EXECUTIVE SUMMARY: Hybrid Electric Vehicles for Fleet Markets Commercial Hybrid, Plug-In Hybrid, and Battery Electric Vehicles: Light-Duty Cars and Trucks

EXECUTIVE SUMMARY: Hybrid Electric Vehicles for Fleet Markets Commercial Hybrid, Plug-in Hybrid, and Battery Electric Vehicles: Light-Duty Cars and Trucks

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Published 3Q 2010

Dave Hurst Senior Analyst

Clint Wheelock Managing Director

Hybrid Electric Vehicles for Fleet Markets

Section 1 EXECUTIVE SUMMARY

1.1 Introduction Fleet managers are looking to a variety of technologies to protect their budgets from increasing fuel costs and, at the same time, comply with emissions-reduction requirements. Hybrid electric vehicles (HEVs) can help fleet managers accomplish both goals – improving fuel economy between 5% and 40% and lowering emissions 10% to 50% below comparable vehicles with only internal combustion engines (ICEs) burning petroleum- based fuels (gasoline and diesel).

Light-duty HEVs were launched in 1999 by Honda, followed closely by Toyota. Since that time, the Toyota Prius has become the leading HEV worldwide. Not only is the Prius the bestselling vehicle in Japan, it also comprises nearly one-half of all HEVs sold in the United States. Within the last two years, the number of available HEV models has grown substantially, and Audi, BMW, Daihatsu, Ford, GM, Honda, Hyundai, Mercedes, Nissan, and Toyota will have HEV models available by the end of 2010.

There are essentially two types of hybrid light-duty (LD) vehicles that are becoming available to fleet managers:

 HEVs: these generate all their electrical energy onboard, and improve fuel economy either by providing traction to the wheels from electric motors and shutting off the ICE, or by allowing the ICE to run at its most efficient while the electric motor provides additional power to the wheels as needed  Plug-in Hybrid Electric Vehicles (PHEVs): these store energy from the electric grid, and offer increased electric driving range over HEVs. This is a new category of vehicle for OEMs (though conversions of HEVs into PHEVs have been taking place for several years). HEVs have been introduced in most market segments to varying degrees of success. While the majority of HEVs sold are passenger cars, OEMs are offering a growing number of HEV SUVs in the United States. Trucks are a popular form factor with both consumers and fleets in the United States. In fact, among fleets, LD trucks continue to slightly outsell passenger cars (54% to 46% in 2010, respectively). PHEVs will follow the lead of HEVs and will be launched initially as passenger cars, followed closely by small SUVs. The main reason for the focus on these segments is two-fold: 1) smaller vehicles are more efficient and can better extend the electrically powered driving range; and 2) the small-SUV segment is very popular among consumers. With few exceptions, the consumer market, due to its sales volume, drives the development of LD vehicles.

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Hybrid Electric Vehicles for Fleet Markets

Chart 1.1 Annual Global HEV/PHEV Sales, World Markets: 2010-2015

1,500,000

1,200,000 Global HEV Sales

HEV Fleet Sales 900,000 (Vehicles) Global PHEV Sales 600,000 PHEV Fleet Sales

300,000

- 2010 2011 2012 2013 2014 2015

(Source: Pike Research)

HEVs come in essentially three designs: the micro (or start/stop) hybrid, the parallel hybrid and the series hybrid:

 Micro hybrids stop the ICE when the vehicle comes to a rest – at a stop light, for instance – then restart the ICE when the driver touches the accelerator  Parallel hybrids allow the ICE to provide power to the wheels and recharge the batteries  Series hybrids have no mechanical connection between the ICE and the wheels, and the ICE keeps the battery charged to power the wheels HEVs are often designed to be a blend of series and parallel hybrids that permit the electric motor to power the wheels for a short distance before the ICE takes over. Similarly, PHEVs operate in electric mode until the batteries reach a certain level of depletion; however, the electric range for PHEVs is longer (typically between 10 and 40 miles) because the batteries are larger and able to store energy from the electric grid. Once the batteries reach the level of depletion, an ICE takes over to maintain their state of charge.

