Plug In, Move On: A Hybrid Future

[pagebreak:Plug In, Move On: A Hybrid Future]

Robb Protheroe, chief executive and founder of Petaluma, Calif.-based Plug-In Supply, isn’t sure if the business he’s in will be around for much longer.

Plug-In Supply’s proposition is simple. For about $5,000, plus installation costs, it’ll juice up your Toyota Prius with old-fashioned lead-acid batteries that will give you a gasoline-free commuting range of about 10 miles.

For $11,000, you can get lithium-ion batteries that can deliver an all-electric range of up to 20 miles, Protheroe said. Both kits can increase fuel economy up to 100 miles per gallon, he said.

But the plug-in hybrid conversion-kit manufacturer faces the same challenges as many of its peers.

First of all, the kit doesn’t save drivers enough gas money to pay back the cost in less than 10 years.

And don’t Toyota Motor Corp. and General Motors Corp. intend to come out with their own plug-in hybrids by the end of the decade, hitting the market with what are likely to be cheaper alternatives to conversions?

Protheroe said he hopes they’ll do it as quickly as they can.

That’s because his future is in converting purely gasoline-powered vehicles to hybrid-electric power, supplying electric-vehicle parts and systems to manufacturers, and just generally "making cars better.”

"I’m not a car company, and I’m not going to compete with a car company," he said. "I'm selling this system in order to bring pressure on the car companies to do this."

But the pressure from companies like Plug-In Supply has brought some results.

Phil Gott, director of automotive consulting at Global Insight, estimates that about 2.8 million hybrids will be on the road by 2013, 1.5 million of them in the United States.

That’s not a bad leap from the approximately 150 plug-in hybrids on the road today, according to plug-in hybrid advocacy site CalCars.org. 

Big guys also are getting in on the act. Toyota has promised plug-in Prius models for commercial fleets by 2009, although it has set no firm date for the consumer market, and General Motors expects to bring its Chevrolet Volt to the market in 2010.

So plug-in hybrid converters – Hymotion, Hybrids Plus, EDrive Systems and a handful of others – can take a certain satisfaction in the idea that they’ve helped jump-start a movement.

The question is, what next?

Many of the founders of the business model that started the plug-in hybrid trend agree the lifespan of that model could be limited.

Take Greg Hanssen, chief technology officer of Irvine, Calif.-based EDrive Systems.

"This may be a niche market, and the window may only be open for a few years," said Hanssen, one of the founders of Monrovia, Calif.-based Energy CS, which debuted a prototype lithium-ion plug-in hybrid Prius in 2005.

Hanssen said he hopes EDrive will soon begin selling Prius conversions at Southern California locations for about $12,000 apiece, but he isn’t sure that will happen.

"We may move onto something else," he said. "The expertise and intellectual property within EDrive is more valuable than the potential market of [plug-in hybrid] conversions and retrofits."

Daniel Sperling, director of the Institute of Transportation Studies at the University of California at Davis, also thinks that the market opportunity for conversions is narrowing.

"In the long term, there’s no way they can have a business as purely retrofit options,” he said. "The question is, how do these companies evolve? Maybe there can be a role for them, particularly if they develop components or expertise that might be helpful."

Of course, when automakers start making plug-in hybrids, that won’t completely shut off the market. There will still be “a nice pool” of used vehicles to convert, and owners of new plug-in hybrids still might want to boost their mileage by adding batteries, Gott said. 

Still, "the real business strategy is to become big enough, important enough, and to have some intellectual property that causes someone to want to buy you out,” he said.

So far, only Toronto-based Hymotion – acquired this year by A123Systems, the MIT-launched startup bidding to make batteries for GM’s Volt – has pulled that off. Now it’s offering plug-in conversion kits for a little over $10,000 through six metropolitan-area dealerships, four of them Toyota dealerships (see Can Hymotion Convert the Auto Industry? and Toyota Dealers Solar on Hymotion Plug-In Hybrids).

