Charging ahead with electric cars

As the electric car is business gets more and more crowded, it feels like we are approaching a breakthrough. It could come from a U.S. automaker like GM with its Volt, from a European company like Renault (and its partner Nissan) which are committed to electric cars through an alliance with Better Place, from a Japanese firm like Toyota which has led the way with hybrid cars like the Prius, from a Chinese or Indian carmaker, or from one of the many startups—Tesla, Think, Fisker, ZENN—that are hurrying to market.

I’m fascinated by electric cars, so I went to a panel on “Bringing Electric Cars to the Mass Market” at the Net Impact conference at Wharton. They had great people—Michael Granoff of Better Place who has the title, “head of oil independence policies;” Charles Gassenheimer who is CEO of Ener1, a startup company that makes lithium-ion batteries for electric cars; Vicki Northrup, an industry veteran who has worked for Think, Zen and is back at Think, and moderator Bill Moore, who runs a terrific website, EV World, and knows the business inside and out.

Of course, it’s not much of a business yet. Sure, Toyota has sold more than 1 million hybrids, but most everyone agrees that today’s hybrids (which recharge their batteries from the braking power of the car) are an interim technology, a bridge to the future. They are likely to give way, first, to plug-in electric hybrids (where the battery can be recharged by plugging in the car) and then to pure electrics. After all, it doesn’t make a lot of sense of build a car with both an internal combustion engine and an electric engine—that’s one reason the Prius and other hybrids are pricey. Besides that, the Prius battery technology will soon be surpassed by lithium-ion batteries, the kind used in laptops and cell phones, most experts think. They are more efficient, lighter weight and more powerful. Gassenheimer said a government energy lab tested a Prius with one of his company’s lithium-ion batteries and found that it delivered 77 miles per gallon, even before the software was optimized for the new battery.

Batteries are the key to the electric car business. The trouble is, lithium ion batteries that are powerful enough to provide a reasonable range—say, 60 to 100 miles on a single charge—and long-lasting enough so that they can be charged and discharged year after year are frightfully expensive. They can easily cost $15,000 to $20,000, the panelists said, accounting for as much as 50% of the cost of a plug-in electric hybrid or an all electric car.

So how do you get costs to come down? Several ways, it turns out.

First, obviously, is by improving the technology. Lots of big and small companies are working on that—Panasonic, Toyota, Sanyo, BYD, startups Ener1 and A123 and a venture-backed firm called eeStor.

Economies of scale will surely help. “Getting the battery into volume production is the best way to drive down costs,” Gassenheimer said. Ener1 has a deal to make batteries for the Think cars, which should ramp down their costs; they are building a production line now in Indianapolis.

Another approach: Radically transform the automobile business model, as Better Place wants to do. Their plan is to own the batteries and charging stations, and recharge and replace them when needed. This should assure wary buyers, if they believe in Better Place. “You subscribe to Better Place for your energy,” Granoff says. “You pay for the miles that you drive.” Better Place has struck deals to build out electric-car infrastructure in Israel, Denmark and Australia, with more to come, I’m told. You can watch this video of Shai Agassi, Better Place’s charismatic CEO, at the EV World website.

Still another approach is to lease the batteries. Think is thinking about this idea, according to Northrup, but is wary of trying to introduce a new technology and a new business model at the same time. “We’re not sure Americans will go for it,” she says.

One thing I learned from the panel: Batteries, when they are no longer powerful enough to drive a car motor, can still hold enough charge so that they could be resold to electric utilities that want to store intermittent renewable energy from the wind or the sun.

Finally, the government can and probably will play a role in driving the adoption of electric cars. The $700-billion financial rescue bill included $7,500 tax credits for the first 250,000 buyers of plug-in electrics, which could help the Chevy Volt and the Prius plug-in if they come to market, as expected, by 2010.

Gassenheimer says: “The only way to encourage penetration at this early stage ,when the prices are higher than consumers are willing to pay, is government intervention.”

I’ve come to believe that plug-in hybrids and then all-electric cars will reach the mass market in the next three to five years, although I can’t tell you how we will get from here to there. The fundamental reason is that electric car engines are more efficient than gasoline engines, although there’s debate about how big the efficiency advantage turns out to be. Besides that, electric cars are cleaner, they will help wean us from imported oil and they are quieter than gas-powered cars.

As Carlos Ghosn, CEO of Nissan and Renault, said last month, when Nissan and France’s biggest utility announced plans to roll out an electric-car network in France:

We have decided to introduce zero-emission vehicles as quickly as possible in order to ensure individual mobility against the background of high oil prices and better environmental protection.