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Market tepid for electric vehicles

By Andrew Maykuth, The Philadelphia Inquirer –

PHILADELPHIA — Eighteen months ago, Philadelphia entrepreneur Norman P. Zarwin opened an electric-vehicle charging kiosk at a gas station he owns on Columbus Boulevard. If he built it, he figured, electric vehicles would come.

They haven’t.

“There’s not a lot of use on it because there’s not a lot of vehicles,” Zarwin said.

Despite the enthusiasm for electric vehicles, the marketplace has not exactly caught on fire.

News reports have tended to focus on the negatives. General Motors did not meet its 2011 sales targets for Chevy Volts and shut down its production line for five weeks to work off surplus inventory. Nissan, after selling 1,708 Leaf sedans last June, has experienced a sales decline — it sold just 370 of the all-electric vehicles in April, down from 579 units in March and 478 in February.

The reasons for the tepid sales are well-known. Even with a $7,500 federal tax credit, the vehicles are expensive — about $40,000 — and have a limited range. Outside the home, where 80 percent of EV owners charge their cars, there are few public places to recharge.

But electric vehicle advocates say they are still bullish on the future. Though Nissan has sold only about 12,000 Leafs since the vehicle was launched in 2010, the Japanese automaker this year will open a plant in Smyrna, Tenn., capable of producing 150,000 cars a year, along with 200,000 lithium-ion battery packs.

“This is something that Nissan as a manufacturer is all in on,” Tracy Woodard, director of government affairs for Nissan North America Inc., told a Pennsylvania Public Utility Commission forum at Drexel University last week.

If electric vehicles are to make it in the mass market, rather than as a city vehicle for the rich, experts say, the industry needs to reduce its cost, which is largely driven up by the lithium-ion batteries each car requires.

The batteries have a short life and need to be replaced, so the value of the EVs depreciates quickly and reduces the potential resale market. The batteries also decrease quickly in value because the technology and capacity are improving with each generation.

“Lousy resale value means goodbye to the mainstream market,” said Ron Adner, professor of strategy at Dartmouth University’s Tuck School of Business, who devoted a chapter to electric vehicles in his recent book, “The Wide Lens: A New Strategy for Innovation.”

Adner says that EV manufacturers need to decouple the ownership of the car from the ownership of the battery. He cited the business model of a company called Better Place LLC, which has worked with European auto makers to develop a replaceable battery system that is essentially leased to the car owner.

“They own the battery. What they sell you is miles,” he said. “They take the depreciation issue off the customer’s books.”

But just solving the battery issue will not cure the electric vehicle market. If EV sales suddenly take off, experts say, conventional electric distribution systems could be quickly overloaded with vehicle owners plugging their cars into the grid, overloading wires and transformers.

“If you have a great grid in place but you haven’t solved the economics problem with the car, it doesn’t matter,” said Adner. “If you’ve solved the economics problem with the car, but you haven’t solved the grid issues, then you’ll have blackouts so you can’t reach the mass market there, either. You need both together.”

Pennsylvania officials say they’re already building the foundation of a smart-grid system that would allow the grid operators to choreograph the charging of millions of electric vehicles on the distribution system without causing it to crash.

Pennsylvania is requiring distribution systems like Peco Energy Co. to install smart meters, which allow utilities and customers — or customers’ appliances — to talk to each other. Smart meters also allow utilities to offer time-of-use rates, which vary hourly and encourage customers to shift big loads like vehicle charging to off-peak hours.

Woodard, the Nissan executive, told the PUC Forum at Drexel University that Leaf owners are already charging their vehicles at night, when the grid has surplus generation capacity.

“They plug in when they get home at 7 o’clock, but don’t tell their car to turn on until after 11 o’clock or after midnight,” she said. The car also can be instructed to be fully charged by a certain hour, and can stagger the charging times with other vehicles.

In future models, manufacturers expect that more intelligent vehicles will communicate with the utilities to charge at the optimal time to take advantage of low rates. “The technology is coming,” she said.

A company building a network of EV charging stations believes that the infrastructure will adapt quickly to the marketplace, and that there’s more danger in over-regulating the business and stifling growth.

NRG EV Services, using the brand name eVgo, is marketing home vehicle charging machines as well as public stations it plans to install where motorists can charge their cars while they shop at a drugstore, a restaurant or a mall. Customers would essentially become subscribers for a flat monthly fee, and they could charge their vehicles at home or at public stations.

“We don’t really think there’s a whole lot of regulatory responsibility for the commission in this effort,” Michael Krauthamer, the mid-Atlantic director of eVgo, told the PUC panel.

Krauthamer said that the electrical distribution system was able to accommodate previous changes in consumer behavior, such as the massive introduction of home air-conditioning systems.

“Air conditioners certainly were rolled out very quickly — more quickly, I’m afraid, than electric vehicle chargers are being rolled out now,” he said. “And we made it through that, no problem.”

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