Monday, January 01, 2007

Ethanol or Hybrids? — The Real Story, Part III

Who Killed the Electric Car?

There must have been a considerable amount of consternation expressed within the headquarters of General Motors several weeks ago with the release of the movie, Who Killed the Electric Car? The movie theorized a conspiracy that was led by General Motors to eradicate a concept that could have revolutionized not only the automobile industry but the oil industry as well. The movie implies that GM preferred the status quo, and in the process forfeited a $1 billion investment effort to introduce an electric powered car that had the potential of eliminating, or at least minimizing the American addiction to oil.

In 1996, GM launched the first environmentally friendly gasoline-free, cost saving electric car — the EV1. Well, that’s not exactly correct, since many of the original automobiles produced in the early 1900’s were powered by batteries. Nevertheless, unlike those ancient batteries, the one powering the EV1 was rechargeable by plugging it into any electric outlet. GM built some 1100 EV1’s and then chose not to sell them, but to lease about 800 of them for a three-year period. Drivers loved the car, and ultimately there was a long wait list for them.

Nevertheless, the plug was literally pulled by GM who claimed there was insufficient demand to justify further production; leases were not renewed; by 2002 all the cars had been collected; and except for a few that went to museums, the cars were crushed and destroyed. The movie maintained that car companies, the oil industry, poor marketing, consumer suspicion and governmental disinterest at both the state and federal level, contributed to the failure. However, a conspiracy theory has evolved that is even more relevant based on very recent events.

Does the Name Stanford R. Ovshinsky Ring a Bell?

Probably not — still, much of today’s technology would not exist without his inventions, enough to have earned him over 300 patents relating to such diverse fields as LCD displays, semi-conductors, solar energy, copying and fax machines, personal computers, and cell phones. Wikipedia, the Internet encyclopedia, describes Ovshinsky as follows: [He] “is a self taught Jewish American-Lithuanian engineer, inventor, and physicist. He has invented amorphous semi-conductor materials, which gave rise to a whole new segment of material engineering, aiding in the construction, of semi-conductors, solar energy, and electric cars.” The article continues, “A true autodidact [a self-taught person], Ovshinsky was forced to drop out of school during the great depression of the 1930’s [he is now 84 years old] in order to help support his family. Despite this, he developed into a successful mechanical and electrical engineer.”

A month ago, The Economist ran an article about Ovshinsky with the headline, “The Edison of Our Age.” (Thomas Edison, a noted anti-Semite, must be spinning in his grave wondering how a Jew could possibly be compared to him). In fact, a recent biography is titled, Stan Ovshinskyand the Hydrogen Economy, in which the author, George S. Howard of Notre Dame calls him “the father of the hydrogen economy.” He cites the fact that “almost five decades ago, Stan, and his wife Iris (who passed away a few weeks ago) proposed a radical idea, the hydrogen loop, to fully utilize the benefits of hydrogen, the universe’s ultimate energy source.”

Few people realize that in any discussion about moving the American predilection away from oil reliance automotive vehicles, Stanford Ovshinsky is a key player. For one, it was he who invented the batteries that made possible both hybrid and all-electric vehicles, and potentially, as well as those that ultimately will be used to power autos and trucks with Hydrogen.

In 1960 Ovshinsky founded his company, Energy Conversion Devices (ECD), where he created his many inventions, one of which was the Nickel Metal Hybride (NiMH) battery that was used in the GM electric car. In 1994, Ovonic Battery Co., a subsidiary of EDC, and GM formed the joint venture, GM Ovonic in order to manufacture and commercialize Ovshinsky’s invention. This led to the creation of GM’s EV1 electric car.

Conspiracy at Work?

Was it mere coincidence that in 2002, Texaco, who had acquired a 20 percent interest in GM Ovonic bought GM’s 60 percent share, thereby gaining majority control of the company and its patents? Texaco subsequently was purchased by Chevron and a company named Cobasys was formed by Chevron to control the patents to the NiMH battery. Interestingly, Toyota had also produced an electric car called the RAV4 EV, employing a similar battery produced by Panasonic. Cobasys sued both companies for patent infringement and Toyota ended up paying $30 million, agreeing not to build “large format” versions of the battery that could be used in plug-in vehicles. This derailed the RAV4 EV and Toyota also pulled all the leased cars off the market. (Remarkably, most of those that had been sold instead of leased are still running as well as ever). At that point, Chevron’s Cobasys, basically pulled the NiMH battery off the market, and refused to sell it for normal automobile production.

It is not difficult to imagine why Chevron would be reluctant to encourage an oil-free automobile, but why would car companies also comply? Think about it — where do most automotive profits originate? Dealers make most of their money from repairs or logistical support. The electric vehicle is therefore a threat, not only to the oil companies, but to dealer service and parts (the eclectic car motor has only one moving part), as well as to the automotive support structure including gas stations, brake shops, muffler shops, radiator shops and tune –up shops.

