Tag Archives: General Motors

Dieselgate’s Big Data Trail: What Analyzing Innovation Data Says About Diesel Engines’ Spectacular Fall

In late 2015, intrepid emissions testing researchers sent shockwaves through the automotive world by catching Volkswagen in one of the biggest corporate scandals ever: Hidden software allowed its diesel engines to cheat on emissions testing. The repercussions are still being felt today, as more and more countries are turning against the technology. The common narrative is that this was a surprising, unforeseen event, and in many ways, it was. However, newly developed, specialized, big data analysis allows us to investigate diesel innovation – or rather, the lack of diesel innovation – and uncover some interesting trends. By applying our Lux Tech Signal software tool to the topic of diesel engines, we see a suspicious decline in interest in diesel innovation since 2010, as shown in the figure below:

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After the Fall: Volkswagen’s Diesel Scandal and Its Future Impacts

Volkswagen (VW), the world’s best-selling automotive OEM, has been caught in a vehicle emissions scandal of unprecedented proportions. At least 11 million diesel-powered VW cars worldwide use a specially-coded piece of software to purposefully cheat during emissions testing. The result is that VW’s diesel cars appear sufficiently clean to government regulators – enough to be eligible for sale – but when consumers drive their cars in the real world, the vehicles’ software switches the engines’ behavior: In consumer hands, these VW diesel engines switch into a mode where they perform better (more power and more fuel efficient), but pollute up to 35 times more than during official testing.

The initial fallout for VW has been swift and brutal: Its stock plummeted 23% in value, its lowest in three years, wiping out almost $20 billion worth of market capitalization. It faces a revenue decline too, as the OEM has told dealers to stop selling new diesels. Consumers are starting to file class-action lawsuits, as their VWs will have lower resale values. Next will come the fines: In the U.S., it will face fines of up to $37,500 per vehicle from the Environmental Protection Agency (EPA), totaling $18 billion in the worst case. The final amounts may not be as high, but nonetheless VW is preparing for some high losses, setting aside $7.2 billion already to start handling the fallout. Besides the U.S. Environmental Protection Agency (EPA), VW faces other challenges too: South Korea has already announced it will investigate VW’s vehicles, as will Germany. Even the U.S. tax agency is looking into VW’s cheating, because the OEM benefited from $52 million in tax credits for its “clean diesels” that have now turned out to be dirty.

VW is not the first OEM to court disaster.  Other high-profile fiascoes include General Motors’ faulty ignition key, Firestone’s tread separation on Ford Explorers, and Takata’s exploding airbags. All are bad in their own way, and these OEMs survived, just like VW will. The other fiascoes involved an inadvertent flaw in the design or manufacturing, which dishonest and incompetent managers later tried to cover up. The VW case is different: It appears that the OEM purposefully engineered the cheat into its cars from day one.

The audacity and sophistication of VW’s cheating software is stunning. Its engineers apparently programmed the cars to detect when a regulator like the U.S. EPA tested vehicles – doable because testing uses a stationary dynamometer, where some of the vehicle’s wheels spin, but others do not. For example, on a VW Jetta, the front wheels spin on a dynamometer because it is a front-wheel-drive car, but its rear wheels are stationary. In real-world driving all four wheels spin. VW engineers appear to have used sensors to distinguish between these two modes, programming the engine to behave in different ways depending on whether the car was being tested by the government or being driven in the real world by consumers. This cheat worked for years, until an independent study carried out by West Virginia University actually tested VW’s diesel emissions in the real world. It is flabbergasting that VW thought they wouldn’t be caught – the U.S. EPA had already fined diesel cheaters $1 billion in 1998, for deceptively programming their engines as well.

At its very root, VW’s misbehavior was driven by the push for cleaner cars. Automotive OEMs are under immense pressure from governments and consumers around the world to perform a fine balancing act: Make their cars emit less pollutants, keep power high and acceleration good, deliver better fuel mileage, and keep costs low. Diesel engines have had a hard time pulling all of these off. When OEMs optimize these types of engines to deliver good performance (snappy acceleration and fuel mileage), they become prone to emit poisonous, reactive gases known as nitrogen oxides (NOx). To deal with that NOx issue, OEMs like Mercedes-Benz and Toyota use an additive based on urea as part of a selective catalytic reduction (SCR) system, which is expensive. VW’s cars were unique in passing tests without a urea system, thus saving money on each vehicle. It turns out that their secret to doing so was a software cheat.