Batteries are among the most expensive components in HEVs and PHEVs. Many HEVs currently use nickel metal hydride (NiMH) chemistry because it can store more energy at a lighter weight than lead acid batteries. Within the last several years, however, technology for transportation has focused on lithium-ion (Li-ion) batteries due to their power density (300 W/kg to 1,500 W/kg) and high nominal voltage (3V to 4V). Other battery chemistries such as lead acid and NiMH cannot match the weight-to-power ratio of Li-ion, so some manufacturers have begun to offer HEVs with Li-ion batteries despite the fact that it is a more expensive technology; Li-ion battery packs are priced between $175 to $500/mile of EV driving (depending on vehicle design and battery chemistry). All PHEVs will utilize Li- ion batteries since they require the extra storage capacity.

Hybrid Electric Vehicles for Fleet Markets

When fleet managers replace vehicles or add to their fleet, they often examine overall lifetime costs, which often include fuel costs. As a result, many fleet managers look to HEVs as a way to save. Because of their cost premium, HEVs often end up with an overall lifetime cost that is either the same or slightly higher than that of ICE vehicles in regions with low-cost gasoline (such as North America). Consequently, many governments are offering tax incentives to effectively reduce the purchase price for HEVs and PHEVs, making the overall lifetime cost more competitive with traditional ICE vehicles. When calculating overall cost, however, many fleet managers may not be including incentives into the equation, either because they do not qualify (government fleets) or because the tax incentive is not put back into their budget. Regardless, many fleet managers are electing to purchase HEVs as a means to comply with requirements to reduce fleet emissions.

Additionally, fleet managers are expected to increasingly adopt HEVs as a hedge against higher fuel costs, particularly in North America and Asia-Pacific. Globally, HEV fleet sales are expected to grow at 17.5% CAGR between 2010 and 2015, with the strongest growth in China (61.3% CAGR) as Chinese manufacturers launch hybrid models to meet increasingly stringent transportation emissions regulations. However, the United States is expected to be the largest fleet market for LD HEVs through 2015, with sales reaching 233,454 vehicles in that year (an 8.1% CAGR from 2010). Worldwide, HEV fleet sales will reach 740,704 vehicles in 2015, representing nearly 4% of global LD vehicle sales.

Chart 1.2 Hybrid Electric Vehicle Fleet Sales by Region, World Markets: 2010-2015

800,000 Africa/Middle 700,000 East

600,000 Asia-Pacific

500,000 Eastern Europe 400,000 (Vehicles) Western 300,000 Europe

Latin America 200,000

100,000 North America - 2010 2011 2012 2013 2014 2015

(Source: Pike Research)

