The Electric Car Model that Works
The world market for all electric vehicles will grow from just under 10,000 units in 2008 to an estimated 350,000 cars, trucks, vans and buses by 2013, good for a $15 billion turnover. This is small compared to the 2.6 million hybrid cars on the road today. The demand for batteries grows at an ever more rapid pace spurring sales from approximately $900 million today to between 10 and 15 billion by 2015 solely for the large lithium-ion batteries. By 2020, this market alone could reach anywhere between $30 and 40 billion. The electric car makers and their suppliers make strategic alliances with battery makers to lock in battery technologies, as we observe with the agreement signed between VW (Germany) and Sanyo (Japan), Continental (Germany) and ENAX (Japan), Bosch (Germany) and Samsung (Korea), VARTA (France) and Johnson Controls (USA).
Toyota spent an estimated $5billion on the hybrid program, selling +60 percent of all the vehicles of this type, while minor players like BYD (China), Tesla (USA) and THINK (Norway)
each carved out a small niche in the emerging market of electric vehicles ahead of any of all major players that are about to go into mass production, including Renault-Nissan which will inaugurate a plant in Spain in 2011. Mass production at the Valladolid plant is only reaching 25,000 units for the first year. However, Renault predicts that by 2020 as much as 10 percent of its output will be electric vehicles.
China has decided to leapfrog car technologies and aims to raise its production capacity of virtually nothing in 2008 to 500,000 by the end of 2011, including hybrid/electric and all electric cars. By that date, North America would only be making 267,000 units, while South Korea and Japan combined would already top the 1.1 million mark. While still behind, China is likely to take the lead soon. BYD has 10,000 auto and battery engineers at the headquarters in Shenzhen, capable of competing head-on against the best. China has an additional advantage: 80 percent of the clients are first-time car buyers unaccustomed to power and diversity that characterizes the overseas automobile market.
Electric cars are more expensive. The market would not buy a vehicle that is not competitive,except when governments offer major tax credits, running up to $10,000 per car or when the wealthy decide to appease their conscience. The challenge remains the battery. It is heavy, with a limited driving radius and locked-in supply agreements which render across the board leaps in efficiency rather difficult to achieve fast. The most innovative battery pack produced by ELIIY, controlled by Daiwa House (Japan) has proven to last for 10 years, with only a 20 percent loss of retention over a decade. The maker offers a 100 percent recycling guarantee. However this highly performing system is not even on the market for cars. For the time being, the ELIIY battery will solely be deployed in homes. When Javier Morales studied the options before him to convert the complete car fleet of 6,000 from combustion engine to electric power, he realized that the breakthrough required is the creative use of financing. He took some inspiration from the City of Chattanooga which already in 1994 opted for electric bus transportation. As Vice-President of the local government of El Hierro, a small island with only 10,500 inhabitants off the coast of Africa, part of the Canary Islands, he designed an innovative approach that not only makes the electric cars cheaper to purchase, the conversion from petroleum-based to renewable energy powered transport provides an additional boost to the local economy.
The island decided to substitute the annual expense of approximately $10 million for fossil fuels into a capital investment in wind energy, strategically backed up by accumulators. The four former gas stations will be turned into electric storage stations to provide stability to the grid powered by wind energy (10.5 MW operational by May 2011). All excess power from the generators first converts sea water to drinking water (operational), which is subsequently pumped up to an old crater, converted into a giant reservoir (May 2011), which will generate additional hydropower at moments of peak consumption. The system provides cheap offpeak electricity to power the batteries.
The First Cash Flow
The local electric company, majority owned by the Island controls the business. The batteries are not sold with the cars, but are part of the back-up system for the grid. This reduces the purchase cost for each car owner. The sticker price can be held under $ 12,000 per four seat vehicle. The key is that each car owner will pay a weekly fee of $12 to exchange the battery at one of the four charging stations, which are the old gasoline stations converted to back-up accumulators. This weekly fee generates over 7 years +70 million in revenue, enough to finance the operation.
Since the maximum drive across the island and back is only 50 kilometers, the batteries are smaller, lighter and easier to change. There is no need to install public or home charging stations, which require excessive and secure cabling systems that add up to $1,800 per car. This money is better invested into into back-up stations that render the electric car more competitive under these island conditions. Javier realized quickly that his quest to buy 6,000 cars turned him into the biggest single buyer of an electric car fleet in the world – coming from a remote island with only just over 10,000 inhabitants, that was a major surprise. The financing for this scheme is guaranteed. Back-up by this weekly battery charge, the island will secure the capital as a loan and the cash flow to pay the debt, merely substituting what used to flow to the mainland, and from there to the oil suppliers. This reflux of money, instead of draining cash, stimulates the local economy, creating a broad portfolio of additional opportunities which turn this island into an attractive place to live.
Starting from a quest to render the island self-sufficient in renewable energy, it evolved to a combustion free island strategy with funding guaranteed. Now the island is embarking on a third quest: abundant supply of drinking water. The strategy to pursue this back-up system for the electric grid and payment of weekly fees provides a secure revenue to the electric company. This, plus the introduction of vortex technologies (see case 1) renders water cheaper and more abundant than ever before. Now that the farmers drive their electric vehicles and have sufficient water for irrigation at competitive prices, they have committed over the next 8 years to convert to an island to a 100 percent organic produce. The reaction has been overwhelming: for the first time people are moving back to the island; for the first time people are moving back to set up farms. Change does not start at the center, change starts in the periphery. This successful implementation of a renewable energy strategy that was initiated already a decade ago, should provide inspiration for the hundreds of island economies that hardly can imagine how to offer a challenge and a life style to the next generation in order to avoid a total depopulation. El Hierro has provided a pathway forward and the team from the Blue Economy has been privileged to be involved for over ten years.