In the near-term, VW doesn’t have good options to fix the issue.  If they reprogram the software to pollute less, then 11 million of their car owners will have poorer acceleration and worse fuel economy. If they re-engineer the cars to retrofit them with a urea system, it would likely come at a cost of tens of billions of dollars over recall, R&D, component costs, and ongoing urea refills. In the longer term, this will force VW to re-evaluate their strategy for clean cars. The OEM had staked a lot on its “clean diesel” strategy – for example, just a few months ago, VW’s marketing arm proudly announced that one of its diesel-engined cars had set a new Guinness World Record for lowest fuel consumption by a nonhybrid car. In the aftermath of the cheating scandal, VW will face an uphill battle to win back consumer trust and acceptance.

Looking forward, clients should expect that:

1. Regulators will try to smarten up, but will need better equipment: It’s striking that the U.S. EPA, with its $8 billion budget and workforce of 15,000 staff, couldn’t catch VW, but a small team of researchers from West Virginia University could. Regulators should revise their testing protocols to test real-world performance when the vehicles are in motion in real traffic, rather than on a stationary dynamometer. With the miniaturization of sensors and better analytical software, making this change is easier than ever before. Indeed, testing authorities have known about discrepancies between real-world performance and testing for a long time, and more efforts like the upcoming Worldwide Harmonized Light Vehicles Test Procedure are needed.

2. VW will reconsider its clean vehicle portfolio strategy: VW was slowly moving beyond conventional gasoline and diesel engines anyway. Earlier this month, before the diesel scandal started, VW’s CEO discussed the OEM’s plan to put out 20 plug-in vehicles by 2020, like an Audi EV (client registration required) with a 500 km driving range. They have also invested (client registration required) in next-generation batteries, including lithium-sulfur and solid-state. VW is actually in a strong position to innovate their way out of this mess. They have been spending most on the R&D of any OEM (about $11 billion in 2013), and they are the largest automaker by volume. Arguably, no major OEM is better positioned than they are to decisively accelerate the push towards plug-in hybrids and electric vehicles, putting the shine back on their tarnished image. However, they probably lack the vision, leadership, and ambition to do it, so they will most likely carry on as usual after some apologies.

3. Automotive software will come under pressure to open up: In the U.S., it is illegal to prevent independent repair shops from fixing cars, under a policy called “right to repair”. However, OEMs successfully lobbied regulators to use the Digital Millennium Copyright Act (DMCA) to keep their software locked up and proprietary, and off-limits to diagnostic and repair companies the OEM does not like. That has led to legal squabbles, with GM arguing that while consumers may own their cars, the OEM owns the software; similarly, Ford sued a company called Autel, which was developing some independent repair software. Indeed, even VW itself sued some security researchers that pointed out a flaw in the way its key-fobs worked. Ironically, the U.S. EPA itself sided with OEMs, fearing that if the software is open-access then consumers would modify it at the expense of emissions. VW misused the protection of the DCMA to hide their crime – precisely the kind of scenario that open source software advocates have argued makes closed systems a bad idea. Forget consumers – OEMs’ actions show that they need watching too. The DMCA exception for automotive software should be struck down, and replaced with a policy in line with right to repair.

4. Diesel passenger vehicle sales in the U.S. will drop drastically: Due to strict NOx emission standards in the U.S. diesel passenger vehicles have failed to make any significant market penetration, representing less than 1% of passenger vehicles and only 3% of all vehicles on the road. In part, slow adoption was due to the requirement of installing the urea-containing SCR unit to control NOx emissions in diesel engines, which is expensive. When Lux Research compared OEM engine options – the cheapest engine option within a model range versus the diesel-engine option – we found on average the diesels cost $6,000 or more. VW’s “clean diesel” was positioned to revolutionize passenger diesel vehicles without the need of an SCR unit, saving costs. With the EPA setting new emission standards in early 2014, close to California’s much stricter regulations, this is not a good sign for diesel. Consumers will now consider other vehicle options likely to the charging of the U.S. EPA, which had plans to aggressively grow (client registration required) the biodiesel market over the next three years.