Moronic and Ironic

In an interview, Rick Wagoner, who was CEO of GM at the time, has admitted that the worse decision of his career was “axing the EV1 electric car program, and not putting the right resources into hybrids.” While Mr. Wagoner’s original decree was moronic, ironic was the most recent GM decision announced in November that (possibly in an effort to shed its image as an electric car killer) it now plans to sell a plug-in hybrid version of the Saturn Vue, probably sometimes in 2007. Even more ironic is the fact that none other than Cobasys, the ECD/Chevron subsidiary that has withheld the NiMH battery from the auto market for the past four years will now supply a new version of that battery to GM, thus coming full circle. However, the most ironic coincidence of all is the fact that the Chairman and CEO of ECD, Stan Ovshinsky’s company, is none other than Robert Stempel, a staunch advocate of the electric car concept who actually promoted the launch of the electric EV I car as chairman and CEO of General Motors until he was forced out of office in 1992. He joined ECD in 1994 in his current position.

It is all too apparent that the stranglehold on the NiMH battery patents held by ECD is the result of Chevron’s attempt to limit the expansion of hybrids in general and more specifically, its greatest nightmare, a car requiring no gasoline at all. It is all the more puzzling that both Ovshinsky and Stempel cannot exert more influence on Chevron to act more in the interest of the country by licensing the patents. Although ECD has been building a plant to produce NiMH batteries, its production capability will be only about 60,000 units, a pitifully small number.

A Business Oriented Report

Why is the above historical account describing the reluctance of both the auto and oil industry to fully embrace the concept of a gasoline free, or at least a gasoline-conserving car, so important? Eventually there are only two avenues to pursue if America is to cure its addiction to oil. One is to build cars with the traditional internal combustion engine, perhaps tweaked with some type of electric booster to conserve gasoline, like the Toyota Prius. The second is to create a new transportation model that requires no gasoline at all.

The transition to both modes is outlined in a 49 page Report published in June by the investment company Alliance Bernstein. (It was given to me by Boca Pointer Bill Duff). The report is headed, “Ending Oil’s Stranglehold on Transportation and the Economy.” A deep analysis of this nature, produced by investment analysts is probably more accurate than what is found in traditional magazines, newspapers, and even academic studies since it approaches the subject from a calculated and objective business standpoint.

The Report offers some interesting, and at times, contrarian opinions. For example, it maintains that a growing popularity of hybrid vehicles “will occur due to the superiority of these vehicles rather than an explicit effort to reduce oil consumption.” It also cites the probability of the “Peak Oil” theory ultimately playing out, but delayed in time as a result of reduced oil demand from the transportation sector. That in turn will be a product of the transition to hybrid-powered vehicles that use electric motors to boost oil efficiency. Another major contradiction relates to an International Energy Agency projection that oil demand for cars will increase from close to 20 million barrels of oil a day currently, to 32 million barrels a day by the year 2030. The Report suggests that as a result of hybrid activity, the latter number will be 50% lower at 16 million barrels. Obviously, the Report foresees the future of the automobile industry as being tied to hybrids.

A Hybrid in Your Future?

However, a peculiar dichotomy exists in the production and marketing of hybrids. Demand has outstripped supply, thereby inducing price premiums above the list price that have ranged from $4,000 for the Honda Civic to $6,000 for the Toyota Prius. These have eased somewhat since gasoline prices have moderated. Yet, as production is ramped up and economics of scale set in, the differential between a gas-only car and a hybrid should fall to only about $2,000. A recent study by P.L. Polk indicates that 71 percent of U.S. consumers would consider buying a hybrid.

Another demand driver for hybrids is the fact that “in the U.S., the high travel segment, comprising business and government fleets, as well as high mileage travel individuals represent 30 percent of new light duty vehicle sales.” These constitute vehicles that typically put on 15,000 to 54,000 miles per year. These are potential customers who are early adapters of new technologies especially when reduced fuel bills can be anticipated.

Another significant driver of demand will be the sharp proliferation of available hybrid models. Within the next two years, every major auto manufacturer has announced its intention to market at least one new hybrid, led by Toyota with eight, Honda, Ford and GM with six each, for a grand total of 44. Nissan is a laggard with only one. This type of commitment indicates quite clearly that the industry is in a transformational mode, and as technology advances, the future potential for reducing our reliance for oil is looking much brighter.

A speedy transformation to an auto industry based on hybrid technologies will have not only enormous ramifications on our geopolitical policies, but a significant impact on auto pollution control and global warming as well. Next month’s article will describe and examine the different hybrid technologies.

Ethanol Redux

If after reading the past two articles on the subject, I have not yet convinced you of the futility of believing in the ability of ethanol to solve our addiction to oil, the following might be the clincher. American Scientific magazine is a highly respected publication that is known for its circumspect consideration of the scientific facts relating to articles it publishes. In its most recent (January 2007) issue, under the title, Is Ethanol for the Long Haul?, the article concluded (as did the two Viewpointe articles on the subject), that ethanol could not even come close to solving America’s love fest with oil. Using the same arguments you read about in Viewpointe, the magazine came to the following (identical) conclusion: “In the meantime, relying on ethanol from corn is an unsustainable strategy: Agriculture will never be able to supply nearly enough crop, converting it does not combat global warming, and socially, it can be seen as taking food off people’s plates. Backers defend corn ethanol as a bridge technology to cellulose ethanol, but for the moment it is a bridge to nowhere.” Right on!!!


Post a Comment

<< Home