Hybrid Electric Vehicles for Fleet Markets

Section 9 TABLE OF CONTENTS

Section 1 ...... 1 Executive Summary 1 1.1 Introduction ...... 1 Section 2 ...... 4 Market Issues ...... 4 2.1 History ...... 4 2.2 Hybrid Electric Vehicles ...... 5 2.2.1 Passenger Cars ...... 9 2.2.2 Light Trucks ...... 9 2.3 Plug-In Hybrid Electric Vehicles ...... 10 2.3.1 Passenger Cars ...... 11 2.3.2 Light Trucks ...... 12 2.4 Conversion of Hybrids to Plug-in Vehicles ...... 12 2.5 Battery Electric Vehicles ...... 12 Section 3 ...... 14 Technology Issues ...... 14 3.1 Vehicle Drivetrains Utilizing Electricity ...... 14 3.1.1 Micro/Mild HEV ...... 15 3.1.2 Parallel Hybrid Design ...... 15 3.1.3 Series Hybrid Design/Extended Range Electric Vehicle ...... 16 3.2 Battery Technology ...... 16 3.2.1 Lithium Ion Battery Chemistry ...... 16 3.2.1.1 Lithium Titanate Batteries ...... 17 3.2.1.2 Safety Concerns ...... 17 3.2.2 Advanced Battery Chemistry ...... 17 3.2.2.1 Lithium Air ...... 17 3.2.2.2 Lithium Sulfur ...... 18 3.3 Ultracapacitors ...... 18 3.4 Regenerative Braking ...... 18 3.5 Recharging Infrastructure ...... 19 3.5.1 Charging Equipment ...... 19 3.5.2 Recharging Data and Smart Grid Technologies ...... 19 Section 4 ...... 20 Demand Drivers for Fleet Markets ...... 20 4.1 Market-Based Demand ...... 20 4.1.1 Greening of Corporate Fleets ...... 21 4.1.2 Reducing Fleet Emissions/Carbon Footprint ...... 23 4.1.3 Relationship between Hybrid Demand and Gas/Diesel Prices ...... 23 4.2 Impact of Alternative Fuel Vehicles on Hybrid Vehicles ...... 24 4.2.1 United States EPAct Alternative Compliance Rules ...... 25 4.3 Government Emissions Regulations ...... 26 4.3.1 United States ...... 27 4.3.1.1 CAFE Standards ...... 27 4.3.1.2 California Air Resources Board ...... 28 4.3.2 Canada ...... 29 4.3.3 Mexico ...... 29 4.3.4 Europe ...... 30

Hybrid Electric Vehicles for Fleet Markets

4.3.5 Japan ...... 30 4.3.6 China ...... 30 4.4 Government Incentives ...... 30 4.4.1 United States ...... 30 4.4.2 Canada ...... 34 4.4.3 Latin America ...... 35 4.4.4 Europe ...... 35 4.4.5 Japan ...... 35 4.4.6 China ...... 35 4.5 Other Regulatory Incentives ...... 35 Section 5 ...... 36 Key Industry Players ...... 36 5.1 Original Equipment Manufacturers...... 36 5.1.1 BMW/Mini ...... 36 5.1.2 BYD ...... 36 5.1.3 Chery ...... 36 5.1.4 Daimler ...... 37 5.1.5 Ford Motor Co...... 37 5.1.6 Fiat/Chrysler ...... 37 5.1.7 General Motors ...... 38 5.1.8 Honda ...... 38 5.1.9 Hyundai/Kia ...... 39 5.1.10 Mitsubishi ...... 39 5.1.11 Nissan/Renault ...... 39 5.1.12 PSA Peugeot/Citroen ...... 40 5.1.13 Toyota Motor Corp...... 40 5.1.14 Volkswagen/Audi ...... 40 5.2 New Manufacturers/Converters ...... 41 5.2.1 ALTe ...... 41 5.2.2 Bright Automotive ...... 41 5.2.3 CODA Automotive ...... 41 5.2.4 Detroit Electric ...... 41 5.2.5 Fisker Automotive ...... 42 5.2.6 Tesla Motors ...... 42 5.3 Key Suppliers ...... 43 5.3.1 A123 Systems ...... 43 5.3.2 Continental AG ...... 43 5.3.3 Dow Kokam Inc...... 43 5.3.4 EnergyCS (Battery Management Systems) ...... 43 5.3.5 GS Yuasa ...... 43 5.3.6 LG Chemical/Compact Power ...... 44 5.3.7 Panasonic EV Energy ...... 44 5.3.8 Remy International Inc...... 44 5.3.9 Ricardo ...... 44 5.3.10 SB LiMotive ...... 44 5.3.11 Siemens ...... 45 5.3.12 UQM Technologies ...... 45 5.3.13 Valence Technology...... 45 5.3.14 ZF Friedrichshafen AG ...... 45 Section 6 ...... 46 Market Forecasts ...... 46 6.1 Global Vehicle Sales Forecast: 2010-2016 ...... 46 6.2 Hybrid Vehicle Forecast: 2010-2015 ...... 49