5. AdBlue systems and renewable diesel will infiltrate Europe’s existing diesel passenger vehicle market: The Euro 5 NOx emission standard that is applicable to vehicles prior to 2015 is nearly six times more lenient than that in the U.S. (180 mg/km compared to 31 mg/km). This has resulted in diesel powertrains present in approximately 35% of passenger vehicles and 53% of all vehicles and biodiesel making up 62% of Europe’s biofuels market (see the report “Biofuels Outlook 2018: Highlighting Emerging Producers and Next-generation Biofuels” [client registration required]). With Euro 6 approved and increased attention to NOx emissions (80 mg/km), and implementation of AdBlue systems in diesel passenger vehicles, it’s truly inevitable to achieve “clean diesel”. While biodiesel has carbon emission benefits that’s been the primary focus of Europe’s biofuel mandates, it actually has higher NOx emissions – up to 10% depending on blend percentage. Biodiesel will soon lose its luster as a viable solution. With the push for nonfood biofuels and new focus on NOx emissions, Europe offers potential for renewable diesel growth. By no means is renewable diesel the holy grail, but it has been shown through third-party testing to emit up to 9% less NOx compared to conventional diesel, and the region will see nearly 300 million gallons per year (MGY) of capacity come online by 2018, nearly doubling what it is today, according to our Alternative Fuels Tracker (client registration required).

Hyundai Motors Working on Lithium-Sulfur Batteries, but Remains Noncommittal

Researchers from the Hyundai Motor Company recently published a study about lithium-sulfur (Li-S) batteries, a promising next-generation energy storage technology. They focused on the effect that electrolyte choice has on Li-S battery performance, by replacing conventional ether-based mixtures with one that was sulfone-based. The Hyundai researchers claimed that this sulfone-based electrolyte improved Li-S battery capacity by more than 50%, reaching 715 mAh/g, and improved reversible capacity retention by more than 60%. This line of research is important, because performance degradation over extended cycling is one of the key problems that Li-S developers must overcome (see the report “Beyond Lithium-Ion: A Roadmap for Next-Generation Batteries” — client registration required).


Aside from the technical developments, which remain early stage (coin cells in this research from Hyundai), the work is important for three other reasons. Firstly, because Li-S batteries are so far from market, this work signals a long-term interest from Hyundai and Kia in plug-in vehicles and hybrids, areas where thus far they have not made much of an impact (see figure below). Secondly, it puts more automotive clout behind Li-S technology, a welcome change in an emerging landscape that has been start-up dominated to date, by the likes of Oxis Energy (client registration required) and NOHMs Technology (client registration required). Indeed, Hyundai has been working on Li-S for years, but it is not the only automaker active here: General Motors has been researching the technology, as well. Third, it adds another OEM to the list of players looking to go beyond lithium-ion batteries, joining the likes of Toyota (working on magnesium-ion batteries and solid-state designs) and Volkswagen (which is experimenting with lithium-air batteries).

The big question associated with this Li-S study is whether Hyundai Motors will put its money where its researchers’ mouths are: Bringing a fundamentally new battery chemistry to market will likely require not only billions of dollars in investment along the value chain, but also the singular vision of an automaker willing to commit to making a car around Li-S technology. For now, Hyundai is focusing more on fuel cell (client registration required) vehicle development and deployment. Nonetheless, clients with any interest or activity in Li-S batteries should consider Hyundai as a potential partner in this next-generation energy storage chemistry.

Automotive Partnership Ecosystems Emerging Today Dictate Success Tomorrow

The automobile is at a turning point, unprecedented in its 100+ years of history. Rising gas prices, stricter fuel economy standards, a progressively more environmentally conscious customer base and forward-looking business models are all breaking the traditional automotive ecosystem. In response, OEMs are evolving their partnership webs in order to endure and compete.

This week’s graphic comes from a recent Lux Research report in which analysts examined the growing web of cross‐cutting industry relationships to see how automakers compared on the Lux Partnership Grid. Companies were scored on two metrics, partnership strength and technology diversity. Based on these scores, each automaker fell into one of the four quadrants in the graphic above.

Lone Wolves represent OEMs that are continuing business as usual, and have little footprint in the emerging technologies that threaten the status quo. The Dilute ecosystem quadrant encompasses automakers with a few partnerships scattered across a variety of technologies. The Siloed ecosystem includes OEMs that are putting their faith in a few, or in some cases one technology, while the Expansive ecosystem hosts OEMs who average nearly 16 partnerships apiece, representing an average of eight unique technologies.

