The great electric car race
April 14, 2009: 10:10 AM ET
(Fortune Magazine) -- Did a battery bring down General Motors?
Not by itself, but it helped. For several years GM has been touting the
battery-powered Chevy Volt as a sign of the company's vitality and proof
of its drive to become a technology leader. Former CEO Rick Wagoner
drove one in Washington, D.C., last December when he went hunting for
federal aid. Despite the car's limited range (40 miles between charges)
and stiff price (estimated at $40,000) GM (GM, Fortune 500) had made the
Volt its standard-bearer and touted it as an antidote to climate change
and oil imports.
Earlier this year a GM executive declared, "We think a plug-in offering
40 miles of gas- and emissions-free driving like the Volt is the sweet
spot for the majority of customers." (For those who want to go farther,
a small gasoline engine acts as a range extender.)
The Treasury Department doesn't share that view. Its auto task force has
cited the Volt as one reason it doesn't consider GM a viable company. As
usual, the department noted, GM has been paying little attention to
competitors like Toyota (TM). The 2010 Prius hybrid, which comes on the
market 18 months before the Volt, can go 50 miles or more on a gallon of
gas and may sell for as little as $21,000 - a lot less money for a big
Treasury's task force was scathing in its appraisal: "GM is at least one
generation behind Toyota on advanced, 'green' powertrain development,"
it said. "While the Volt holds promise, it is projected to be much more
expensive than its gasoline-fueled peers and will likely need
substantial reductions in manufacturing cost in order to become
It's just that kind of wrong-footedness that has led GM to the brink of
bankruptcy. GM has no commercially successful gas-electric hybrids; it
put its long-standing fuel cell efforts on the back burner; and now its
big push behind the battery-electric Volt looks misguided, even
foolhardy. GM has failed as badly when it comes to planning for the
future as it has in coping with today's market.
It wasn't always that way. GM was the company that introduced the
electric self-starter at the dawn of the automotive age, making the
arm-breaking engine crank obsolete, and it developed the catalytic
converter to treat tailpipe emissions. But for the past two decades it,
along with other U.S. manufacturers, has been slaking America's thirst
for horsepower with big V-8s while Toyota, Honda (HMC), and other Asian
manufacturers have developed gas-electric hybrids that keep getting more
efficient and economical. Now the Chinese are on the verge of
introducing their own battery-powered cars, leaving Detroit further
behind the curve.
After driving the automobile for a century, the internal-combustion
engine is giving way to electric motors powered by batteries - which
burn no petroleum and produce no emissions (though the electric plants
that charge them may do both). Early efforts to develop battery power
have focused on exotic cars with names like Tesla and Fisker made in
boutique quantities, but prices are coming down and potential volumes
The U.S. has a lot of catching up to do. But just when GM, Ford (F,
Fortune 500), and Chrysler need to transform their industry, they have
fewer resources than ever to do so. GM, for instance, just asked the
government for $2.6 billion to develop three variations of the Volt. The
winnowing of brands at all three companies has been accompanied by a
decline in revenue and market share as familiar names disappear and
dealers vanish. Vehicles and engines will get smaller too, and
automakers will have to scramble to recover the profits they used to
make with larger ones. The Midwest manufacturing base will also shrink.
The process won't be pretty. The company that Walter Chrysler founded
and Lee Iacocca rescued will probably see such iconic cars as the
hemi-powered Chrysler 300C disappear, along with the company's private
equity owner, Cerberus, whose 81% stake has been rendered worthless. GM
is in the process of downsizing or dumping four of its brands, including
Pontiac, which it introduced in 1926. Ford, at 106 the oldest American
car company, is the healthiest, though it appears so only in comparison
with its neighbors. Even it is going through resizing as it sloughs off
Volvo and extinguishes Mercury through benign neglect.
Battery power has been around longer than any of these companies; it is
as old as the automobile itself. In 1896 an electric car beat five
gasoline-powered vehicles in the first motor race held on American soil.
By 1900 there were a dozen manufacturers of electric cars; they produced
28% of the 4,192 autos built in the U.S. that year. Powered by lead-acid
batteries, electric cars were silent, clean, and simple to operate.
Their normal cruising range was 25 to 40 miles at speeds approaching 20
miles an hour - fast enough for the primitive roads of the time.
But battery technology was slow to advance. Electrics were ill-suited to
long-distance driving as new highways were built. Henry Ford introduced
the economical, easy-to-repair Model T in 1908 and would eventually sell
15 million. Gasoline engines, at first noisy, smelly, and unreliable,
became more refined. Sales of electric cars peaked in 1912 and gradually
dwindled to a small group of customers, mainly wealthy women and
doctors. The last production models disappeared by the end of the 1920s.
For several decades battery development moved haltingly. There was no
Moore's law positing a doubling of battery capability every 18 months.
