The Obama Fast Track for Hybrid Electric Vehicles (HEVs)

Today I'm going to begin with an apology because I've done a terrible job of describing the basics of hybrid electric vehicle [HEV] technology for energy storage investors. Many of my earlier articles dove straight into the mind-numbing details of battery technology without first providing an overview of what those batteries will be used for. In other words I'm guilty of putting the cart before the horse. It's time for me to make amends.

While the differences between HEV technologies have always been important to automobile manufacturers, the public's understanding of those differences is limited. That dynamic is about to change because of President Obama's decision to accelerate the effective date of Federal fuel economy standards that were first adopted during the Bush administration. These accelerated standards will require manufacturers to increase fuel efficiency by approximately 40% over the next seven years. They will also eliminate fleet-wide averaging and force each class of vehicles to carry a fair share of the fuel economy burden.

I don't want to oversimplify a very complex topic, but I believe the most cost-effective way to meet the new goals will be the widespread adoption of HEV technology across all classes of cars and light trucks. The new rules are not an HEV mandate, but they have put HEV technologies on a regulatory fast track that will rapidly drive revenue growth across the entire spectrum of battery manufacturers.

There are four primary classes of HEVs including the micro, mild and full hybrids that are available today and the plug-in hybrids (PHEVs) that are scheduled for next year. The following sections provide a simple overview of what the various classes of HEV technology do and what they're expected to cost. More detailed information is available from the Green Car Congress, the National Alternative Fuels Training Consortium and the Electric Drive Transport Association.

Micro Hybrids do not use an electric motor to propel the vehicle. Instead, they rely on hybrid technology to:

• Use a small portion of the energy that is normally lost in braking to recharge their batteries;
• Stop and start the internal combustion engine [ICE] when the vehicle stops and starts; and
• Power accessories like heat and air conditioning while the ICE is off.

The current cost of micro hybrid technology is roughly $500, plus batteries. The main benefit of micro hybrid technology is fuel savings of up to 10% that arise from turning the ICE off when the vehicle isn't moving.

Mild Hybrids

use an electric motor that is integrated into the ICE to boost power during acceleration. They also rely on hybrid technology to:

• Use a larger portion of the energy that is normally lost in braking to recharge their batteries;
• Stop and start the ICE when the vehicle stops and starts; and
• Power accessories like heat and air conditioning while the ICE is off.

The current cost of mild hybrid technology is roughly $1,500, plus batteries. The main benefit of mild hybrid technology is fuel savings of up to 20% that arise from using a smaller ICE and turning it off when the vehicle isn't moving.

Full Hybrids use an electric motor that's separate from the ICE and powerful enough to move the vehicle on its own. Full hybrids typically launch from a stop in electric mode, start the ICE when needed and then use both the electric and ICE systems for acceleration. They also rely on hybrid technology to:

• Use most of the energy that is normally lost in braking to recharge their batteries;
• Stop and start the ICE when the car stops and starts; and
• Power accessories like heat and air conditioning while the ICE is off.

The current cost of full hybrid technology is roughly $2,000, plus batteries. The main benefit of full hybrid technology is fuel savings of up to 40% that arise from using battery power in stop and go traffic, using a smaller ICE and turning it off when the vehicle isn't moving.

Plug-in Hybrids fall into one of two sub-classes. A parallel hybrid is essentially a full hybrid with a larger battery pack that increases the EV range and decreases reliance on the ICE. A series hybrid is essentially an electric vehicle that runs on battery power for the first 10 to 40 miles and then uses a small ICE to generate electricity for the powertrain. Both sub-classes rely on hybrid technology to use most of the energy that is normally lost in braking to recharge their batteries.

The estimated cost of plug-in hybrid technology is roughly $2,500, plus batteries. While fuel economy estimates vary widely depending on assumed driving patterns, most commonly quoted estimates fall in the 60% range.

Cost-Benefit Table The following table summarizes the relative costs and benefits of micro, mild, full and plug-in hybrid technologies using lead-acid batteries for lighting, accessory and related systems, and using NiMH or Li-ion batteries for the electric powertrain. The price of $1,000 per kWh for electric powertrain batteries represents a rough average of the current cost of NiMH and Li-ion batteries published in a July 2008 Sandia National Laboratories report on its Solar Energy Grid Integration Systems – Energy Storage program.

