Toyota predicts a non-gasoline future

Toyota threw in its lot with the alternative vehicle crowd when it predicted that gasoline and diesel engines will be virtually extinct by 2050. Kiyotaka Ise, senior managing officer of the world’s best-selling automaker, said that gas-electric hybrids, plug-in hybrids, fuel-cell vehicles and electric cars will account for most of its auto sales by mid-century.

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Tesla has to compete for customers. So should fuels

Americans love their freedom to choose. Someone invents something, and competitors rush in with their own similar products to fight for a market that didn’t exist before.

This is what Tesla has done with the electric vehicle: The Model S is making cold-eyed journalists swoon, and the next few months are huge: The company will soon release its eagerly awaited crossover SUV, the Model X, followed by its more-eagerly awaited “affordable” sedan, the Model 3.

But Tesla shouldn’t get too comfortable, because the established auto-makers want to steal some of its quiet, zero-emission thunder with EVs of their own: In the past week, Toyota unveiled the new Prius, trying to assure everyone it can be cool as well as get 10 percent more miles out of a battery charge; Edmunds gave its blessing for the 2016 Chevy Volt; there was a possible sighting of the 2016 Nissan Leaf, the best-selling EV in the U.S.; and there were rumors that Mercedes-Benz is working on an electric car than has a range of 311 miles.

It’s a basic rule of economics: Competitive markets are good for consumers. Which is why drivers should be demanding fuel choice as well.

Gasoline is cheap now, but it doesn’t take much to cause a price spike: The threat of a supply constriction overseas; a refinery going down (and staying down, in California’s case); output quotas in OPEC nations. Anything can cause volatility in the global market. Businesses don’t like uncertainty, and it’s bad for consumers as well.

The only way to reduce the cost structure of fuels over the long term is to create fuel choice, something the United States has never known. To quote former Shell Oil president John Hofmeister: “We will never get past the volatility of oil until we get to alternatives to oil.”

We’re not advocating an end to fossil fuels. We just want fuel choice: Ethanol, methanol, CNG, LNG, biodiesel, hydrogen and, yes, electric batteries. Anything that reduces our dependence on oil is good for America.

If gasoline, the same fuel we’ve been stuck with for more than a century, is the superior fuel for vehicles, let it compete with other choices at the pump. If oil companies don’t want competition, what are they afraid of?

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Model X_2

Tesla approaches a moment of truth

The month of September will mark a turning point as to whether Tesla Motors will be just another overhyped technology stock or whether it is truly about to lead a revolution in the auto industry.

The month will mark the introduction of Tesla’s Model X, a $90,000 crossover SUV that will test the company’s ability to compete against the other automobile giants. If it passes this test, Tesla will be in a great position to mass-market the $35,000 Model 3 sedan when it goes on sale in late 2017. If the Model X turns out to be a dud, however, Tesla will face a much tougher climb in trying to break into the mainstream with the Model 3 two years from now. At stake will be Tesla’s market capitalization of $31 billion – higher than Chrysler’s – plus that $1 billion “gigafactory” the company is building in the Nevada desert to supply batteries for the anticipated sales of the mid-range Model 3. Plus the home -energy storage market.

The possible success of Models X and 3 is so unprecedented that it has caused economists to revise one of the most cherished theories of economic change, the idea of “disruptive technology.”

The idea of disruptive technology comes from the 1997 book by Harvard Business School economist Clayton Christensen and has made the phrase one of the most popular buzzwords in the field of economic progress. The title of Christensen’s book, “The Innovator’s Dilemma,” described how well-established companies often miss important transitions when newcomers break into the market with simplified products targeted at the bottom end. Christensen used the success of personal computers and steel mini-mills to illustrate how newcomers entered the field with cheaper and more convenient products targeted well below those segments claimed by leaders such as IBM or U.S. Steel. Eventually the upstarts toppled the giant.

There’s just one problem in positing Tesla as a disruptive technology: It has been overwhelmingly aimed at the richest auto customers, rather than the poorest. This prompted another Harvard B-School professor, Thomas Bartman, to write an article in the May issue of the Harvard Business Review arguing that Tesla is not disruptive but just another high-priced item aimed at biting off a luxury end of the market. Bartman argued that Tesla is too expensive to be disruptive, but that golf carts and those minimalist electric vehicles being produced in China were the true disrupters of automobile technology. They would catch on as courtesy vehicles for motoring around senior citizens’ centers and eventually upgrade to an urban vehicle convenient for making short shopping trips and finding a place to park.

