An Opportunity-Laden Market for Motive Electric Power

An Opportunity-Laden Market for Motive Electric Power

By Stephen Metzger, Senior Editorial Advisor

The opportunities for significant, volume growth in motive electric power have gone from the possible to the here-and-now.  First, by way of background:  Since March the stock market has regained significant ground, and there are glimmerings (if faint) of  a bottoming out of the auto and home markets—as well as the banking industry. 

In preparation for our upcoming major report on the small, task-oriented (STOV)^(note) industry, I and my associates at International Market Solutions have been conducting interviews of STOV dealers across a wide range of markets.  Hardly surprising, dealer responses indicate a broad decline over the past year.  But, is there cause for some optimism?  Here are three bullet points to consider:

Non-residential investment, a key indicator of utility vehicle demand (including construction vehicles and forklifts), and notoriously volatile, caused GDP to plummet in the first quarter.  It is highly likely that non-residential investment will either reverse itself or at least be substantially less negative this quarter and certainly by the third quarter.  This should fuel a broad-based recovery in the markets that concern us.

Secondly, the stimulus package, whatever its longer term effects overall, has, in the short run, targeted several key markets and key feeder industries that will benefit small, task-oriented vehicles.  An overview is provided below.

Finally, small, task-oriented vehicle manufacturers are much better positioned with regard to their product offerings  to take advantage of stimulus spending, oriented as it is to electric power and alternative fuels.

Another consideration, perhaps for the mid-term outlook, is the prospect of volume production efficiencies in batteries and other electric vehicle components (everywhere from gauges to safety devices).  We turn to these now, as they have been creating considerable buzz in the news.

The hailstorm of electric vehicle announcements

In the face of what is still pretty bad news on the economic front, announcements of  new electric vehicles are coming aplenty.  Start with on-road vehicles.  Virtually all major automakers participating the U.S. market have revealed plans for introducing electric vehicles in the 2009-2010 timeframe.   Ford, for example, has announced an electric vehicle for the consumer market for 2010, with a commercial electric (see more detail below) preceding it.  Nissan’s electric entry will run on a lithium-ion battery pack, capable of at least a 16-kilowatt-hours. (Nissan has promised the car will qualify for the $7,500 U.S. federal tax credit, and that requires 16kWh.)    The Volt from Chevrolet has already made a significant splash in automotive headlines for some time now. Its battery pack is 16kWh.

Ford-Smith Electric Vehicle collaboration
positive omen for motive electric power

In collaboration with Ford, the British-based Tanfield Group and is expected to invest $5 million in a Kansas City, MO plant that will produce an electric version of Ford’s Transit Connect delivery vans and Smith’s Newton electric truck.

The first vehicles to be produced will be the U.K.-based company’s full-sized Newton with a third quarter launch date as the target.  Smith is already making electric versions of Ford’s full-sized Transit and the smaller Connect for the European market.  The Connect uses a 50 kW electric motor driving the front wheels with a 24 kWh lithium-ion battery pack — purportedly giving the vehicle a 100-mile range. The vehicle has a top speed of 70 mph. Recent industry coverage indicates the Connect will be offered in the U.S. to commercial fleet customers in the second half of 2010, or possibly earlier.

Hardly a coincidence, the plant will be located near Kokam America Inc, a major lithium ion battery manufacturer. In addition, Valence Technology, battery supplier to Smith’s UK parent company, is located relatively close in Austin, TX.

Implications for lower production costs, greater efficiencies in electric vehicles

What are the likely implications of electric technology moving into the mainstream automotive and commercial markets?  Certainly one of the most important will be that of bringing volume production to the more expensive forms of electric power, the variants of lithium batteries in particular.  Despite the substantial barriers to making large format lithium power affordable, as well as safe, high volume production has led to lower per unit costs in virtually every imaginable product, and there is no reason to think that lithium-based batteries will not do the same.

Stimulus package lends further impetus to
small, task-oriented vehicle market

The stimulus bill (American Recovery and Reinvestment Act) should help. It includes a $300 million allocation which requires local and state governmental departments to purchase hybrids, fuel-cell vehicles, or those powered by other alternative fuels, of whatever type. (A good chronicling of stimulus bill provisions is available on the IMS blog.)

Specific tax credits for NEVs made it into the final stimulus bill recently signed by President Obama. The tax credit is for 10% of the purchase price of the vehicle with a  maximum credit of $2,500. 

A look ahead…

So, where do these trends leave us? 

First, electrics are coming and will eventually dominate the motive market in virtually all commercial segments, and in most consumer and recreational segments. Anticipate significant product improvement and a certain convergence in the marketplace:

• STOVs and material handling equipment will continue to upgrade in the direction of greater A/C power, the variants of lithium ion batteries and improved lead acid batteries;
• STOV models will also undergo increases in size and ergonomic improvements to compete with and replace full-sized and small-sized ICE pickups—an opportunity clearly presenting itself in the stimulus package provisions;
• Critically, LSV standards will be extended to MSV or “mid-speed” vehicle standards (reportedly nine states have moved in this direction with specific legislation), thus introducing more versatility and increasing market reach;
• Mainstream auto manufacturers may also downsize their product line and incorporate the “features-fit-use” approach of STOV manufacturers.

Bottom line, electric power will cease to be the unusual and unique, salted away in small market niches. It will be mainstream, higher volume, and at the same time ever more solutions-oriented and more feature diverse—a pretty extraordinary combination.

About the Author:

Stephen Metzger PhD, Managing Director, International Market Solutions, a management consulting firm, whose prime focus is putting companies into the international market arena on a cost-efficient basis. Mr. Metzger is also Principal of International Competitive Assessments (ICA), the market research arm of IMS. ICA has undertaken extensive market research and consulting assignments covering a broad range of products and markets. Mr. Metzger and his staff and associates have produced three ground-breaking studies of small, task-oriented vehicle market in the United States since 2000. Mr. Metzger, an economist by background, is also an adjunct professor of business and economics at Iona College and Mercy College.