A Mother Lode for Eco – Innovation

In the midst of Washington’s recent public debt ceiling circus, the President signed an agreement with thirteen major automobile makers that will increase fuel economy in cars and light trucks to an average of 54.5 miles per gallon for model year 2025 vehicles. This extends the current rules, which require an average 35.5 miles per gallon for model year 2016 vehicles. You can access the press release from the home page at www.epa.gov. This agreement has the force of law and a defined compliance schedule, so it is not just Washington hot air. Also, the White House has posted a rather self – congratulatory report on the huge environmental and consumer economic consequences of this agreement at www.whitehouse.gov/sites/default/files/fuel_economy_report.pdf

For manufacturers, this means nothing less than a revolution in how cars and light trucks are made.  The new rules double fuel economy from current levels over less than 15 years. This isn’t incremental improvement. This changes almost everything about the design and manufacture of cars and light trucks.

These changes will be global in scope and they will affect almost all firms that supply (or want to supply) the automotive industry, throughout the value chains of all of the supplier tiers. Further, these changes provide a market of scale for successful new technologies. Given that market of scale, the cost structures for new technologies will change dramatically, hence making those technologies much more competitive in industries outside of automobiles. Take, for example, light weight carbon fiber reinforced composite materials. Today, these are specialty materials, compared to, say, aluminum. Given access to the volume a huge market like the automotive industry, what happens to the relative cost of carbon fiber composites, compared to that of aluminum?

Auto manufacturers need to design and assemble very high mileage vehicles across the product range. These need to be safe, reliable, durable, attractive, affordable vehicles that Americans will actually buy. And the manufacturers need to make a profit by doing so.

Suppliers to the auto industry will need innovations in production methods, production equipment, technology sources, materials sources, human skills, and everything else necessary to produce to the auto makers’ changing requirements. These include serious changes, including technologies that don’t even exist today (in a commercial sense). All on tight time schedules, with auto industry quality requirements.

Other manufacturers may find that they have capabilities that traditional auto industry suppliers don’t have. The new cars will be very different from their predecessors. Further, the technologies necessary to produce the new cars will also find applications in other industries. The opportunities are enormous.

How big? For example, a few weeks ago, I mentioned Dow Chemical’s advanced batteries venture. Dow’s CEO sees advanced batteries growing from a $200 million industry today to $25 billion in 2015. And that’s just batteries, four years from now.

For some insight into what the new cars might be like, you might try:

  Paul Hawken’s book Natural Capitalism. Chapter 2 discusses what Hawken calls “hypercars”. The book is over 10 years old now, but Hawken is prescient about the technologies. Interestingly, battery technology has developed faster than Hawken appears to have guessed. So, the choice between plug-in electric vehicles and hybrid vehicles is less clear than Hawken projected. In early development phases, technologies change fast.

  Tesla Motors is preparing for commercial production (initially 20,000 units, starting in 2012) of an electric sports sedan. Tesla’s website, www.teslamotors.com, offers insights into the engineering design and performance characteristics of this completely new vehicle. The new Model S compliments their Roadster. Neither model looks like an eco – car.

Tesla roadster “plugged in”, Sedona Rouge Resort, Sedona AZ 8 Aug 2011

  New fuel economy standards for heavy vehicles were published this week, so new technologies are needed for trucks, buses and similar vehicles. Vision Motor Corporation (www.visionmotorcorp.com) just received an order for 100 of their Tyrano zero emissions hydrogen fuel cell hybrid Class 8 trucks (the kind that pull 18 wheelers). So, hydrogen fuel cells are in the commercial technology mix.

Thoughtful comments and observations are always appreciated.

…  Chuck

Credits: Chart from the Whitehouse report mentioned above. Photo by Robin Harrington