A review of the partnership grid reveals multiple trends:

  • Small companies tend to cluster in the Lone Wolves region, while large corporations partner ambitiously in a variety of areas so they group more in the Expansive quadrant. One exception is Fiat-Chrysler, which has only three, unsubstantial partnerships to its name.
  • Daimler, GM, and Toyota lead the pack. All have formed strong partnerships in pursuit of technical diversity, placing them squarely in the Expansive ecosystem. Daimler has developed partnerships that span multiple key emerging technologies, including a JV with Toray to make carbon fiber reinforced plastics (CFRP) (Client registration required), a JV with Evonik (Li-Tec) to make Li-ion batteries (Client registration required), and participation in Europe’s Clean Energy Partnership for establishing fuel cell vehicles and hydrogen fueling infrastructure.
  • Meanwhile, General Motors (GM) has emerged from a low point in its corporate history to emerge as a future looking company by partnering in a variety of technologies, and investing in companies at a variety of stages. It has invested in battery start-ups like Envia Systems (Client registration required) and Sakti3 (Client registration required), and in the fuels space with ethanol companies Mascoma (Client registration required) and Coskata (Client registration required). In the materials space, GM also sees value in CFRP, forming a JV with Japanese materials company Teijin.
  • Lastly, Toyota is leveraging its leadership in hybrids, to position itself for advances elsewhere, such as advanced electrification (via its investment in Tesla). It also retains activity in hydrogen powered fuel cell vehicles and infrastructure, where it teamed with Air Products and Shell to install the first pipeline-fed hydrogen station in the U.S. In materials, Toyota has partnered with Toray to source CFRP initially used for the hood and roof of one of its Lexus models. As with Daimler and GM, these activities will prepare Toyota to profit from an ever changing landscape where the vehicle of tomorrow may not look like anything conceived today, but will no doubt carry key technologies in the areas of energy storage, increased connectivity, and new materials.

Source: Lux Research report “Under the Hood: Mapping Automotive Innovations to Megatrends.”

Justin Bieber Problems: Electric Vehicle Makers Still at Odds on Charging Standards

A group of U.S. and German automakers demonstrated an electrical vehicle charging standard at Electric Vehicle Symposium 26 (EVS26) that used a single plug to support both AC charging (including ‘level 1″ at 120V and “level 2” at 240V) and DC fast-charging. Ford, General Motors, Chrysler, Daimler, Volkswagen, BMW, Audi, and Porsche are all behind the new standard – which means they’re not behind the CHAdeMO DC fast-charging standard backed by Nissan and other Japanese automakers (or, for that matter, behind the separate DC charger offered by Tesla).

At stake is more than whether noted venture capitalist and chromed-out Fisker Karma owner Justin Bieber can plug in when he drops in on Elon Musk to talk investment strategies. Charging standards are widely, and rightly, seen as a key precondition for widespread market adoption. Issues of charging station availability and the resulting “range anxiety” are bad enough for would-be EV owners, without further doubts over whether or not the latest charging station will be compatible with their cars. Eventually good sense should prevail and send one approach the way of Betamax and the HD-DVD. In the meantime, the high cost of EVs is a bigger impediment, and >>the slow downward march of battery costs means that automakers have time to sort out their differences<< before EVs are ready for widespread adoption (see the report “Searching for Innovations to Cut Li-ion Battery Costs“).

Ranking Li-ion battery developers on the Lux Innovation Grid

Li-ion batteries are the technology of choice for the first generation of all-electric and plug-in hybrid electric vehicles, and the subsequent hype has attracted an increasing number of competitors to an already crowded market. Soon, it will be impossible for all of these companies to survive, making strong partnerships a necessity. This week’s graphic illustrates how developers of Li-ion batteries compare on the Lux Innovation Grid, helping to identify which will make the strongest potential partners as the electric vehicle market matures.

LG Chem Power clearly leads the pack, standing out even amidst its competition in the graphic’s Dominant Quadrant. A subsidiary of LG Chemical, LG Chem owes its strong technical value to its high-energy lithium-manganese-spinel-based cells and strong cycle life, both of which come at costs that are among the most competitive in the market. Its multitude of supply partnerships with the likes of GM, Eaton, and Ford, however, justify the company’s strong business execution score.

Significant enhancements in specific energy and a commensurate reduction in cell costhas garnered Envia Systems the attention of major investors including GM, Asahi Glass, and Asahi Kasei. Yet serious competition remains for Envia in cathode materials, including two major corporations in BASF and Toda Kogyo licensing the same Argonne National Laboratory technology that Envia’s materials are based on.

China is home to a number of top contenders, thanks to the Chinese government’s desire to keep the electric vehicle value chain inside China’s borders (Client registration required.). But batteries from China BAK, BYD, and China Aviation Lithium Battery (CALB) are undifferentiated technologically, and may not share the quality of cells manufactured outside of China.

