The Oil and the Glory
The Weekly Wrap — Feb. 10, 2012
Pessimism inside the global electric gamble: Almost every motor company on the planet is eager to get electrified models into their showrooms, and the profit on their struggling balance sheets. So are thousands of smaller companies that supply parts to the carmakers, not to mention the mostly cash-strapped countries in which they are headquartered, seeing ...
Pessimism inside the global electric gamble: Almost every motor company on the planet is eager to get electrified models into their showrooms, and the profit on their struggling balance sheets. So are thousands of smaller companies that supply parts to the carmakers, not to mention the mostly cash-strapped countries in which they are headquartered, seeing these vehicles as the vanguard of new, economy-leading industries. One might think it early to judge how the market will respond, yet industry insiders — perhaps shell-shocked from their recent woes — are already worried (see this excellent piece at Chemical & Engineering News. Subscription required).
Let’s look at the fleet, which is divisible into three distinct groups: There is Nissan, whose colorful CEO, Carlos Ghosn, reckons that the world’s motorists want an all-electric vehicle, such as his Leaf (or the new Tesla X, pictured above). Toyota leads the second group, and suggests that Ghosn is nuts — drivers want only a dash of electric when they drive, says the Japanese company, which is offering cheaper, gasoline-propelled vehicles such as the Prius that benefit from a push from comparatively large batteries. The third group is typified by General Motors, whose plug-in hybrid Volt goes both ways, featuring a 40-mile battery and a backup gasoline engine with a 260-mile range.
So which has made the best bet? As suggested above, disheartened industry insiders, gathered in the Florida city of Orlando this week, think the answer may be none of the above, at least not at high sales volumes. Electrified vehicles are currently serving only a niche, "and that’s probably all they’re ever going to be," David Raney, a former executive of Honda Motors and now a Santa Barbara-based consultant, told me at the Advanced Automotive Battery Conference. Why is this so? The answer is one word, say these hands — cost. A few wildly successful merchants manage to charge a premium — Starbucks and Apple come to mind — but makers of electrified cars are not currently among this starred group. Motorists by and large have not proved willing to fork over up to $10,000 extra for an electric car or a plug-in hybrid.
Go to the Jump for more on the electric car race, and the rest of the Wrap.
With that as a context, Toyota — enjoying first-mover status, having launched the Prius in Japan during the 1990s – will continue to far-and-away lead the pack, according to Menahem Anderman, who organizes the annual conference. Anderman is personally affable while also serving as among the industry’s most bluntly pessimistic observers. "It’s always been, ‘If only this or that happens, we can have electric cars.’ But what most people forget is that combustion engine technology is raising the bar. They are becoming more efficient," Anderman told me. He ticks off his view of the competition. Nissan’s Leaf: "The business case is very strange." GM’s Volt? "This is not an affordable car by any calculation, any analysis. … It’s not a sustainable design for $4-a-gallon gasoline. Maybe for $10 or $15." As for Toyota and Ford, they have a better formula, with modestly priced, battery-assisted models. "At $3.50 to $4 per gallon [of gas}, the car company can make money while the customer in four or so years can get a return for the extra cost by fuel saving," he said.
The feeling of misery is not confined to the West, but extends to China. China’s most celebrated industry player, Warren Buffet-backed BYD, has appeared to pull back for at least the time being in the consumer car market. Instead, it is trying to find a safe port in electric fleet buses marketed in Los Angeles, the Texan capital of Austin, and the Chinese city of Shenzhen, writes Alysha Webb at the excellent ChinaEV Blog. Says Anderman: "The Chinese understand that the [electric car] is not ready for the mass market … and they are trying to get western car companies to teach them how to make hybrids and plug-in hybrids."
Perhaps these folks are correct — electric vehicles are yet again an utter failure, and it is time to cut one’s losses and go bowling. Yet it is just as possible that the truth is more nuanced. One perceives the presence of the legendary "valley of death," that gaping and long precipice between the finishing of a product and its reception in the marketplace. Most start-ups fail at this stage of the game either for lack of cash or courage. In this case, many — perhaps most — of the electrified car pioneers will in fact vanish. In response to Anderman’s astute observation regarding the internal combustion engine, history suggests that the costs of a new technology can drop at a faster pace than that of an established one, from which lots of efficiencies have already been wrung out.