This challenge has prompted other economists to revise the theory of disruptive technology and to create a new category into which Tesla easily fits. This is known as “high-end disruptors.” Jeff Dyer and Hal Gregersen make the elaborate case, in Forbes, that Tesla is only one of many new high-end disruptors whose chances for success are just as likely as those disruptors coming in from the low end of the market:

Unlike classic disruptive innovations such as steel mini-mills, personal computers and, in the car business, cheap Japanese imports, Tesla never pursued the classic route of going after low-end, price-sensitive customers first with cheaper, inferior technology. It doesn’t pursue nonconsumption, or customers who don’t currently drive cars. Tesla automobiles look and drive much like other cars, use established infrastructure like roads and confine much of their product innovation to only one aspect: the power system.

… Tesla has instead proved to be a different kind of disruptor, a high-end version that can be just as troublesome for the incumbents …

High-end disruptors produce innovations that are leapfrog in nature, making them difficult to imitate rapidly. They outperform existing products on critical attributes on their debut; they sell for a premium price rather than a discount; and they target incumbents’ most profitable customers, going after the most discriminating and least price-sensitive buyers before spreading to the mainstream. If you look within some large companies, you can flesh out previous examples: Apple’s iPod outplayed the Sony Walkman; Starbucks’ high-end coffee drinks and atmosphere drowned out local coffee shops; Dyson’s vacuum cleaners now have solid market share; Garmin’s GPS golf watches have taken much of the business from range finders. The incumbents didn’t react fast enough, and the high-end disruptors took over their market.

So it may be with Tesla. The company may not just disrupt the auto market but may force a revision of one of the most cherished new economic theories — that disruptions must always come from the bottom. Once again, Elon Musk may have outfoxed the experts. But it will all depend on how automobile consumers start responding to the new models targeting the mainstream.

By next month we should start to find out.

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E85 pump

Alt-fuel stations growing, without subsidies or regulations

Without much fanfare, the number of fueling stations offering an alternative to gasoline has passed the 20,000 mark, according to the federal government’s Clean Cities program. The number of gasoline fueling stations, according to the American Petroleum Institute, is 153,000.

The figure shows that alternative infrastructure is gaining ground even as the number of alternative vehicles sold in the U.S. has slowed of late, an obvious result of falling oil prices. On the other hand, the sale of alternative vehicles has actually accelerated in Europe. China is also giving indications of a big push that will attempt to make it the leading market of alternative vehicles in the world.

Clean Cities is a 1993 initiative of the Department of Energy that has picked up steam in recent years. Its efforts to reduce gasoline consumption include 1) replacing petroleum with alternative and renewable fuels; 2) reducing petroleum consumption through smarter driving practices and fuel economy improvements; and 3) eliminating petroleum use through idle reduction and other fuel-saving technologies and practices. The goal is to reduce gasoline consumption by 2.5 billion gallons every year through 2020. The program claims to have already reduced consumption by 6 billion gallons since its inaugural.

In order to carry out its mission, Clean Cities has formed coalitions with nearly 100 major cities covering 82 percent of the population of the United States. Coalitions are comprised of local businesses, fuel providers, vehicle fleets, state and local government agencies, and community organizations. These stakeholders come together to share information and resources, educate the public, help craft public policy, and collaborate on projects that reduce petroleum use. There are networking opportunities with fleets and industry partners, technical training workshops and webinars, plus information on alternative fuels, advanced vehicles, idle reduction, and other technologies that reduce petroleum use. There are also funding opportunities from the Department of Energy.

Probably Clean Cities’ biggest initiative, however, has been a map of alternative fueling stations across the country. The Station Locator has now grown to a list of 20,000. These include: 12,334 electric recharging stations, 3292 propane stations, 2,956 gas stations that offer E85 (up to 85 percent ethanol), 1,549 compressed natural gas (CNG) outlets, 729 biodiesel pumps, 115 liquid natural gas (LNG) outlets and 41 hydrogen stations.

Dennis Smith, director of the Clean Cities program, says that both plug-in electrics and propane vehicles are becoming increasingly popular. “Plug-in electric vehicle sales for consumers have passed more than 300,000 since they were introduced in 2010, and an increasing number of fleets are using propane,” he told The growth of these stations is most likely in response to a need from these drivers. In addition, both propane and EV stations are less expensive to purchase and install than those for many other fuels.” Smith also said that the number of CNG and LNG stations understates their impact, since they tend to service heavy-duty trucks along interstate highway routes.

While the sale of alternative vehicles may have leveled off of late in the United States, they are burgeoning in Europe, despite the drop in world oil prices. Alternative fuel vehicle registrations rose 17.4 percent across Europe in the second quarter of 2015, and 24.6 percent over the first half of the year. There are now nearly 300,000 registered vehicles, according to the European Automobile Manufacturers’ Association. The United Kingdom led the pack in major markets with an increase of 62.4 percent registrations in the second quarter. Norway led the entire continent, however, with 77 percent of all 11,614 newly registered vehicles being electrically powered. The country has offered huge incentives to alternative fuel owners as its oil production from the North Sea begins to taper off.

