasing scarcity of oil and the corresponding increase in costs, and to increasing constraints on CO2 emissions... and to the increase of the global automobile estate by 2030!
---Note from the editors: Renault is a patron of ParisTech Review