elements in forecasting breakthrough automobile ...

MEGATREND UNIVERSITY VII International Scientific Conference Dealing with the global economic crisis by companies and economies Belgrade, 27th November 2009

ELEMENTS IN FORECASTING BREAKTHROUGH AUTOMOBILE POWERTRAIN INNOVATION IN THE LIGHT OF THE CURRENT CRISIS J.J. CHANARON Research Director CNRS Associate Dean Grenoble Ecole de Management

Abstract: this paper is presenting a model allowing to build up scenarios for breakthrough technological innovation in manufacturing industry, using the automotive industry and new power trains as the core example. Keywords: INNOVATION, AUTOMOBILE, TECHNOLOGY, SCENARIO

1. INTRODUCTION Facing increasing competition and increasing uncertainty in the context of globalization and worldwide economic depression as well as pressures for fossil-fuels free and environmentally friendly solutions, mature manufacturing industries are looking forward for breakthrough innovations. This is indeed primarily the case of the automotive industry. For more than a century the internal combustion engine (I.C.E.) has been the dominant design in power train technology and the industry has been considered as static and highly reluctant to breakthrough innovation (Bardou & al. 1977; Chanaron,1998). Since the early 2000s, industry experts are considering that radical change is needed in order to reduce CO² emissions, a major factor of global warming, and the dependence on petrol. As stated by Barro (2009), “as we all know, we are in the middle of what will likely be the worst economic contraction since the 1930s”. And in this context, the automotive industry is one of the most affected industries. Most if not all OEMs are in trouble facing unprecedented decline of sales and manufacturing, and then reducing drastically their workforce to decrease their breakeven point. They all revise their short term plans for 2009 and 2010 and engage negotiations with governments, banks and competitors to assess their need for restructuring. Most industry experts do not see the end of the depression before 2011. Recent data are speaking by themselves: • Sales of cars in Europe are down by 8.1% on the first eight months of 2009 after a fall of 7.8% in 2008 but they are down by 40.2% in Spain, 21.5% in the United Kingdom, 63.7% in Irland; • Sales of cars in the United States are down by 28% on the first eight months of 2009, hybrid cars by 15% after a decrease of 18% in 2008 and despite nearly 700,000 units sold thanks to the “cash for clunkers” program in August 2009;

• Sales of passenger cars would be down by 47% in Russia in 2009; • Sales of motor vehicles are down by 19.2% in Japan on January-July 2009 after a decrease of 10% in 2008. During the early stages of the global financial and economic crisis, and due to the exceptional depth of the automobile recession, some experts predicted that such a decline would accelerate the momentum of innovation in automotive powertrain towards downsizing and breakthrough technologies.

2. TOWARDS A MODEL OF SUCCESSFUL INNOVATION Although many determinants of innovativeness have been identified and proven through case studies and industry surveys, “the understanding of ideal practices for innovation remains patchy” (Ahmed, 1998). Dougherty and Hardy (1996) provide evidence that innovation is a fragile and vulnerable activity. They also show that organizations suffer from an inability to sustain innovation over the long term. Above all academic scholars have been unable to provide practitioners with an operational model for managing innovation efficiently and in their organization. Most contributions are looking at key success factors from the point of view of the innovating firm and very few from the customer or user perspective when it is obvious that commercial success is heavily dependent on the demand expectations and level of acceptance. The following model is proposed: Figure 1. A Comprehensive Model of Innovation

A Comprehensive Model Politically, Socially and Culturally Acceptable

R&D

CUSTOMS IDEOLOGIES SOCIAL PRACTICES SALES SERVICES

Scientifically and Technically Possible DESIGN

OPPORTUNITY OF INNOVATION

Commercially Vendible

MARKETING METHODS ENGINEERING

MANUFACTURING

Industrially Feasible

New products, new services, new processes or new organizations are successful when they are simultaneously: 1. Scientifically and technically possible, i.e. when they have the technical performances expected by customers and users;

2. Commercially vendible, i.e. when their price meets the demand as well as the after sale and maintenance costs; 3. Industrially feasible, i.e. when their manufacturing costs and quality are satisfactory to all stakeholders; 4. Politically, socially and culturally acceptable, i.e. when they get political support and full customer acceptance.