Hymotion is still working on delivering those conversions, however.

Meanwhile, Carl Lawrence, CEO of Boulder, Colo.-based Hybrids Plus, has sold 30 so far. 

But as an 18-year veteran of the electric-vehicle business, who built aircraft tugs for the U.S. Air Force and hybrid buses for the Denver Regional Transportation District, he knows that his business is, well, converting itself. 

"It became pretty obvious pretty quickly that we had to do battery systems in general," Lawrence said. "We know there’s a limited window of opportunity for the conversions. We’ve already planned past that point."

Those plans include building prototypes for manufacturers of specialty vehicles like parking patrol cars, as well as the new field of vehicle-to-grid technologies that could let utilities draw on the batteries of electric or hybrid vehicles when they're plugged in for recharge in order to meet peak power demands.

[pagebreak:Plug-In Conversions: Continued]

All this planning is not to say the conversion market doesn’t exist.

Philip Reed, senior consumer advice editor at Edmunds.com, said selling only 100 conversions a year could be enough to keep a business going.

Still, the conversion cost -- driven by lithium-ion battery packs that start at $10,000 and can cost two to three times as much -- makes for “an extremely niche market,” he said. As early adopters, plug-in hybrid converts also face uncertainty over voided warranties or state regulations like those being considered by the California Air Resources Board, which would require testing and warranty protections for hybrids converted to plug-ins, he said.

Batteries need better performance and reduced cost before plug-ins – from both startups and major automakers – can gain traction in the market, said UC Davis’ Sperling, who also is a CARB board member.

That could take some time. Gott estimates it will be another seven years or so before advances in battery technology make plug-in hybrids viable as mainstream consumer offerings.

Questions about battery technology will likely play into how fast GM and Toyota roll out their promised plug-in hybrids, he added, GM’s 2010 deadline for the Chevy Volt, for example, will mainly fall on whichever company makes its batteries, he said.

And while companies seeking to deliver new advances in battery technology will face an expanding market, competition to supply batteries for plug-in hybrids from automakers like Toyota and GM could leave a lot of losers in the space over the coming years, according to a report released Monday by Lux Research.

“The winner-take-all nature of the game means many companies will come to grief,” said Ying Wu, a senior analyst with Lux Research.

Still, Wu predicted that the plug-in hybrids will drive lithium-ion batteries to command nearly half of the electric-hybrid vehicle market by 2012, whereas nickel-metal-hydride batteries held a 99-percent market share last year. 

In the meantime, CalCars.org co-founder Felix Kramer sees another untapped market.

"Some of these companies are likely to expand into conversions of nonhybrids, as recently proposed by Andy Grove for [pickups, SUVs and vans]," he wrote in an e-mail. Grove, former CEO and chairman of Intel, gave a speech at the inaugural Plug-In conference in San Jose promoting plug-in hybrids (see Plug-In Hybrid’s New Spokesman: Andy Grove).

Gott of Global Insight also sees an opening in commercial fleets, where vehicles are expected to last much longer and where fuel efficiency is directly tied to a company’s bottom line.

Until then, Protheroe is looking for money to help boost production beyond the 40 kits per month he expects to reach by year’s end.

"All I can say is we’re ready to ship thousands of systems per year, but we need additional investment to ramp up production to that goal," he said.

Hybrids Plus plans to keep doing conversions through its recently announced deal with Santa Rosa, Calif.-based electric-vehicle maker Zap. While Lawrence wouldn’t say whether his company was actively seeking investment, he said it does have “financial projections that would require an outside infusion of cash."

Investors may be wary, considering that the costs are still too high to give buyers a return on their investment.

“If you’re using payback to justify buying these systems, forget it," Protheroe said. "Ride a bicycle. People buy cars based on emotion. How else do you explain that people will pay $500 for a sunroof, or $2,000 for a stereo system?"

You might as well ask what price we put on cleaning the air or shrinking our dependence on petroleum.

In Protheroe’s case, it’s about $5,000 – plus installation costs.