Source: Lux Research report “Using Partnerships to Stay Afloat in the Electric Vehicle Storm.

BMW pushes the envelope

BMW generated a good deal of industry buzz when it recently unveiled its futuristic i-Series concept cars: the i3, a battery electric vehicle (BEV), and the i8, a plug-in hybrid electric vehicle (PHEV). Both cars seat four passengers, but the i3 is designed for city driving, while the i8 is more of a high-performance luxury vehicle. The vehicles are constructed largely of carbon-fiber-reinforced plastic (CFRP), which is incorporated into BMW’s “LifeDrive” design system. The i3 is expected to launch in 2013, with the i8 coming the following year.

This move is not BMW’s first foray into the electric vehicle market – the company has already produced over 1,000 ActiveE and 600 Mini E electric vehicles – but it is by far a larger and more significant project. BMW plans to invest around €400 million in the production of the i3 by 2013, focusing on a production plant in Leipzig, Germany. Electric drivetrain developer AC Propulsion has been supplying BMW with Li-ion batteries and drivetrains for the Mini E line, which is seen as a precursor to the i3. Still, no official announcement has been made regarding the Li-ion supplier for either model.

The degree to which BMW becomes more involved in Li-ion batteries will be a key indicator of the potential for more traditional supply relationships in the growing EV market, where automakers have increasingly integrated battery technologies with the aim of capturing maximum value in the supply chain. If BMW goes the route of Ford, which sources drivetrains from Manga for its Ford Focus Electric, it could provide hope to suppliers left out in the cold by automakers like GM that source batteries and conduct drivetrain integration themselves. Furthermore, BMW can lessen the risk it faces in the event that the market for all-electric vehicles does not take off. (See the report, “Small Batteries, Big Sales: The Unlikely Winners in the Electric Vehicle Market.”)*

BMW has prepared itself for the massive amount of CFRP required for this bold undertaking. Back in 2009, BMW formed a €90 million joint venture with SGL Group in Washington state (U.S.) for the production of CFRP. SGL has also recently completed construction of an additional carbon-fiber plant in Germany.* SGL currently has an annual production capacity of roughly 8,500 metric tons of carbon fiber. Automakers are always looking at light-weighting to reduce fuel consumption. In this case, the reduction of weight also saves money by allowing BMW to use smaller battery packs than would be required by heavier vehicles.

There are a number of other forward-thinking initiatives being launched by BMW as part of its campaign, but the carbon fiber chassis may make or break the i-Series. There have been significant barriers in the adoption of composites in the automotive industry (See the report “Chasing Cars: Can Composites Catch Up to Steel?.”). But if BMW’s launch is successful it could prove the economic feasibility of incorporating CFRP into production automobiles, ushering in a new era of automobile manufacturing.

* Client registration required.

Global market forecast for electrical storage technologies in transportation applications

Graphic of the WeekThe overall market for energy storage technologies that power electric vehicles is set to grow from $13 billion in 2011 to $30 billion in 2016, a compound annual growth rate (CAGR) of 18%. But, while prominent plug-in hybrid electric vehicles (PHEVs) like the Chevy Volt and Nissan Leaf grab most of the headlines, a recently released report (client registration required) from Lux Research finds that electrical storage for e-bikes and micro-hybrids will command the largest market share in terms of both GWh and dollars in 2016.

Specifically, the report finds that E-bikes carry minimal storage but compensate with sheer volume. Replacement batteries for the currently deployed base – largely in China – plus strong growth in new sales will drive growth from 84.2 GWh and $12.0 billion in 2011, to 156.6 GWh and $24.3 billion in 2016, a CAGR of 13% in kWh and 15% in dollars.

Micro-hybrids apply energy storage only toward start-stop and/or regenerative braking applications, and require neither the drastic redesigns nor the more expensive battery costs that all-electric or hybrid electric vehicles (HEVs) do. Thus, they represent a shorter path to reduced emissions than hybrid electric vehicles (HEVs) or PHEVs, and will drive market growth from 5.1 GWh and $495 million in 2011, to 41 GWh and $3.1 billion in 2016 – CAGRs of 52% and 44%, respectively.

Meanwhile, EVs, HEVs, PHEVs will see steady if not explosive growth. But their hefty battery packs will command a meaningful share of the markets for storage in GWh and particularly in dollar sales (the latter due to the higher cost of NiMH and Li-ion batteries. Sales will reach a cumulative 5.7 GWh in 2016, up 27% annually from 1.7 GWh in 2011, and revenues will expand 25% annually from $710 million in 2011 to hit $2.1 billion in 2016.