I myself saw no calculus that left open the chance of a large technological breakthrough in batteries. In Silicon Valley, one would not have omitted that quotient. Moreover one noticed less fretfulness from the Asian participants. Quite apart from Toyota’s lead, the world’s biggest battery-makers are in Japan and South Korea. When an audience member requested advice for industry entrants, Hideo Takeshita, a respected expert from Japan, quipped: "Get a new job." That got a hearty laugh, but to the degree that the East is far in the lead, perhaps ultimately what we are observing is despair on whether the West can catch up in this category. Smart thinking I heard was that those willing and able to wait three or more additional years will have a much better read on the future of this nascent industry.
China’s German competition in rare earths: A fearful specter of China’s rise has involved raw materials: on one hand, its voracious hunger for imported metals, minerals and energy, and on the other its occasional refusal to export Chinese resources. On the latter point, there has been serious friction the last two or three years over Beijing’s tight reins on its rare earth elements. But Germany appears to be riding to the rescue.
The rare earth elements — there are 17 of them — are used in some of the world’s most popular technological devices, as well as by militaries in complex weaponry such as guided missiles. Yet they are mis-named — in fact widely found, they would be more aptly called "bloody-minded elements," since the actual problem is that they occur in only microscopic quantities, laced in with tons of rock; extraction often requires extraordinarily polluting methods. Not surprisingly, loosely regulated China has ended up with a hold over some 98 percent of the global rare earths market. The fearful part stems from an unfortunate 2010 confrontation in which China cut off Japan’s rare earths supply. That made the rest of the industrial world worry that any of them could be next. As if to play into this anxiety, China then steeply reduced its rare earths exports as a whole.
A textbook chain reaction has resulted — companies from Australia, Canada, the United States and elsewhere have said they will open new rare earths mines, or re-open old ones. But Germany has moved to the forefront of this effort. This week, German Chancellor Angela Merkel signed agreements with Kazakhstan President Nursultan Nazarbayev to mine for rare earths in the Central Asian country, writes the New York Times’ Melissa Eddy. In October, Germany initialed a similar arrangement with Mongolia. This is good news for high-tech companies, since Kazakhstan and Mongolia have among the world’s richest mineral deposits. What to expect next: Chinese demand for German rare earths.
Putin (We love him, we love him not, we love him …): Back in the 16th century, Europe found lots of reasons for divisiveness, but on one issue the continent was united — its royal leaders loathed Russian Czar Ivan IV. So it has largely gone since then: There are few foreign activities that Westerners relish more than a chance to take a swipe at a Russian leader. Today, there is an intensified bout of piling on Vladimir Putin, who is said to be finished as a politician, if not now, then very, very soon. But is he?
This enthusiastic Western assault flows from a spectacular September blunder, in which Putin chose to rock the political boat by swapping positions with President Dmitry Medvedev rather than continuing to rule as prime minister. The sleepy Russian nation awoke — in recent weeks, critics have held three large Moscow protests. Observers abroad — by and large misjudging the crucial symbolism of the Medvedev-Putin tandem, which lent Putin a patina of grace despite his rough edges — have been surprised by the protestors’ indignance at Putin’s sense of entitlement. That may be why many now risk analytical over-reaction in the other direction. To the Financial Times’ Gideon Rachman, the "ice is cracking" underneath Putin. Right here at FP, a headline over a piece by Leon Aron reads "Putin is already dead," and another by Anders Aslund titled "Putin without Putinism."
There is apparent consensus abroad that Putin will not serve a second 6-year presidential term (which would be his fourth stint in all), and may somehow be forced out of his first. Both forecasts may be right — who can say? But they lack an important dimension of credibility for being so early, and for the conspicuous eagerness in which they are stated — these analysts are hardly cool and dispassionate thinkers. One is strained to see a scenario in which Putin steps down. What would lead him to do so? As for 2018, that is too far ahead. Plus, for all anyone knows, Putin could leave the presidency only to resurface as a powerful, Lew Kwan Yew-type senior statesman. That would provide more grist for the West’s time-honored sport.