The Ergosphere
Thursday, December 22, 2005
 

The next domino falls

Green Car Congress has scored not one, but two big news items today.  Summing up:

First in sequence, Southern California Edison has joined the plug-in hybrid development consortium; they are now alongside Pacific Gas and Electric.  (I'm not Californian; does that include all the investor-owned utilities in the state yet?)  The consortium, which includes battery makers and other companies, is devoted to creating vehicles which can travel their first 25-50 miles as pure electric vehicles before having to switch to conventional hybrid mode.  This is predicted to produce a typical 100-200 MPG of liquid fuel, depending on the driving cycle and charging schedule.  Compared to the CAFE standard of 27.5 MPG, a 150-MPG vehicle would use only 18% of the fuel.

What's odd (and remarked upon in the comments) is that this vehicle consortium does not include a single major auto manufacturer.  I'll bet that there is much resistance in Detroit to having a bunch of foreigners and Californians (who no doubt seem like the same thing to crusty old Midwestern engineers) tell them what to put under the hood.

But the second item shows that the dam may be imminent danger of bursting.  Honda has announced hybrid Civic price cuts and the possible withdrawal of non-hybrid Civics from some markets.  With the hybrid price premium set to fall to $1700, there are fewer and fewer reasons to buy the conventional drivetrain.  Eventually, Honda may no longer build them.

Getting rid of the non-hybrid Civic is a very big shift.  A company which is willing to do this is probably open-minded enough to make other bold moves.  Could Honda beat Toyota as the first member of the plug-in hybrid consortium and the first company to offer a plug as a factory option?  I wouldn't bet against it.

With Toyota the leader in hybrid sales and set to overtake GM as the world's biggest auto manufacturer and Honda not far behind in either respect, my prediction of auto production being 90% hybrids by the year 2020 may be pessimistic.  If world crude prices continue to rise at the $14/bbl/year of the last few years, any auto company which doesn't follow in a hurry is likely to dry up and blow away.

 
Comments:
Having delt with SCE quite a bit, i am always suspect of thier motivations; regardless, this is a big step forward for PHEV. CA actually has a tremendous challenge with dumping off-peak power due to hydro flows {from in state and the Pacific NW} and unpredictable wind generation, which tends to come at night in So. Cal. I think the PHEV is perfect for the western grid in total, to help manage this problem and the West Coast refining capacitiy shortage as well.
 
Forgive my ignorance, but what's with all the reluctance of so many established vehicle manufacturers to embrace new technologies? Looking at the truly huge global companies like Microsoft, McDonalds etc (not that I think they're saints by the way) and in most cases you'll find they got to where they did because they took a new idea that had potential and turned it into something big.

Why would you want to be 'yet another one of the manufacturers who is doing nothing except flogging the dying horse of fossil-fuel powered vehicles'? One need only take a look at the current aviation manufacturers market to see what happens when you don't differentiate yourself - you end up getting swallowed. In jet airliners, it's Boeing vs Airbus and no one else. In Helicopters, it's McDonnell Douglas, Bell and Eurocopter. The variety of manufacturers is dying and the same could well happen to automotive companies if they don't want to do something a little different.
 
Sempra Energy is the third of the large publically traded utilities in California. They don't appear to be a member of the hybrid consortium.
 
gitch,
I'm far closer to the auto industry than I'd like to admit. No names just some generalities...

Here are a few thoughts on your questions:
Why don't some auto makers seem to like innovation?

1) Fear of loss. Existing automakers have a huge investment in existing capital. Much of this capital is designed to last 20+ years. Anything that potentially obsoletes this capital before its planned obsolescence is fought internally. These existing profit makers can starve new market niches.

2) Lack of visionaries in upper management. Look at executives in north American. (pull a company annual report) Most are from accounting or marketing. They simply don't have the skills to ask tough questions and sort BS from potential. Further, they look for solutions that are in their domain of expertise: sales gimmicks and layoffs.

3) Inept execution of low volume products. Most automakers pride themselves on high volume manufacturing execution. When low volume products are developed, they are typically executed by people with experience in high volume programs. The quick rules of thumb fail when applied to low volume.

4) Fear of tarnishing brands by inept execution. With respect to brands, any new technology has the potential for disastrous execution especially in the powertrain arena. The costs of failure are huge. This tends to damp enthusiasm for forays into new areas.

5) Lack of profits. There is a death spiral North America right now. Loss of market share is leading to loss of revenue and profits. Lower profits drop R&D spending. Low R&D spending slows market introduction and decreases profit potential. Without vision and profits, this will be tough nut to crack.

Regarding the reduction in automakers. Yes it will happen. We will see a repeat of the 1930's thru the 1960's. I'd expect 2 strong major player players with a health business, a handful of weak players that go thru significant gyrations: mergers, bankruptcies, liquidations, acquitions, etc.
I see asia, while frought with problems, as the area where the most innovation is likely to occur because they are basically starting from scratch, their populations have fewer expectations, regulations are less restrictive and law suits are less punishing.
 
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