Source: Lux Research report “Small Batteries, Big Sales: The Unlikely Winners in the Electric Vehicle Market.”

GM’s attractive leasing terms for the Volt won’t be enough

General Motors (GM) recently made its long-awaited announcement about the pricing of its messianic plug-in hybrid electric vehicle (PHEV). While the Volt will cost $41,000 in the U.S. – or $33,500 after a $7,500 federal income tax credit, the real news is that GM is offering a very attractive three-year lease for the Volt of $350/month with $2,500 due at signing. For comparison, Nissan announced that its all-electric vehicle (EV), the Nissan Leaf, will lease for $349/month for three years after an initial payment of $1,999. This, despite the fact that the Leaf’s sticker price is more than $8,000 lower than the Volt’s (see the April 7, 2010 LRPJ – client registration required). GM also recently announced that it will “increase U.S. production capacity of the [Volt] by 50 percent, from 30,000 units to 45,000 units, in 2012,” although production for the 2011 model year will be limited to about 10,000 units for its November 2010 rollout.

So is GM’s optimism misplaced? Edward Niedermeyer points out in a New York Times editorial – entitled “GM’s Electric Lemon” – that the Volt requires “premium gasoline, seats only four people (the battery runs down the center of the car, preventing a rear bench) and has less head and leg room than the $17,000 Chevrolet Cruze.”

However, the Volt’s primary competitor is not the Cruze, but the Nissan Leaf. Leasing terms are key here because, with lots of uncertainty around any new technology (the cycle life of the Li-ion batteries causes particular concern), many customers would prefer to lease than to buy. Since the Volt and the Leaf will be priced comparably and have similar warranties, the Nissan Leaf’s all-electric status will likely tip the scales in its favor among the eco-conscious minds of the early adopters. Moreover, Nissan has the advantage in that its lower sticker price will make it easier to convince lessees to buy the vehicles after three years, while GM risks having to take back heavily-devalued Volts. In addition to these unfavorable comparisons, the global electric vehicle market is likely to disappoint the overinflated expectation that the Volt will help salvage GM’s fortunes (see the Lux Research report, “Unplugging the Hype around Electric Vehicles” – client registration required). Unfortunately for the U.S. taxpayers who have billions of dollars riding on GM’s success, all signs point to another disappointment for the automotive giant.

Toyota takes a shortcut into the EV market with Tesla partnership

Recently, the auto industry has been abuzz over the partnership formed between Toyota and Tesla Motors to develop a passenger all-electric vehicle (EV) for less than $30,000. Additionally, Toyota has committed to purchasing $50 million worth of common stock immediately following the closure of Tesla’s IPO, on the condition that Tesla completes the IPO by December 31, 2010. The unnamed vehicle will consist of Tesla’s powertrain technology, with the rest of the car comprising traditional Toyota hardware and design. This move is a change in course for Toyota, since the automaker has stated in the past that it is unsure of the market potential for EVs, citing that the cost of the battery packs make the vehicles economically unfavorable. It’s possible Toyota feels its title as the greenest car company is being usurped by Nissan Motor with the early sales and hype of its EV, the Leaf. With the Mitsubishi Motors i-MiEV planned for pricing above $30,000, it is likely that the early EV market in the United States, such as it is (see the report “Unplugging the Hype around Electric Vehicles” – client registration required) will be dominated by Nissan and Toyota, as they will have the cheapest EVs on the market for the foreseeable future.

This transaction with Tesla provides a fast, low-cost, low-risk option for Toyota to enter the EV market. For the small price tag of $50 million, Toyota can lean on Tesla’s experience and avoid much of the R&D expense of developing an EV on its own. This is a bargain for Toyota, considering that General Motors advertised that it spent upwards of $1 billion developing the Volt. In exchange, Tesla is receiving validation from the Toyota name, along with the manufacturing and marketing support that Toyota is likely to provide. Perhaps most valuable to Tesla, the jointly developed vehicle will most likely be sold through Toyota dealerships, allowing it significantly greater penetration into the market. Meanwhile, Panasonic, which provides batteries both for Tesla and for Toyota’s Prius (see the October 21, 2009 LRPJ – client registration required), will strengthen its position in the vehicle battery market. The announcement is a clear win for all three parties involved. However, this news by no means implies that the Toyota EV will sell, since like all EVs it still faces many economic and behavioral hurdles to mass adoption (see the February 3, 2010 LRPJ – client registration required).