	Lead-acid	Advanced	Mechanical	Incremental	Fuel
	Batteries	Batteries	Components	Cost	Savings
Micro Hybrid	$200		$500	$700	10%
Mild Hybrid (1 kWh powertrain battery)	$100	$1,000	$1,500	$2,600	20%
Full Hybrid (2 kWh powertrain battery)	$100	$2,000	$2,000	$4,100	40%
Plug-in Hybrid (10 kWh powertrain battery)		$10,000	$2,500	$12,500	60%

Cost-Benefit Graph To help remind readers what matters to buyers, I've put together a simple graph that superimposes the purchase price data from the Cost-Benefit Table over a normal bell shaped curve. In this particular graph there is no direct correlation between the background curve and the price points in the foreground. The curve does, however, help put the cost differences and fuel savings into the context of normal forces in a free market.

In combination, the table and the graph clearly show why I believe the vast majority of buyers will choose micro, mild and full hybrid alternatives over their more expensive plug-in cousins. It's a simple matter of economics. Cars with plugs simply do not work for anyone other than the emotionally committed or the mathematically challenged.

The following graph comes from the DOE’s 2009 Annual Energy Outlook and forecasts that sales of full and mild hybrids will grow from 346,000 units in 2007 to 4.8 million units in 2030. Over the same time frame, sales of micro hybrids will grow from 13,000 units to 3.2 million units. Collectively HEVs will account for roughly 63% of unconventional vehicle sales and approximately 40% of all light car and truck sales by 2030.

The companion graph forecasts that less than 7% of the HEVs sold in 2030 will be plug-ins. The other 93% of sales come from full, mild and micro hybrids. Overall, the forecast corresponds well with the distribution I would ordinarily expect under a normal bell shaped curve.

While the sex, glitz, glamour and hype are clearly skewed toward the PHEV tail of the normal bell shaped curve, the bulk of future sales will almost certainly come from the more affordable micro, mild and full hybrid alternatives. Accordingly, I believe the question that investors need to ask themselves is, "which battery technology is best suited to the requirements of these lesser HEV technologies?" The following summary paragraphs may help in that analysis.

Energy and Power The distinction between energy and power is frequently blurred in discussions of HEV technology. In simple terms, energy measured in kilowatt-hours (kWh) limits the distance of travel while power measured in kilowatts (kW) limits acceleration and speed. In PHEV applications that rely on the batteries for an extended travel range, energy is the most important performance metric. For micro, mild and full hybrid applications that use the batteries for short bursts, power is far more important and there are many battery technologies including lead-carbon, NiCd, NaNiCl, NiMH and Li-ion that can easily do the required work. In other words, no technology has a clear performance advantage.

Size and Weight NiMH and Li-ion battery developers emphasize that they enjoy a substantial weight advantage over lead-acid batteries. I'll be the first to concede that weight differences can be critical in the context of a PHEV that needs to carry a 10 to 25 kWh battery pack to provide the desired range. But the weight advantage is almost irrelevant in the context of a micro, mild or full hybrid that only needs to carry a couple kWh of battery capacity.

Cycle Life NiMH and Li-ion battery developers emphasize that they enjoy substantial cycle-life advantages over the lead-acid batteries normally used for starting, lighting and ignition. Those comparisons are inherently unreasonable because they use the best examples of their technology and the worst examples of lead-acid technology. When the best NiMH and Li-ion technologies are compared with the best lead-acid technologies, the cycle-life advantages disappear.

Battery Cost The one metric NiMH and Li-ion battery developers never emphasize is cost, unless it's in the context of a happy-talk prediction that future economies of scale will slash the cost of their products. The simple fact is that the best NiMH and Li-ion batteries cost an average of three times as much as the best lead-acid carbon batteries and there is no reason to believe that the developers will ever be able to close the cost gap.

Revised Cost-Benefit Graph If one assumes that advanced lead-carbon batteries will be the technology of choice for micro, mild and full hybrid applications, and that NiMH and Li-ion batteries will be the technology of choice for PHEVs, the revised cost-benefit graph looks like this:

Over the last couple years the media has fixated on the romantic notion of PHEVs, which has drawn substantial investor attention to small public companies like Ener1 (HEV) and Valence Technology (VLNC) that are generally perceived as leaders in the PHEV battery market. As a result, the stock prices of both companies have risen to levels that include huge premiums for intangible future potential. While the market for PHEV batteries will undoubtedly be large, my sense is that the market has not fully considered the business, technical, operational, competitive, financial and ethical risks these companies are certain to face. That leads me to conclude that both companies have far more downside risk than upside potential under current conditions.