Hybrid Electric Vehicles for Fleet Markets

6.3 Plug-in Hybrid Forecast: 2010-2015 ...... 51 6.4 Commercial Vehicle Registrations Forecast: 2010-2015 ...... 52 6.4.1 North America ...... 52 6.4.2 Europe ...... 52 6.4.3 Asia-Pacific ...... 53 6.5 Hybrid Electric Vehicle Fleet Sales Forecast: 2010-2015 ...... 54 6.5.1 North America ...... 55 6.5.2 Europe ...... 56 6.5.3 Asia-Pacific ...... 57 6.6 Plug-in Hybrid Electric Vehicle Fleet Sales: 2010-2015 ...... 58 6.7 Battery Electric Vehicle Fleet Sales: 2010-2015 ...... 59 6.8 U.S. Fleet Sales Forecast by Vehicle Segment: 2010-2015 ...... 60 6.9 U.S. HEV Fleet Sales Forecast by Vehicle Segment: 2010-2015 ...... 61 6.10 Taxi Fleets Forecast: 2010-2015 ...... 62 6.11 Summary and Conclusions ...... 63 Section 7 ...... 64 Company Directory ...... 64 Section 8 ...... 67 Acronym and Abbreviation List ...... 67 Section 9 ...... 70 Table of Contents ...... 70 Section 10 ...... 73 Table of Figures ...... 73 Section 11 ...... 74 Scope of Study ...... 74 Sources and Methodology ...... 74 Notes ...... 74

Hybrid Electric Vehicles for Fleet Markets

Section 10 TABLE OF FIGURES

Chart 1.1 Annual Global HEV/PHEV Sales, World Markets: 2010-2015 ...... 2 Chart 1.2 Hybrid Electric Vehicle Fleet Sales by Region, World Markets: 2010-2015 ...... 3 Chart 2.1 Mix of Fleet Sales by Segment, United States: 2015 ...... 11 Chart 3.1 Typical State of Charge for Plug-In Hybrid Electric Vehicles ...... 14 Chart 4.1 Overall Estimated Fleet Vehicle Total Ownership Cost Model, United States ...... 24 Chart 6.1 Annual Total Light-Duty Vehicle Sales by Region, World Markets: 2010-2015 ...... 46 Chart 6.2 Annual Total Light-Duty Vehicle Production by Region, World Markets: 2010-2015 ...... 47 Chart 6.3 Annual Vehicle Overproduction, World Markets: 2010-2015 ...... 48 Chart 6.4 Hybrid (HEV/PHEV) Light Duty Vehicle Sales, World Markets: 2010-2015...... 49 Chart 6.5 Annual HEV Light Duty Vehicle Sales by Region, World Markets: 2010-2015 ...... 50 Chart 6.6 Annual PHEV Light Duty Vehicle Sales by Region, World Markets: 2010-2015 ...... 51 Chart 6.7 Annual Commercial Vehicle Registrations by Region, World Markets: 2010-2015 ...... 52 Chart 6.8 Annual HEV Light Duty Vehicle Fleet Sales by Region, World Markets: 2010-2015 ...... 54 Chart 6.9 Annual HEV Light Duty Vehicle Fleet Sales, North America: 2010-2015 ...... 55 Chart 6.10 Annual HEV Light Duty Vehicle Fleet Sales, Western Europe: 2010-2015 ...... 56 Chart 6.11 Annual HEV Light Duty Vehicle Fleet Sales, Asia-Pacific: 2010-2015 ...... 57 Chart 6.12 Annual PHEV Light Duty Vehicle Fleet Sales, World Markets: 2010-2015 ...... 58 Chart 6.13 Annual BEV Light Duty Vehicle Fleet Sales by Region, World Markets: 2010-2015 ...... 59 Chart 6.14 Light Vehicle Fleet Sales by Segment, United States: 2010-2015 ...... 60 Chart 6.15 HEV Fleet Sales by Segment, United States: 2010-2015 ...... 61 Chart 6.16 Taxi Fleet Registrations in Top Cities, World Markets: 2010-2015 ...... 62

