ParisTech Review

Among the natural stores of energy, the most popular, fossil fuels, is a key contributor to global warming. Patrick Pélata, COO of Renault, explains that “given that an eighth of carbon dioxide equivalent emissions (CO2 eq) and a quarter of emissions’ growth are due to road vehicles, the auto industry has to strategically part ways with internal combustion engine (ICE) technology.”

From Carbon Footprint to Tiptoe
Studies of the environmental impact of road vehicles use the well-to-wheel assessment model. Typical figures are 2,000 CO2 eq per kilometer (km) for gasoline ICE vehicles, 135 CO2 eq/km for diesel ICE vehicles, 105 CO2 eq/km for hybrid vehicles (i.e., vehicles that combine both ICE and electric engines to achieve better fuel performance through regenerative braking, for example), and 60 CO2 eq/km for electric vehicles in Europe—though this figure drops to 12 CO2 eq/km for electric vehicles in France, given the country’s intensive investment in nuclear energy.
Nevertheless, because of the shortcomings of battery technology, electric vehicles face several challenges.

Battery Challenge 1: Batteries Are Expensive
Today’s long-lasting batteries are so costly to consumers that car manufacturers selling electric vehicles are leasing the batteries, even when they aren’t leasing the vehicles. Still, the projected price point of mass-produced electric vehicles is on par with their diesel peers only after government subsidies are thrown in.

However, diesel vehicles are preferred over gasoline vehicles by intensive users for two reasons: better unit cost per distance traveled and less time spent refueling (i.e., greater range on a full tank). Although the former argument still stands for electric vehicles, the latter does not.

Battery Challenge 2: Batteries Severely Limit Vehicle Range
Whereas a diesel vehicle will travel over 1,000 km on a full tank, a similarly priced, mass-produced electric vehicle will, according to Pélata, achieve a conservative 160 km on a fully charged set of batteries. In other words, a 3-hour, 300 km trip from London to Liverpool requires a 3-hour stop in Birmingham.

Yet, this range assumes that electric vehicles are pre-heated in the winter or pre-cooled in the summer while still plugged in for 15 minutes or so before departure—a time-old tradition in Canadian and Scandinavian winters. Otherwise, heating or air conditioning can represent up to 30% of an electric vehicle’s energy consumption, thus reducing its range to around 100 km. So that London-Liverpool trip may end up lasting closer to nine hours.

A summertime solution pursued by some is to place solar fuel cells on top of the vehicle. While this can partially compensate for the extra drain from air conditioning, these fuel cells naturally increase the initial and recurring costs as well as the complexity of the vehicle, creating additional financial and engineering challenges.

Battery Challenge 3: Refueling is Slow and Dangerous
At the lousiest fuel pump, electric batteries can be recharged at a rate of 10 liters or 6,000-kilowatt (kW) per minute. In comparison, recharging batteries at consumer-safe currents represents a paltry 5 kW per minute. Higher energy transfers can reach 50 kW but greater currents raise the risk of electrocution by neophytes. While gasoline remains relatively tame—unless you strike a match—diesel is even safer, as it requires severe pressure or temperature to ignite.

One solution to the refueling challenge would be battery-swapping stations. Yet, to avoid prohibitive swapping labor costs, agreement is needed on battery standards as well as universal mechanisms to swap batteries within vehicles—an operation akin to swapping engines in a gas vehicle. A prerequisite for any swapping scheme to credibly take off is broad industry agreement.

Public Policy to the Rescue
Switching to low-emissions vehicles will not occur in a power vacuum. Incentives to develop infrastructure (to lower the risk of switching to electric) and to subsidize adoption (to lower the cost) will carry the day. Indeed, the benefits of this switch will not show up in adopters’ balance sheets but in societal improvements such as better quality of life, better health, longer life expectancy, cleaner air, less noise, and a less skewed distribution of national energy.

Fortunately, governments aren’t letting the market decide. The worldwide auto industry is replete with dominant national actors. Automakers enjoy fairly captive upstream suppliers and downstream dealerships. This means that too many people are directly or indirectly employed by governments to not take an interest and push whichever standard will favor local employment.

In this context, public and semi-public bodies are the kingmakers of automakers and utilities that sell and cater to electric vehicle users. Transparent measures, such as the legal endorsement of some battery standards or selective scrappage schemes favoring the adoption of particular configurations, will nudge the demand for electric vehicles. More opaque practices, including the promptness with which building permits are granted for new or modified service points or the relative ease with which private users connect to the national power grid, will also tacitly influence demand. Furthermore, the way public transport vehicles and government fleets are renewed will indirectly shape the market as publicly favored solutions gradually gain market share and influence consumer buying behavior.