3. THE CASE STUDIES The model is a useful framework to assess and benchmark innovative options which are emerging in any particular industry. The research is focused on the following alternative power trains: Table 1. The various automotive power trains ICEV

HEV

Internal Combustion Engine Vehicle Advanced Internal Combustion Engine Vehicle Hybrid Electric Vehicle

PHEV

“Plug-in” Hybrid Electric Vehicle

ERHEV

Extended-Range Hybrid Electric Vehicle

FPBEV

Full Performance Battery Electric Vehicle Fuel Cell Electric Vehicle

AICEV

FCEV

Vehicle powered by a gasoline or diesel engine Vehicle powered by ICE using biofuels, natural gas or hydrogen Vehicle powered by both ICE and electric power trains HEV with “plug-in” rechargeable batteries Vehicle powered by electric power train and batteries recharged by a small ICE Full electric vehicle powered solely by batteries Full electric vehicle powered solely by fuel cell

Within each category, several variants might exist. For example, fuel cell electric vehicle might run with a hydrogen tank or with on-demand hydrogen supply, i.e. on-board production of hydrogen. 3.1. Advanced Internal Combustion Engine Vehicle The conventional internal combustion engine will probably remain dominant for decades due to its obvious advantages not only because it is a surprisingly efficient technology and very cost effective compared to the alternatives but also because the infrastructure is universally available. Above all, the technology can still be improved to a quite large extent through downsizing (weight, size, power, and maximum performances), optimization of ignition and combustion, stop & start devices, etc. Syrota (2008) estimated at 30 to 40% the potential gain in fuel consumption. The advance ICE is indeed the short-term option favored by the current industry stakeholders since relatively limited changes are required on both the vehicle and the energy distribution infrastructure. The technology is available and economically viable.

Advanced internal combustion engines can use natural gas (NGV) (table 2A), bio-fuels (table 2B) and indeed various combinations including mixing bio-fuel or hydrogen and gasoline or diesel in different proportions. This option might also bring innovative components in order to optimize the engine’s performances regarding emissions and energy consumption. It might also vary from one region to another one since natural gas and sources of bio-fuels are not geographically equally distributed. Countries with natural gas reserve (USA, Russia, Iran, etc.) will probably focus on NGV when countries with large agricultural or forestry resources (USA, Brazil) might well support the development of bio-fuels. Table 2-A. Characteristics of Natural Gas Factor Political, social and cultural acceptability

Technological Possibility Commercial vendibility

Industrial feasibility

Degree of achievement Very good

Current Status

Fossil fuel dependence

Total

Total

Infrastructure

Excellent

Overall

Total

Different according to countries Total

Safety Customer acceptance

Good Relatively good

Pricing

Correlated to oil pricing trend Good

CO² performances

Cost Engineering Component supply

Good CNG kit available

Excellent

Still some resistance over safety Subsidized by governments Small premium Good Fully available

Long Term Perspective Excellent

Reserve for 100 years but geographically distributed Relatively easy and cheap to develop Excellent

Resistance will disappear

Will vanish with economies of scale Will improve

Compressed natural gas ICE is indeed an attractive option since refueling might be done at home in countries where there is a nationwide distribution network. But as far as greenhouse gas are concerned, this option is still problematic even if, according to the EPA, compared to traditional vehicles, vehicles operating on compressed natural gas have reductions in carbon monoxide emissions of 90 to 97 percent, and reductions in carbon dioxide emissions of 25 percent. Nitrogen oxide emissions can be reduced by 35 to 60 percent, and other non-methane hydrocarbon emissions could be reduced by as much as 50 to 75 percent. Biofuels (table 2B) are also very attractive in theory. But their massive deployment will need high investment in production facilities as well as huge land requirements. In fact, biofuels are discussed as having significant roles in a variety of international issues, including mitigation of carbon emissions levels and oil prices, the "food versus fuel" debate, deforestation and soil erosion, impact on water resources, and energy balance and efficiency. They also require genetically modified plants (GMO) in order to reach the necessary high levels of productivity which will certainly increase political opposition in some regions.

Table 2-B. Characteristics of Bio-fuels Factor Political, social and cultural acceptability

Degree of achievement Very good

Current Status

None

None

Bad

Bad

Good

Good Poor

Overall

Require genetically modified seeds Total

Safety Raw materials

Customer acceptance Pricing Cost

Relatively cheap

Manufacturing

New infrastructure to be built up

CO² performances

Fossil fuel dependence Competition food/transportation Infrastructure Ecology

Technological Possibility

Commercial vendibility


Excellent

Long Term Perspective Excellent

Progress in output/ha and efficiency Relatively easy and cheap to develop

Total

Excellent

Not an issue Limitations

Limitations

Opening to new sources: straw, exotic plants, garbage

Relatively good

Good

Good

Subsidized by governments

Under construction in Brazil, USA and Europe

Will improve with economies of scale Will decrease with economies of scale Will expand rapidly in some countries

3.2. Hybrid Electric Vehicles 3.2.1. Current hybrid technology Since the success of the Toyota Prius which has been launched in 1997 and sold at more than 1 million units during the last 10 years, the hybrid car is one of the really credible alternatives to the conventional ICE. There is already an abundant academic literature (Chanaron & Teske, 2007; Alamgir & Sastry, 2008) discussing its well-to-wheel efficiency, technical and economic performances. The current third generation of Prius has been a commercial success in particular in the United States but the European market has been below expectations. It is obvious that the current technology has limited advantages as far as fuel consumption and CO² emissions are concerned, limitation due in particular to the autonomy of the NiMH battery slack used by Toyota. The forthcoming generation of Prius and most competing models by Honda, Nissan, Ford, GM and others will use Lithium-Ion batteries and have much better performances on electric drive.