While the media attention has been focused on the right hand tail of the bell shaped curve, established lead-acid battery companies like Exide (XIDE), Enersys (ENS) and C&D Technologies (CHP), along with technology driven newcomers like Axion Power International (AXPW.OB), have been quietly developing next generation technologies that will be affordable for consumers in the middle of the bell shaped curve who need HEV fuel savings but can't afford Li-ion or NiMH batteries. These middle market solutions won't have the high per vehicle value of Li-ion and NiMH solutions, but with far higher market penetration rates, they should easily make up the difference in volume. As I've discussed in earlier articles, the lead-acid sector has been treated like an orphan stepchild of alternative energy for years. That leads me to conclude that these companies have far more upside potential than downside risk under current conditions.

I believe the revised Federal fuel efficiency standards will drive the implementation of micro hybrid, mild hybrid and full hybrid technologies more rapidly than anyone could have predicted and increase overall penetration rates. While the changes are bullish for the energy storage sector in general, the biggest beneficiaries are likely to be the undervalued lead-acid battery manufacturers that will ultimately be the primary source of middle market HEV battery solutions.

In closing I would like each reader to take another look at the last graph and consider a broader ethical issue that we all need deal with. The resources required for micro, mild and full hybrid technologies ramp up gradually as fuel savings climb from 10% to 40%. The incremental resources required for that last 20% in fuel savings one gets by upgrading from a full hybrid to a PHEV are immense. In effect, to save 100 gallons of gas per year by upgrading a single full hybrid to a PHEV, we will have to forego using those batteries to build four additional full hybrids that could have collectively saved 800 gallons of gas per year. This is one of the most appalling examples of selfish and wasteful arrogance I can imagine. It has no place in a resource constrained world where 6 billion people have come to understand how the other 500 million live and the primary challenge for our species is finding relevant scale solutions to persistent shortages of water, food, energy and virtually every commodity you can imagine.

Disclosure: Author is a former director and executive officer of Axion Power International (AXPW.OB) and holds a large long position in its stock. He also holds small long positions in Exide (XIDE) and Enersys (ENS).

Comments

[NorthernPiker:]

John, the second link was cited by Don Harmon and contains flawed information that indicates that lithium is much more prevalent in the earth's crust than lead. This is not true. They are equally abundant - the point of my comment. This is quite relevant to the long term viability of the use of lead and lithium in energy storage and other applications.

What is also relevant is the amount of lead and lithium required per kWh of energy storage. For lithium, it is about 2.5% of the battery weight, or 0.25 kg per kWh. For lead in a lead-acid battery, it is about 50% of the battery weight, or 15 kg per kWh. John, what is the approximate lead content, in kg per kWh, for Axion's batteries?

(Reference for composition of lead-acid batteries)
practicalaction.org/pr...

Your comment about the present disparity in lead and lithium production is valid but somewhat irrelevant. The relevant issue to be discussed is the ability to scale lithium production while maintaining a reasonable commodity cost.

May 28 10:01 AM

[John Petersen:]

NorthernPiker, explaining the substantial differences between lead ore deposition and lithium ore deposition is beyond the scope of this article. Instead, I'll repeat the comment Jack Lifton posted to this article on altenergystocks.com

"John,

Your article is, as usual, thorough and superb. I specialize in the market fundamentals and end uses of natural resources, and I want to point out that your conclusions about the choices for our resource constrained world should be a loud and clear warning to those now wasting precious time and money on technologies requiring rare metals that are the wrong choice if our western way of life is to be scaled up so that Asia can enjoy a higher standard of living. The only way for the electrification of motor vehicles to proceed rapidly is through the use of battery technologies principally based on lead. Lead can be recycled indefinitely and its global annual production could be increased fairly quickly. The world's already known resources and reserves of lead are multiples of those of lithium or the rare earths. Finally the yearly production of new lead is today 160 times larger than that of lithium and 40 times larger than that of the rare earths. Who is kidding who about resources and time?"

While I want to stay away from resource availability arguments, I think we can all agree that Jack is an authority and rely on his assessments of the raw materials markets.

May 28 11:34 AM

[NorthernPiker:]

Jack Lifton may be an authority but he is not above selective (ab)use of data that does not stand scrutiny. For example, his statement that you cited, < the yearly production of new lead is today 160 times larger than that of lithium >, conveniently ignores that, for a given battery capacity, 60 times more lead (15 kg per kWh) than lithium (1/4 kg per kWh) is needed.