Table 2.1 Planned HEV/PHEV/BEV Launches, North America: 2010-2013 ...... 5 Table 2.2 Planned HEV/PHEV/BEV Launches, Asia Pacific: 2010-2013 ...... 7 Table 2.3 Planned HEV/PHEV/BEV Launches, Europe: 2010-2013 ...... 8 Table 4.1 HEV Costs Considered During Fleet Vehicle Acquisition ...... 20 Table 4.2 Top Fleets by HEV Fleet Size, United States: 2008-2010 ...... 22 Table 4.3 Typical Vehicle GHG Calculation ...... 23 Table 4.4 Corporate Average Fuel Economy Regulations, United States: 2010-2016 ...... 28 Table 4.5 HEV, PHEV, and BEV Tax Incentives by State ...... 31

Figure 2.1 Mix of New Passenger Car and Light Truck Sales by Model Year, World Markets: 1999-2010 ...... 10 Figure 3.1 Series and Parallel Hybrid Drivetrains Diagram ...... 16 Figure 4.1 Vehicle Fleet Average Fuel Economy, World Markets: 2002-2016 ...... 26 Figure 4.2 CAFE Standards and Actual Fleet Average Fuel Economy, United States: 1978-2008 ...... 27

Hybrid Electric Vehicles for Fleet Markets

Section 11 SCOPE OF STUDY

Pike Research has prepared this report to provide participants at all levels of the HEV markets, including vehicle OEMs, suppliers, battery manufacturers, and fleet managers, with a study of the market of hybrid vehicle technologies. This study’s major objective is to determine the state of the industry and likely future growth of hybrid vehicles in the fleet vehicle market. The report also provides a review of major demand drivers as well as key industry players within the competitive landscape.

SOURCES AND METHODOLOGY

Pike Research’s industry analysts utilize a variety of research sources in preparing Research Reports. The key component of Pike Research’s analysis is primary research gained from phone and in-person interviews with industry leaders including executives, engineers, and marketing professionals. Analysts are diligent in ensuring that they speak with representatives from every part of the value chain, including but not limited to technology companies, utilities and other service providers, industry associations, government agencies, and the investment community.

Additional analysis includes secondary research conducted by Pike Research’s analysts and the firm’s staff of research assistants. Where applicable, all secondary research sources are appropriately cited within this report.

These primary and secondary research sources, combined with the analyst’s industry expertise, are synthesized into the qualitative and quantitative analysis presented in Pike Research’s reports. Great care is taken in making sure that all analysis is well-supported by facts, but where the facts are unknown and assumptions must be made, analysts document their assumptions and are prepared to explain their methodology, both within the body of a report and in direct conversations with clients.

Pike Research is an independent market research firm whose goal is to present an objective, unbiased view of market opportunities within its coverage areas. The firm is not beholden to any special interests and is thus able to offer clear, actionable advice to help clients succeed in the industry, unfettered by technology hype, political agendas, or emotional factors that are inherent in cleantech markets.

NOTES

CAGR refers to compound average annual growth rate, using the formula:

CAGR = (End Year Value ÷ Start Year Value)(1/steps) – 1.

CAGRs presented in the tables are for the entire timeframe in the title. Where data for fewer years are given, the CAGR is for the range presented. Where relevant, CAGRs for shorter timeframes may be given as well.

Figures are based on the best estimates available at the time of calculation. Annual revenues, shipments, and sales are based on end-of-year figures unless otherwise noted. All values are expressed in year 2010 U.S. dollars unless otherwise noted. Percentages may not add up to 100 due to rounding.

Hybrid Electric Vehicles for Fleet Markets

Published 3Q 2010

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