Table 3. Characteristics of HEV Factor Political, social and cultural acceptability

Technological possibility



Environmental friendship

Degree of achievement Slightly better

Fossil fuel dependence

High

Infrastructure Overall performances Range/autonomy

Excellent Good Limited

CO² Performances

Limited

Fuel consumption performance Customer acceptance

Limited

Pricing

Relatively weak

Cost

Higher

Engineering

More complex

Manufacturing

Easy

Quality

Equivalent

Relatively weak

Current Status

Total availability Similar to current ICE 10-15%

Under control of very few OEMs

Long Term Perspective Might be improved with new generations downsized gasoline engine & better batteries Reserve for 40-50 years but could be extended with downsizing Not an issue Should not change substantially Lithium-Ion battery will improve

Should improve slowly Might benefit from change in behavior

Price will decrease with volumes Will decrease with economies of scale and scope Will improve rapidly Electronic module is the key component

Equivalent

The technological advantage of current gasoline-electric hybrids is smaller in Europe due to the high diesel penetration rate. But in the US, the difference is around 25-30% due to the average size of the fleet. 3.2.2. Plug-in Hybrid Electric Vehicles Plug-in hybrids have the significant advantage of longer autonomy on electric power train since they have much bigger and much more efficient battery stacks which are rechargeable not only by the ICE but also by plugging into the electricity grid. They also have the advantage of being considered by the industry stakeholders, including the customers, as a first step towards full performance battery electric vehicles and/or fuel cell electric vehicles. Even Toyota, which has been the true innovative OEM as far as conventional hybrid technology is concerned, has recognized that this technology is an intermediary solution and should last only a couple of decades, plug-in hybrids replacing progressively conventional hybrids, until full performance batteries or fuel cells will be meeting all technical and economic requirements.

A recent paper (Michalek & al., 2009) stated that PHEVs consume less gasoline than conventional hybrid electric vehicles (HEVs) when charged every 200 miles or less. Under frequent charges every 25 miles or less, small capacity PHEVs consume less gasoline, are less expensive, and release fewer greenhouse gases (GHGs) than HEVs or large capacity PHEVs. For moderate distances of 30-90 miles between charges, PHEVs release fewer GHGs, but HEVs are more cost effective. Since hybrid vehicles are already marketed in high volume, there is no doubt that their market share will still grow significantly during the next ten years. The most optimistic scenarios for hybrids (Crozet, 2005) see this technology as dominant with more than 90% of new registrations around 2025. Heywood (2008) who is also strongly supporting the hybrid options has forecasted a market share of 8% in 2015, 20% in 2025 and 40% by 2035. On the other hand, several consulting agencies (Arthur D. Little, Rolland Berger, IBM) consider that the market share for hybrid vehicles will not exceed 10% in 2020. Syrota (32008) suggests that the plug-in hybrid using existing electricity grid is the only viable solution before 2030. But the bottleneck will remain the battery. 3.2.3. Extended-Range Hybrid Electric Vehicle This is a third option within the hybrid technology portfolio. The vehicle run on its electric power train and the ICE is only used for recharging the battery pack. This choice has been made by GM for the Chevrolet Volt due to be available in 2010. On the battery alone, the Volt can run 40 miles, level set because 78% of customers commute 40 miles or less daily. A Volt will use 2,520 KWh at a cost of 2 cents per mile annually which is what is using a computer and a monitor operating all day (Stanek, 2008). 3.3. Full Performance Battery Electric Vehicle The electric car powered by electro-chemical batteries predates the internal combustion engine. According to historians, the very first crude electric carriage was invented between 1832 and 1839 (Wikipedia). When the Frenchmen Gaston Plante invented a better storage battery in 1865 and Camille Faure improved the storage battery in 1881, they paved the way for electric vehicles to expand their market penetration. Just prior to turn of the century, before the pre-eminence of ICEs, electric automobiles held many speed and distance records1. At that time, electric vehicles had many advantages over their competitors. They did not have the vibration, smell, and noise associated with gasoline cars and they did not require gear changes and hand cranking.

1

Among the most notable of these records was the breaking of the 100 km/h speed barrier, by Camille Jenatzy on April 29, 1899 in his 'rocket-shaped' vehicle Jamais Contente, which reached a top speed of 105.88 km/h (see Wikipedia, http://en.wikipedia.org/wiki/Electric_car).

Table 4. Characteristics of FPBEV Factor Political, social and cultural acceptability

Technological possibility

Environmental friendship Fossil fuel dependence Infrastructure Overall performances Range/autonomy

Durability/Number of recharging cycles Recharging time



Degree of achievement Excellent

Excellent

None

Excellent

Weak

Weak

Very poor, far from expected levels Limited

Limited mileage autonomy