Here's another misdirection from Jack: <Lead can be recycled indefinitely.> Actually,about 99% of the lead is recycled from lead-acid batteries. Since a lead-acid battery has only 1/10 the life of a LiFePO4 battery, then during the life of a LiFePO4 battery only 90% of the lead is recycled from equivalent-capacity lead-acid batteries. Assuming no recycling of lithium, these lead-acid batteries will be responsible for 6 lbs. of lead being released into the environment for every lb. of lithium released due to disposal of equivalent-capacity LiFePO4 batteries.

May 28 01:58 PM

[John Petersen:]

NorthernPiker, trying to equate the complexity and cost of lithium extraction and processing to the cheap simplicity of lead extraction and processing is absurd. It also overlooks the fact that the U.S. has immense commercial lead deposits and no commercial lithium deposits.

You've been reading my work long enough to know that comparing the best examples of Li-ion technology to the worst examples of lead-acid technology are inherently deceptive. If you want to make cycle life comparisons with Li-FePO4, you can at least have the decency to use lead-carbon like Sandia did last year:

seekingalpha.com/artic...

May 28 02:06 PM

[NorthernPiker:]

Well, John, please provide me with the data on lead-carbon:

o Cycle life specs - number of cycles and depth of discharge;
o The amount of lead required per kWh of storage capacity; and,
o Estimated recovery rate of lead from a recycled battery.

A web link would be fine.

May 28 03:43 PM

[Don Harmon:]

TAKE A BATH IN LITHIUM ??

Did you know that you can go soak in Lithium-laced hot springs throughout northern California and Nevada? One of the best is near the Silver Peak lithium mining operation SW of Tonopah Nevada. Suggest a nice dip and then wheel on into town for one of the most laid back meals you'll ever have from the fyne fokes of Silver Peak

Don Harmon





On May 28 02:06 PM John Petersen wrote:

> NorthernPiker, trying to equate the complexity and cost of lithium
> extraction and processing to the cheap simplicity of lead extraction
> and processing is absurd. It also overlooks the fact that the U.S.
> has immense commercial lead deposits and no commercial lithium deposits.
>
>
> You've been reading my work long enough to know that comparing the
> best examples of Li-ion technology to the worst examples of lead-acid
> technology are inherently deceptive. If you want to make cycle life
> comparisons with Li-FePO4, you can at least have the decency to use
> lead-carbon like Sandia did last year:
>
> seekingalpha.com/artic...

May 28 04:02 PM

[John Petersen:]

NorthernPiker, the chart I referenced earlier provides the only publicly available cycle life and DOD data that I'm aware of, but it provides significant evidence that an asymmetric lead-carbon device should have full cycle-life parity with li-phosphate. As more detailed data is published, I'll be sure to share it.

Since the bulk of the battery weight in either lead-acid or lead carbon is lead, you have to assume that energy density is on the order of 50 to 60 Wh per Kg of metallic lead. Recycling basically recovers 100% of the lead. The 99% figure you quoted earlier suggests that 1% of lead-acid batteries are not recycled, but it does not imply that the lead is released into the environment.

Don Harmon, with average lithium concentrations of 160 ppm, it wouldn't be much of a bath.

May 28 04:28 PM

[Don Harmon:]

I think we can put aside resource availablility arguments and call it maybe slightly easier to process lead - so what? The real discussion is moving the technology forward and finding ways to bring down the costs so that any widely substitutable resource can be employed to reduce our dependence on fossil fuel. All this talk of resource availability is just so much rhetoric on both sides.

Anything is doable if we want to do it bad enough and it makes economic sense to do it at all? Resources will come from other places on the globe and will help raise the standard of living in those places - what's wrong with that?

www.usatoday.com/tech/...

Don Harmon

May 28 04:40 PM

[John Petersen:]

Don, lithium supply has been off my list of major concerns since Dr. Evans published "Lithium Supply: Enough to Cover Demands" earlier this month. In fact, my comment on that article said:

"Thank you so much for taking the time to comment on a question that's kept me profoundly confused for a long time. With a variety of conflicting claims circulating, it's difficult to know which to believe. Jack Lifton has told me that you're his go to guy when it comes to lithium questions and if you're good enough for Jack, I have no basis to complain. I now feel comfortable about crossing this issue off my tick list."

seekingalpha.com/artic...

But with multiple millions of lead-acid batteries going in for recycling every year and domestic ore deposits that frequently run in the 20% to 50% range, I'll not sit quietly by and let anyone suggest that there might be future shortages of lead.

May 28 04:48 PM

[Don Harmon:]

Hi John,

Lets have a little fun and maybe instructive at the same time?

