Automakers’ Green Quest

These days, we hear a lot about the green economy. The automotive industry is certainly a big part of that. But the dilemma for the auto industry is that the market for green cars is driven far more by government command than consumer demand.
For many years governments have been tightening emissions regulations. And companies have been experimenting with alternative energy vehicle solutions. We remember that GM developed the EV-1 in the 1990s. Hybrids have been around for 15 years. Yet, today, the sales of alternative energy vehicles, including hybrid and battery electric vehicles (BEVs), are insignificant. The global sales of hybrid-electric vehicles last year was 1.21 per cent of total light vehicle sales. In 2010, on a global basis, we expect to see sales of about 1 million hybrids and 25,000 BEVs.

The big challenge for the industry is to decide where to invest. Some companies have taken a strong stand. Carlos Ghosn has made a strong commitment to electric vehicles, and Nissan is introducing the Leaf.

But most automotive executives are less sure. They ask the fundamental question: is there a sufficient demand for these vehicles so that we can scale the technology and develop a mass market?

At J.D. Power, we believe that it will take a long time for alternative energy vehicles to reach critical mass. We will see some growth in the next five years. By 2015, we forecast that sales of hybrid and BEVs will increase to 3.4 per cent of the total light vehicle market.

The development of a market for BEVs in particular will be limited by concerns about range, price premiums, battery production capacity and the need for a battery-charging and -disposal infrastructure.

Certainly, we can expect the technology to improve so that a battery can support acceptable range between charges. Moreover, governments can impact the price premium by offering subsidies to consumers. It is also likely that we will need governments to help create the battery-charging and -disposal infrastructure.

This is where we see China, the largest and fastest growing market in the world, ideally positioned. China could create a scalable market for alternative energy vehicles by regulatory intervention and financial investment.

With a $34.6 billion investment in wind, solar, and other green energy products in 2009, China is already emerging as the world’s clean-energy powerhouse. With a similar focus on alternative energy vehicle development, and particularly in battery, with subsidies to consumers to help stimulate the demand and strong support for a battery-charging and -disposal infrastructure, China could accelerate the development of the BEV market.

However, absent vigorous government support will see BEV demand limited. This is the situation we see in India. Little support is provided in the form of research and development or tax incentives and subsidies. So while the government talks about the need for alternative fuel vehicles, without any meaningful support it makes little sense for the industry to make the necessary investments, when the vehicles would be priced out of the market.

But India is not alone among the emerging automotive markets. China is in a rather unique position given the scale of its market and the resources available to its government. Most emerging markets cannot afford the big investments required to support this technology. As such we do not expect them to contribute much to the overall global demand for BEVs and other alternative fuelled vehicles, despite most of these markets being the key drivers for overall global vehicle demand. Markets such as Brazil, Russia and Asean will be — like India — focused more on the industry around the more affordable internal-combustion engined vehicles. So looking to our forecast for global hybrid sales in 2015, at just over 3 per cent of the total market, one has to ask whether this — garnered almost entirely from the mature markets and China — is sufficient volume to allow automakers to reach this critical mass and drive down costs, then giving it access to other emerging markets. We do not believe that there is — yet.

So while the hybrid and BEVs are now hitting all the headlines, with almost all automakers claiming to have one in the pipeline, we believe there is still some way to go before they will become truly mass market and pose a challenge to the dominance of the internal combustion engine.

The author is business manager, J.D. Power Asia-Pacific Automotive Forecasting