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Why all electric and hybrid cars now – part 3 – in business to sell cars or credits?

Today, Tesla is the shining example of an electric car company.  Their stock is doing great, they’re funded and managed well, and have a good public image.  Anyone who’s interested in cars has heard of the Tesla.  Unfortunately, they’re the exception to the rule.  Coda and Fisker are among the big car companies that went under recently.  Fisker still owes hundreds of millions to its creditors and Codas are still being sold, albeit in liquidation mode.  And Mitsubishi motors is trying to carve a niche in this area?  (check out the i-Miev)  Good luck to them.

But Tesla is not like any other car company.  They only sell one model, don’t have independent dealerships, and actually make some money selling CARB credits to other companies….$40 million worth!   Because they earn more credits than they could ever use (because they don’t sell gas cars), they sell them to other car manufacturers who bank them to avoid paying a penalty in the future.  While the other car manufactures don’t currently need them now, they’re banking them now, especially since they could resell them other.  It’s not like Porsche which at one point, was more of a finance company which happened to sell cars, but it helps their bottom line, about 10% of revenue.  Tesla does currently make a profit.

Tesla also partnered with Toyota and Mercedes for battery and drivetrain development.  The relevance of partnership is more crucial than ever because of economies of scale, costs to develop new platforms, and the fact that so much more technology is going into each model.  Independent manufacturers like BMW and Mazda may be squeezed out as the world shrinks, forcing them to partner to survive.

On a side note, Tesla operates different, not just because they were founded like a tech company instead of an old school manufacturer.  I was reading a Tesla forum and the service department actually reads and monitors the forum.  Some owners complained online about a braking issue and when they went to the dealership, they were advised they had logged an issue which would be checked, despite never having made a complaint.  This isn’t possible when you have millions of sales vs. a few ten thousand vehicles but it shows they care and are carefully monitoring social networking for online feedback.

What does this all mean for VW Auto Group (VAG) since this is a VW-Audi-Porsche hybrid forum and blog?  Although VW has smaller sales in the US, they have very large brand awareness since VAG owns Audi, Porsche, Lamborghini, and Bugatti.  In other countries they also own Seat, Skoda, and are partners with VW China.  China requires foreign car manufactures to partner with a local company.  Even if VAG loses money on each car, the credits could make it worth it, ignoring the research and manufacturing lessons learned.  VW Touareg/Porsche Cayenne hybrid sales have been few and their first mass market car, the VW Jetta hybrid hasn’t found sales success.  Do I think they care?  Not a bit- prepare for the Golf hybrid/A3 E-tron and a lot more EV and hybrid models from VAG.

Please  read part 1 – why now for more on why hybrid and EV are coming now and part 2 – the history of EV for some more background on EV/hybrid.

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Why all electric and hybrid cars now – part 2 – the background of electric cars

To understand the current climate for hybrid and electric cars, you have to look at the background story.  This is part 2 of “why all electric and hybrid cars now”.  See part 1 here

Electric cars were actually more popular than gas cars at the beginning of the 1900s.  The infrastructure for electricity was in place and gasoline stations were not available everywhere.  Roads and highways were in very poor condition and the rough conditions meant crossing the country by car was an adventure that you probably wouldn’t finish vs. today where it’s easier to fly.  Check out Horatio’s Drive, the story of the first cross country drive in 1903.  Most drivers used cars locally which meant the limited range of electric cars wasn’t such an issue.

Electric cars were also much easier to use.  You unplugged the car, turned on the juice and went.  No smoke to stink up your clothes and leave you covered in soot, no noise to startle horses, and no gear changes.  This was before electric starters so gas cars required you to fill them up with gasoline (the vapors are highly flammable in open air), hand crank the engine, then adjust the engine running once it started.  Hand cranking is difficult and dangerous because if the engine kicks back, the manual crank at the front of the car can violently jerk back and break your hand.  This was also before synchronized manual transmissions so shifting required double clutching and matching engine rpm.

By the 1920s, cheaper gas, better roads, and the model T all helped bring about the decline of electric cars.  By the mid 1930s, electric cars had effectively disappeared.  Fuel economy was not a concern because gas was cheap and the economy healthy.  The 70s gas crisis, economic decline during the 70s, and the rise of imports changed the car landscape and attitude towards fuel economy.

