February 28, 2014

I’ve been thinking a little recently about the electric car market. I tend get very excited about the prospect of electric cars taking over our streets (despite the fact that I very rarely need to drive, at the moment). I like the technology, and I like what they stand for. Eco-friendly. Intense acceleration and low centres of mass. This means guilt-free driving pleasure. But, sometimes it seems unclear whether what technical underpinnings lie under this sea change towards electric propulsion (if indeed it is so). And it has seemed obvious until now that the Tesla cars are the stars of the show in regards to electric transportation. These are by far and away the most exciting cars; they get far more hype and they get far more praise than any other electric car on the market. But why? What is really the state of the art and where does it reside? And most importantly, how long will it be until I own my own electric sportscar?

This is a story that can be illustrated with two simple graphics.

###1. Maximum Range of Electric Car Models (in Km)

This first chart tells the story of the company called Tesla Motors, the upstart who had a breakout success with the Tesla Roadster. Their initial success gave them a great deal of financing and clout which they invested to - again - hit a home run with the Model S. These are both premium cars, and their appeal lies in their advanced nature. This is haute technology - their customers know they are buying into the best thing out there, even if they have to pay a price to do so. They take the state-of-the-art in battery technology, lifted straight from the realms of laptop batteries - and make it work on a grand scale. As a result, the batteries have a much longer range than anything else. The new cars can recharge very quickly, too. Tesla are currently building a supercharger network that allows you to recharge in the same time it takes to refill. There’s even an ostentatious (and delightful) 17 inch touchscreen where the dashboard should be.

The thing that is striking about this picture is how little any other company seems to have done to advance the state of the art in electric cars. Aside from Tesla, the ONLY advancement we see came in the form of the GM EV1. The sad story of that model was well covered by the documentary “Who Killed the Electric Car?” (In brief - The development was driven by the need to comply with Californian regulations to provide zero-emissions cars, and once that regulation was dropped, the cars were herded up and hidden away to protect the more profitable core business).

###2. Retail Price of Electric Car Models (in inflation-adjusted 2014 dollars)

It is here that we find how the rest of the auto industry has chosen to advance things. On the price point. The cost has dropped dramatically for electric vehicles, and the technology advances mean we are getting to the point where the lease pricing model, previously necessary to sell cars with very expensive batteries, is no longer required.

However, auto makers have not changed the positioning of electric cars. They are designed and sold as cars for running around the city; they are not expected to do everything that petrol cars can do. Even since the 1900s, this same paradigm has persisted. At that time, automakers even put fake radiators onto the electric cars to disguise their power source. And still today, electric cars are advanced as a relatively low-cost, responsible option. The maximum range of the cars that are sold is not high enough to suit all journeys, and no visions of developing electric charging infrastructure has been communicated by any company other than Tesla (although it does seem that Nissan is also putting some effort into building a charging station network).

The second component to this strategy is the hybrid product range. These hybrids are targeted at a more premium market, and they conceive the electric drive as an add-on. The electric motor is an additional feature which makes the car more energy efficient on short trips and it also gives the car a certain amount of eco-cred. And, this is not entirely a bad thing. Working solely within the restriction of current infrastructure, this works quite well - although it necessarily means the cars are slightly over-complicated in engineering terms, it does give the all-important reassurance on range. If I’m going on a road trip, it would probably be one of these cars I would want to be in.

###The Showdown

This boils down to a battle of two business models. One is more simple. It only relies on the capabilities of electric cars as they are today - it sees them as a (relatively) low cost, low guilt proposition that can replace traditional city run-around cars. In the high-end market, the electric motor and battery are added to a petrol engine as an additional feature.

The downside of this, in engineering terms, is that it adds much more complexity to the engineering of the cars. In the context of the auto industry, this doesn’t seem so alarming. In terms of design, new car models tend to be designed holistically - all the features interrelate in complex ways. For example, the aerodynamics of the body may intersect with the rigidity of the chassis and the packaging (where to put the engine and everything else so there is enough room in the cabin and in the boot). The car industry has no problems in dealing with this (primarily mechanical) flavour of complexity. It is, in fact, the core competency of successful players. Competing in the use of Internal Combustion Engine (ICE) vehicles, it is indeed necessary to have this expertise to produce the most attractive product.

In contrast, the electric vehicle is mechanically much more simple. There are fewer components overall. The motor is a highly efficient commodity device, and has a flat torque curve, obviating the need for a gearbox. The battery itself is a component with a lot of complexity, and may therefore turn out to be a differentiating factor in the electric car market. However, the interface between the energy store and the motor is now electrical rather than mechanical, therefore the task of integrating components remains much easier compared with ICE vehicles. There are still some important relationships between the components, for example, suspension must be designed based on the weight which it carries, and the battery capacity requirements are partially determined by the overall package size and aerodynamic characteristics. But, importantly, these considerations are much fewer in an electric car than in an ICE-powered car.

Therefore, if a newcomer designs a electric car from the ground up using best practices from the ICE industry in the aerodynamics, suspension etc, then the task of building a car from individual components them is made easier. So, it is sustainable for an electric company to continue to be competitive on traditional market differentiators (Acceleration, Top Speed, Handling Characteristics, Noise, Vibration, Hardness etc…) while keeping its main focus on overcoming the deficiencies of current battery technology and charging infrastructure. And, as always, a start-up must improve operational efficiency by realising economies of scale. This reasoning forms the basis of Tesla’s strategy.

###The Lithium-Ion Battery

Interestingly, the products of this strategy does not fall under the traditional definition of disruptive innovations. This innovation is primarily “sustaining”, as cars like the Tesla models seek to compete across all established competitive dimensions for luxury cars.

The truly disruptive technology here is the lithium-ion battery. As the technology has advanced, it has been able to incrementally supplant batteries across various applications - first in laptops and camcorders, next in cameras and cordless power tools. It is still a relatively expensive option in all of these markets, but has come to dominate them due to its higher energy density. Given the improvement rate in energy density, averaging 10% per year, it seems a safe bet that lithium ion batteries have the potential to disrupt the ICE automotive market in the near future. It seems as though the challenges on recharging time have already been addressed reasonably well.

###Conclusion

It is still a matter of considerable debate whether the battery on any electric car would fulfil a consumers expectations on range for a petrol-powered car. And there is still a significant up-front premium for electric cars which results from the cost of the electric battery. But, as demand for Tesla cars seems to indicate, it seems that these drawbacks are more than compensated for by the performance and eco-friendly nature of a luxury electric car.

And, as as their share price hints at, there seem to be reasons to think that the problems may soon be solved. At least the first problem may be solved in the next couple of years - as fast charging stations proliferate, and we may expect the second to be also solved in the relative near-term. It seems feasible for electric cars to entirely replace petrol-powered vehicles sooner rather than later.