The global auto industry is currently dominated by vehicles that run on conventional fuels, but newly available engine technologies which are cleaner and potentially far more cost effective may permanently alter the structure of the industry. We take a look at some of the potential obstacles faced by the electric vehicle industry with a focus on battery electric vehicles.
Electric vehicles can be broadly divided into three categories based on the mechanism of motor propulsion. These are Hybrid Electric Vehicles (HEVs), Plug-in Hybrids (PHEVs) and Battery Electric Vehicles (BEVs). Without getting into the specifics on how these vehicles function, for the purpose of our analysis, we focus on the fact that HEVs rely the most on conventional fuels (petroleum) while BEVs require absolutely no fuel, and PHEVs are midway between the two in terms of fuel requirements.
From an ideal standpoint, BEVs offer the best long-term solution to the automotive industry as zero fuel requirements imply minimal operating costs and no damage to environment. However, there are a number of issues to consider before putting them ahead of the pack.
- How Does The Model 3 Gross Margin Impact Its Stock Price
- Tesla Can Boost Its Stock Price By 50% If It Meets Its Production Targets
- How Fast Must Lithium Ion Batteries Fall For Tesla’s Model 3 To Be Viable?
- Can Grohmann Engineering Be Tesla’s Answer To Its Production Challenge?
- Earnings Review: Tesla Meets Its Delivery Targets And Reports An Operating Profit
- Earnings Preview: What To Expect From Tesla’s Q3 Earnings Report
High Battery Costs
High battery costs have made BEVs far more expensive on average than comparable conventional engine vehicles like HEVs and PHEVs. This has proved to be a huge deterrent to the mass market and is expected to remain so until there is substantial reduction in battery costs. However, based on a 2011 report by clean-tech market intelligence firm Pike Research, battery prices are expected to drop by one-third by 2017.  Tesla is betting hugely on such estimates considering that it plans to launch the Gen III in 2015, expected to be made available at prices as low as $30,000 and intended to target the mass market.
Issues with Recharging
Another major issue faced by the BEV industry is around battery recharging. Firstly, these vehicles take an unreasonably long amount of time to recharge. For example, the 2011 Nissan Leaf is estimated to take anywhere between 7.5 and 22 hours to charge a fully dead battery. This is obviously a huge problem for the car owners as they may not have sufficient time to charge their BEV cars depending on their daily commuting distance. BEV manufacturers are well aware of this issue and are developing charging equipment capable of much faster charging rates. Tesla is among the pioneers in this technology and plans to make these “superchargers” available by next year.
The battery charging station availability poses to be an issue as well. BEVs can be charged at home, but owners would prefer to have the choice of charging their vehicles away from home as well, in a manner similar to conventional fuel stations. This especially holds true for long-distance commuters. Many governments are setting up initiatives to develop charging station networks in anticipation of the growing BEV market, but it is still uncertain whether such an infrastructure would be developed anytime soon.
Negative Perception of BEVs
The final issue is the perception of BEVs among prospective buyers. Although it is clear that BEVs offer a far superior long-term solution to the automotive industry compared to conventional fuel vehicles, the majority of the world’s population may not be so receptive, yet. This is because of a number of reasons.
First, there is a widespread belief that batteries are unsafe and may lead to disasters. There have been considerable improvements made to ensure battery safety, but the negative perception remains.
Second, and a more realistic concern, is the limited range currently offered by BEVs. This has to do with battery storage capacity and efficiency. Tesla again leads in this domain. It offers battery packs of up to 85 kWh, which translates to a range of 300 miles. We believe that as BEVs gain more market penetration, the general perception of these vehicles will improve.
Overall, although BEVs are definitely the ideal long-term solution for the automotive industry, the industry currently faces a number of issues. We believe that BEVs will see a number of breakthroughs in the next couple of decades, and will become a formidable force in the auto industry in the long term.Notes:
- Prices for Lithium Ion Batteries Will Fall by More Than One-Third by 2017, Pike Research, March 2012 [↩]