Could you provide in one of your famous "tables" the cost per Watt-hour, Specific Energy, that is Watt-hours per kilogram, and the Energy Density, Watt-hours/liter for an example of one of your favorite lead - carbon advanced batteries.

I will then do a similar "table" for the same values for a Lithium Iron Phosphate battery of similar function.

Thanks,

Don Harmon

May 28 05:11 PM

[battman:]

Help raise the standard of living of a foriegn country? We tried that, it's called the middle east. Worked out pretty good hasn't it.


On May 28 04:40 PM Don Harmon wrote:

> I think we can put aside resource availablility arguments and call
> it maybe slightly easier to process lead - so what? The real discussion
> is moving the technology forward and finding ways to bring down the
> costs so that any widely substitutable resource can be employed to
> reduce our dependence on fossil fuel. All this talk of resource availability
> is just so much rhetoric on both sides.
>
> Anything is doable if we want to do it bad enough and it makes economic
> sense to do it at all? Resources will come from other places on the
> globe and will help raise the standard of living in those places
> - what's wrong with that?
>
> www.usatoday.com/tech/...
>
>
> Don Harmon
>
>
>

May 29 06:24 AM

[John Petersen:]

Don, what a great idea. I've done exactly that for my next article and taken care of your part of the work too!

Battman ;-)

May 29 08:36 AM

[Don Harmon:]

Looking forward to seeing it John. I have a little investigation going on myself - so it could be a very interesting ping pong match :-)

Don Harmon

Battman - we don't seem to mind China buying our debt now do we?

May 29 12:54 PM

[John Petersen:]

While doing your homework don't overlook the most recent public data out of the ALABC:

www.batterydemon.co.uk...

May 29 02:04 PM

[John Petersen:]

Make that link:

awbriefing.com/present...

May 29 02:05 PM

[Sharkey:]

I find your articles extremely well written, and very educational (I even bought a few XIDE shares near their low point). But while we’re on the topic of efficient vehicles, I’d like to hear your thoughts on the compressed air vehicles in China I read about a year or so ago. Assuming a “safe” compressed air tank could be designed, do you have thoughts on the efficiency of energy conversion, and the companies involved in developing these vehicles? As I recall, they were reported at a 50-mile range. Also, speaking of “safe”, I’m concerned about 500-pound EV’s safety in crashes with larger vehicles, and the impact this may have on buyer psychology.

May 29 04:13 PM

[John Petersen:]

Sharkey, there's a company out of France named MDI that is planning to introduce compressed air vehicles in the near-term. I don't talk about them because there is no clear investment opportunity, but I try to keep tabs on the technology. Getting to safer ultra-light EVs will require changes in the traffic laws and most likely special reserved corridors or lanes, but most of the issues can be overcome with enough will. The only other choice is 3,000 pound vehicles that still won't win in a collision with a larger vehicle but won't be economic either.

May 29 04:22 PM

[Douglas Hvi...:]

I was able to invest in MDI a few years back when they were still in the development stage. I could only afford one share - a year's investment cash! Speculative, of course. Very occasionally I see something about someone wanting to sell some shares, but the company is not public and has no plans to become so. If you check into one of these sales, make sure they are really stockholders, you don't want to buy a scam.

On plug ins, it would be interesting to see economic calculations on the effect of the vehicle to grid technology. It has been pointed out that a major vehicle changeover to either plug ins or BEVs would supply more storage than the grid is likely to need. If utilities can "rent" their storage rather than buying it, it could be a win-win situation. However, some calculations would be advisable!!!!

May 30 08:49 AM

[gregory fen...:]

Thanks for the great information john. I have been looking for an area of investment in the cleantech that involves hybrid cars and battery use. After researching lithium extraction, compounds and the risks of mining, your article certainly grabbed my attention. Focusing on the mass market, whilst providing a green solution through the effective use of lead based products is a smart idea. Ev's are here to stay, in all forms. I hold positions in exide and bcon, my first american market recovery purchases. Being a new zealander I was happy to see a battery recycling plant for exide here. Great work john. thankyou.

Jun 03 09:20 AM

[John Petersen:]

Douglas, for the next several years the focus will be directed to developing more cost effective batteries for plug-ins. When those solutions become sufficiently prevalent in the 2015 to 2020 time-frame, the experts are saying that the first step will be vehicle to home and finally vehicle to grid.

Gregory, I think Exide's a sure winner over the next couple of years for a variety of reasons and while Beacon's a good deal more speculative, it's hard to criticize at these price levels. I wish you luck in your investing and might suggest a bit more diversification.

Jun 10 01:03 AM