Meanwhile, in China, the Beijing city government is considering investing tens of billions in a plan to make the Middle Kingdom the world’s largest manufacturer of alternative vehicles. China now has 18,000 EVs on the road, 10,133 public passenger vehicles and 8,360 owned by individuals and organizations.

To cut down on traffic, Beijing has a unique system in which cars with certain license plate numbers are forbidden from being within the city’s fifth-ring road from 7 a.m. to 8 p.m. from Monday through Friday. And it’s not automatic that a new car can receive a license plate. But electric vehicles are much easier to register and will be allowed to drive within the city at any hour, giving them a distinct advantage. BAIC, the principal maker of EVs, has become China’s largest automobile manufacturer, controlling 22.5 percent of the market.

So the initiative to cut down on imported oil is universal. In Europe, it comes from heavy-handed government subsidies and regulations. In China, it comes from government favoritism and outright prohibition. In the U.S., however, volunteer organizations, led by government initiative, seem to be achieving similar results.

EV sales

What caused EV sales to go off a cliff in July?

So, is everybody out there waiting for the spiffy new editions of the Nissan Leaf and Chevy Volt? If EV-makers and proponents are waiting for those holdouts to show up, it could be a very long few months.

The website Inside EVs, which keeps track of monthly sales for all-electrics and plug-in hybrids in the U.S. and globally, has published its July numbers, and they’re abysmal: Only 7,102 were sold during the month, compared with 11,242 in July 2014. There are still six models for which numbers are not available — Ford’s Fusion Energi, C-Max Energi and Focus Electric; Porsche Cayenne S-E and Panamera S-E; and the Kia Soul EV — but even if  those cars come in at the same level as this June, the overall sales tally will still be well under last year’s pace.

For the first six months of 2015, a total of 61,449 EVs have been sold domestically, compared with 123,049 during the same period last year. Meantime, the rest of the world continues to outsell the U.S., thanks in part to generous subsidies in many European countries.

This marks the third straight month that U.S. EV sales have lagged the same month in 2014, and there’s a running debate about why. The dominant argument is that consumers are waiting to push their hard-earned money toward the next-generation Leaf and Volt, both of which are due out in 2017.

According to Inside EVs, the 2016 model year of the Leaf will have a 30 kilowatt-hour (kWh) battery, compared with the 24 kWh currently out there, giving the 2016 version an estimated range of 105-110 miles, up from the current 84. The range for the redesigned (and much more stylish) 2017 Leaf should be even better, and Nissan is testing battery technology it hopes will allow a future version of the Leaf to get 250 miles on a full charge.

Chevy Volt_20166The current iteration of the Volt can travel only 38 miles without recharging, but the 2016 model of the hybrid will be able to go 53 miles before the gasoline-engine kicks in, The Los Angeles Times reported Tuesday. On a full charge and full tank of gas, the range is 420 miles. Details about the redesigned 2017 Volt are sketchy.

The Times notes that the all-electric Tesla Model S has a range of 265 miles, but it costs $100,000. The cheaper EVs are, the generally shorter their battery ranges are. The 2016 Volt’s MSRP is $33,170 (without incentives), and the last iteration of the Leaf, the 2014, starts at $28,980.

Tesla’s upcoming Model 3, which is supposed to retail at $35,000 and is slated to be released in early 2016, is expected to have a battery range of about 200 miles. Tesla expects big things from its first “mainstream” EV. The Model S already is the hottest-selling EV in the nation so far this year, with 13,200 units sold, although only 1,600 were sold in July, compared with 2,800 in June and 2,400 in May.

The other splashy new release is the $30,000 Chevy Bolt, an all-electric that’s supposed to go on sale in 2017 and also has a range of about 200 miles.

So there’s a bounty of high-tech, much-improved EVs and hybrids hitting the market in the next year or so. But if sales remain flat even then, the depressive effect of low gasoline prices could emerge as the true motivator.

With the 2014 gas-price spike long in the distance (a gallon of regular was $2.64 Tuesday, compared with $3.50 a year ago), there’s little incentive for consumers to buy or lease a new electric car now, especially if they’re not sure they’ll have a battery strong enough to get them to work and back.

Sales of conventional vehicles are going in the opposite direction as EVs: The big automakers are on track for their first year of 17 million units sold since before the Great Recession. SUVs, crossovers and pickups led a strong sales month in July. “That segment of vehicles continues to be smoking hot,” Mark LaNeve, Ford’s vice president of sales and marketing, told the Detroit Free Press.

For perspective, more Chevy Silverados were sold in July (56,380) than the eight top-selling EVs combined that were sold from January through July (55,365).

If you’re shopping for a new or used car and want the benefits of cleaner-burning, cheaper, American-made fuels, consider buying a flex-fuel vehicle that can use E85. Check out to see which models are FFVs.

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