In 1990, the US passed the clean air act and California mandated a move towards some sales of zero emissions cars by major car manufacturers.  While there were a few random cars made, the GM EV1 was the most visible one and became the poster child for the 90s EV.  You could only lease them starting in 1996 but GM discontinued the program and repossessed, then destroyed the cars.  Check out the movie “Who killed the electric car”  for some additional reading.  While there were reasons to believe GM self-sabotaged the car, a company is in business to stay in business and no definitive proof was ever found.  The movie took it one step further and suggested that the oil industry helped kill the car.  California’s zero emission mandate was killed in court by the major automakers and that was apparently the end of that.

Enter the Prius.  Toyota laid out plans in 1992 and started work in early 1994 to create a hybrid.  The concept car that would later become the Prius was presented at the 1995 Tokyo auto show.  In 1997, the first generation Prius went on sale at a loss in Japan only.  The revision of the first generation car went on sale in the US in 2001, also expected to sell at a loss.  Then something happened – people actually bought the car in large numbers.  Today, the Prius is the only major sales success for any hybrid.  While there have been minor success and you could define success as making inroads into a market occupied by your competitor, the Prius is the standard by which other hybrids are measured.

What does this mean for pure electric vehicles?  Stay tuned for part 3.

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Why all electric and hybrid cars now?

Simple question, complex answer.  This will be part 1 of a multi part series on why you’re seeing a bunch of electric vehicles now and not 10 years ago or 10 years from now.  To start, I think the electric and hybrid questions have separate but related answers.  Let’s start with the hybrid question first.

The Prius has the most to do with why hybrid cars now.  Simply put, it was a huge success and the only huge success.  No other hybrid has captured the sales success of the Toyota Prius.  It’s not to say that no other hybrid car is better or worse, but for whatever reason, only the Prius has been successful.  Everyone wants to make a profit and even the Prius was projected to be a money loser when they started work on it.  Nobody wants to put out flops like the Chevy Impala light hybrid and Lexus hs250h but they all want to catch the elusive success of the Prius.

The government mandate for average fuel economy will increase to 35 mpg and hybrids are the easiest way to increase corporate average fuel economy (CAFE).  For a company like Ford which sells lots and lots of low mpg vehicles like the F150, it really helps.  On a side note, the new F150 now uses an aluminum frame and lost a lot of weight!  Pound for pound, aluminum is much stronger than steel and it doesn’t rust :)

Future tech – it seems like an obscure and rather abstract reason but it’s actually pretty important.  It’s much cheaper in the long run to use in house technology vs. licensed technology.  The first generation Nissan Altima hybrid used a modified Toyota Prius powertrain.  You can bet Toyota wasn’t giving them out for free and if you own the technology and patents, you control your competition.  Just owning the patents and not a finished product is enough to derail your competitors.  For example, if you have a battery that works 50% better because of some exclusive technology, you have a major advantage in the marketplace.  If your competitors want to use it, they have to pay you to license that technology.  Additional profits for you, variable expense for them.

If manufacturers don’t want to be caught flat footed in 20 years when the competition has significantly more fuel efficient cars and in about 10 years (2025) when the CAFE standards will make it much more expensive for manufacturers to not build fuel efficient cars.

Stay tuned for part 2 which will discuss the recent history of fuel economy standards since 1990, when California introduced their EV mandate.

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China mandates fuel economy standards: 34 mpg by 2015, 47 mpg by 2020

Current fuel economy averages in China are about 30 mpg and although 4 mpg doesn’t sound like a lot, the number of cars and cost to implement greater fuel economy is a great challenge…a great wall if you will. (Sorry, had to go there) Luckily, a centrally run government can mandate these sorts of things and then get them done quickly. However, 47 mpg average is quite a great leap forward (sorry again!). What does this mean? Lots of hybrids and plugins and a boost for the Chinese auto market manufacturing capability, especially in the area of advanced clean cars.

Although China has a reputation for dirty air (and quite justified), there are some real steps towards reformation like natural gas taxis and more attention on the environment vs. economic development. The real significance of this mandate is that this is the first fuel economy standard that China has set and the largest car market in the world influences the rest of the world, especially when it comes to hybrids and plugins.