Both forward-looking established automakers and startups are seeking the necessary public backing to support their private plans. One of these startups, Better Place is busily building up both its battery swap service and its portfolio of national and local public backers. So far, countries, provinces, and cities alike—including Denmark, Israel, Hawaii, Ontario, and Tokyo—have signed agreements with Better Place. “With the right push,” says Pélata, “electric vehicles could represent 10% of new vehicle sales by 2020.” Renault plans to roll out three models in 2011: a large sedan, the Fluence; a utility vehicle, the electric Kangoo; and an innovative, urban compact one or two-seater, the Twizy. Then, in 2012, Renault’s Zoé (for ZerO Emissions) will make its debut. “We plan to roll out 150,000 Zoés per year and our production can be ramped up to 300,000 if electric vehicles take off,” adds Pélata.

The Zoé’s lithium-ion battery system is the brainchild of a partnership between Nissan, Renault’s larger Japanese alliance partner, and NEC, a Japanese multinational IT company. It will be developed in a joint venture between the Renault-Nissan alliance, the French Atomic Energy Commission (CEA), and the French Strategic Investment Fund (FSI), a French sovereign fund.

Once a state has selected its “champions” (i.e., local preferred car models), the adoption of electric vehicles by potential buyers should be fairly straightforward. However, cultural issues may interfere with wide-scale espousal.

A Long, Long Way to Go
“A visible difference in perspective is whether one’s countrymen think of public transport as a social differentiator,” explains Michèle Cyna of Veolia Transport, a French public transport provider that operates in countries across the globe, including Australia, France, Japan, South Korea, and the U.S. “In Tokyo or Paris, middle- and upper-class citizens will certainly have experienced taking the subway before owning their first car. Whereas in Los Angeles or Atlanta, they will go straight from socially segregated school buses to their first car at 16 or 17.”

Innovative Design’s Role in Consumer Adoption
Public support, though it helps, does not constitute a free pass to success. The name of the game is “shattering the internal combustion engine’s standing as a dominant design,” says Christophe Midler, the Arcelor, Dassault Systèmes, Renault, Valéo Innovation Management chair at Ecole Polytechnique (a member of ParisTech).

Products achieve dominant design when their underlying technology, instituted practices, and embedded values are coherent. This consistency creates a virtuous circle of profitable investment—due to network effects and economies of scale as well as a stable decoupling of market boundaries and pricing mechanisms—that guides consumer choice. “In order to exit a dominant design,” explains Professor Midler during a seminar at the Ecole de Paris, “action must be undertaken beyond the pure technological dimension and systematically address all these dimensions. The ability to holistically design the technology and its uses, to outline services that sustain and extend the product offering, to define new business models, and to draw plans to govern wealth creating intermediate stages, all support this process.”

“The Prius is an interesting example: irrespective of one’s opinion of full hybrids, Toyota has succeeded in pushing through a distinctive concept, an original style and architecture, a basic redesign of all of a car’s components, and a specific commercial practice,” adds Midler. “The company has adopted an original learning process based on a pilot project—which served as the hotbed of reinvention for the company’s competencies—followed by the diffusion of acquired knowledge to all the engineering practices and vehicle ranges.”

French automakers aren’t standing still. “At Peugeot, the higher price of oil has led the [company] to explore what could be done straight away, without drastic changes, to lower both gasoline consumption and CO2 emissions; it was a simple request from the marketing group,” reports Alessio Beverina of Sofinnova Partners, a independent French early stage venture capital firm. “Their engineers tinkered at various temperatures with the gasoline projection system’s algorithm, within the injection, and realized the same amount was always injected; but, when gasoline is cold, injection is pointless. Result: a modest engineering effort enabled a 25% gain in fuel efficiency.”

“Five years ago, the energy consumption of auxiliary systems such as windshield wipers were of no interest to Renault’s research and development team,” adds Beverina. “Improving energy efficiency in an electric vehicle, however, improves its range, which is of great value.”

“Product development is no longer the mere recipient of knowledge handed down. It now drives and stimulates organizational learning and customer behavior. Product development engages a conversation with end users,” concludes Professor Midler.

City Before Country
Given their limited range, vehicles will go electric in cities first. The question remains, should national policy decree the adoption of electric buses in urban and suburban areas? Should the same be done for taxis?

The rise of new urban and suburban attitudes towards shared vehicle usage, as illustrated by not-for-profit and for-profit carsharing, should make the shift to electric public transport an easier one.

What YOU Can Do
If you’re an automaker, your corporation’s social and political capital may be more key to a successful transition than its human and intellectual capital.

If you run an auto dealership or a service station, when it comes to electric vehicles sales and/or maintenance, weigh a “wait and see” approach against a “take the plunge early” one. This means considering local recharging standards and competitive conditions.

If you run an electric grid, anticipate greater nocturnal peak use of your grid; develop a marketing package geared towards electric vehicle owners.

If you run a professional fleet, consider switching to electric; treat this option as you would any other business plan scenario.

If you are an auto insurer, your actuarial models may have to be adjusted; electric vehicles cost more to replace, less to operate, and aren’t noisy.

If you’re wondering whether a dominant design is locking your technology out, examine the usage patterns in the markets you’re aiming for; assess how products and services are currently defined within these spaces; if a dominant design is present, expect to innovate by reshaping the product and service landscape and to scour for novel business models.

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