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VW XL1 video at the Geneva auto show 2013

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Mitsubishi and their hybrid struggle

Does anyone remember Mitsubishi cars?  They had a heyday in the 90s, buoyed by the Eclipse sports coupe and the Montero SUV.  They had the right models at the right time to take advantage of a strong US economy.  Unfortunately, corporate problems and 0% financing hurt the brand in the early 2000s.  Poor diligence by their credit department and cheap cash resulted in selling cars to people who couldn’t afford them and then defaulted.  Sound familiar?  But in this case, they didn’t have a massive government lobby to bail them out and they had to suffer the consequences of their poor decisions.  Sales dropped hard in the mid 2000s from serious losses to their credit department and today Mitsubishi is trying to become relevant again.

One of their recent halo cars, the current Mitsubishi Evolution is evolving…from it’s traditional spirit, a 2.0 turbo AWD monster.  Instead, it’s supposed to be hybrid electric gas performance car.  Details are still uncertain but the idea is to occupy a niche – the performance hybrid.  Mitsubishi’s current hybrid, the mini i-MeEV is a niche of niche cars, those interested in a slow, limited range, very small car.  The Outlander hybrid should have some more appeal but I still have no idea why anyone buys a hybrid SUV.  It’s like buying a tofuburger when trying to diet.

I could see some success for Mitsubishi and wish them the best but Audi dropped plans for their R8 based e-tron supercar and BMW is also slowing development of their electric and hybrid programs.  On the other hand, you can’t be a main player by occupying a niche.  The question is is their timing right again?

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VW E-bugster full electric Beetle

OK, so it’s not an electric Audi R8 but it still looks fast. 0-60 in just under 11 seconds, 85 kW, 110 mile range, and 0 emissions. VW has been working on electric cars for a while but the real news on this is the combined charging system. VW has cooperated with Daimler, Porsche, GM, and BMW to make a standard charging interface called the combined charging system. In addition to regular 110V AC charging you can also use faster DC charging at a station.

While the car is just a concept, it’s a pretty good looking concept. Enough already, get to the pics you say?

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The paradox and contradiction of more fuel efficient cars like hybrids and electric vehicles

Gas demand went down for 2011 in the US despite increased US refinery production.  As a result, overall oil imports are at a 14 year low (Canadian oil imports are up)!  While less gas consumption is best, the reasons for it are poor…literally!  The struggling economy, high unemployment rate, and negative consumer outlook have all contributed to low gas demand.  While Prius and high fuel economy car sales are up, I don’t think they made a difference in gas consumption compared to these other factors.

However, they do make a dent and every little bit helps.  This is the paradox of the high fuel efficiency car or electric vehicle – they reduce demand which, in theory, will keep the price down due to increased supply.  Americans seem to still love SUVs and while SUVs have a place and purpose, it’s not as a commuter car unless you work on a ranch.

A higher fuel tax has been suggested by many experts as a way to reduce oil imports and promote more fuel efficiency while paying for vital infrastructure improvements to the nation’s crumbling roadways and bridges.  The paradox is that higher fuel efficiency reduce the amount of fuel consumed and therefore, reduce tax income.  In the case of electric cars, they use no gas, therefore pay no road tax.  Which brings up another suggestion, a direct roadway use tax by the mile.  This negates one strong motivation to buy high fuel efficiency cars.  Isn’t the point of federal tax credits to promote electric cars?  Would you still consider a high fuel efficiency car if you were subject to a mileage tax?  Feel free to sign up in our forums and voice your opinion.


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Another diesel hybrid but not from the usual VW suspects

In North America, when people think of diesel passenger cars, they think of VW.  Audi, BMW, and Mercedes Benz also have diesel cars but their diesel sales are not even close to the VW diesel sales.  So when I heard of diesel hybrids, I thought of the Golf diesel hybrid concept car.  Unfortunately, the VW Golf hybrid diesel is not going to happen anytime soon in the US due to cost concerns.  In Europe, when people think of diesel hybrids, they think of Peugeot.

Peugeot’s first diesel hybrid was the 3008.  Their new hybrid diesel, the 508 RXH uses the same diesel hybrid drivetrain as the 3008 but in a larger car.  The 2.0L diesel and hybrid motor make a combined 200 hp and 332 lb-ft of torque.  On the Euro cycle, it’s rated at 56 mpg.  Because the Euro cycle is more generous than the EPA test cycle, it would probably get around 45 miles/US gallons.

While this is certainly very good combined mpg, is it worth the additional cost and weight of the hybrid system?  Would this thing pass emissions in the US?  My guess on both counts is no.  Even still, it’s a very interesting vehicle.


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