The chemistry is complex, and demand was slight. Then, as concerns grew
about climate change and imported oil, interest was rekindled. In the
1970s electric-powered delivery trucks, small vans, and rudimentary
passenger cars like the Sebring-Vanguard CitiCar appeared. Best suited
for retirement communities, the plastic-bodied CitiCar had a top speed
of 44 miles per hour, a range of 50 to 60 miles, and a ride like a farm
Federal regulators stepped in to give the technology a boost. The
passage of the Clean Air Act in 1970 and its subsequent amendments were
designed to improve air quality by reducing exhaust emissions. They got
the attention of GM chairman and CEO Roger Smith, who had a fondness for
great leaps in technology. In 1990, Smith drove a battery-powered
concept car called the Impact at the Los Angeles auto show and announced
four months later that GM would put it into production as a
demonstration of its concern for the environment. Smith retired later
that year, but his successors pushed ahead with the plan, despite doubts
about its feasibility. Nearly seven years later the car, renamed EV1,
went on the market at select dealerships in Southern California and
Arizona, available for lease at $640 a month. The lozenge-shaped
two-seater was quiet and powerful. But despite more than 1,000 pounds of
lead-acid batteries, early models could travel only 55 to 75 miles per
charge, thus creating "range anxiety." Recharging took eight hours.
GM upgraded the EV1 with nickel-metal hydride batteries and extended its
range, but with gasoline prices low, interest was scant. California
regulators read the tea leaves and dialed back on a requirement that
automakers produce zero-emission vehicles (ZEVs). Losing thousands of
dollars on each car, GM discontinued production of the EV1 in 1999,
thereby earning the enmity of environmentalists. In 2003, GM recalled
all the cars to get them off the street, thereby inciting conspiracy
rumors and creating a story line for the popular documentary "Who Killed
the Electric Car?" GM later claimed that the EV1 taught it about
software and electric motors, but that hardly justified the cost of the
program, estimated at $1 billion.
Rubber hits the road
With climate change now a popular topic and memories of last year's gas
price spike still fresh, nearly all the major car manufacturers have
declared plans to put electric cars on the road by 2012. China has let
it be known that it wants to become one of the leading producers of
all-electric cars in as little as three years. China's BYD, already one
of the fastest-growing battery makers, is using an investment by Warren
Buffett in an effort to become the world leader in cars and batteries.
In the U.S. a company called Ener1, run by a former investment banker,
is trying to establish itself as an American presence in batteries.
Former Intel CEO Andy Grove believes that the U.S. needs to invest more
in what he calls a critical technology and argues for a government-led
consortium in battery research. Eyes will be on Obama's climate czar,
Carol Browner, this summer as she coordinates the administration's
effort to push a comprehensive energy bill through Congress.
New lithium-ion batteries - lighter, denser, and rechargeable more times
- have improved the cost-benefit equation of electric cars. "The day you
have a mass-marketed zero-emission vehicle, how are conventional cars
going to look?" Carlos Ghosn, CEO of Renault-Nissan, asks Fortune. "I'm
going ahead with the lithium-ion battery." The battery's biggest
weakness is a tendency to become unstable under stress. In 2006, Sony
recalled several million laptop batteries because of a manufacturing
defect that caused some to burst into flames.
The first lithium-ion-powered cars should start appearing next year. BMW
is testing an experimental Mini Cooper with batteries in the back seat
that has a range of 150 miles, while Toyota is developing a city car
that can go 40 miles on a charge. Spurred once more by regulation,
American manufacturers are coming to the party too. Batteries are the
only suitable technology to meet California's 2014 ZEV standard. Ford
will introduce a new small car powered by a lithium-ion battery in 2011.
Chrysler has shown an electric minivan and an electric Jeep at auto
shows and says it will introduce an unidentified electric car in 2010.
It will be at least a decade before electric cars make a significant
impact on the overall market. Battery-powered cars are still handicapped
by their limited range and the length of time they must remain at the
plug for recharging. Their adoption will have to first gain traction in
metropolitan areas where driving distances are short, and expand from there.
Gasoline, diesel, or some other high-density fuel will continue to be
required to cover vast distances or to scale mountain passes. In a
recent report, Roland Berger strategy consultants wrote, "We do not see
battery electric vehicles having the same driving range as
internal-combustion engine cars, thereby limiting their use mainly to
city driving." Cost also remains a big issue. "I don't see battery
electric vehicles selling in significant numbers within the next five
years," says powertrain forecaster Michael Omotoso of J.D. Power &
Associates. "Gas prices would have to go to $8 a gallon before the
average buyer sees an electric vehicle as a sensible option."
Long before then, it will be clear how GM's investment in the Volt paid
off. Projections call for the production of 10,000 cars during its first
year, 60,000 in the second. By comparison, GM sold 1.8 million
Chevrolets of all kinds last year.
GM says that as the Volt's sales volume increases, its cost will come
down, but it isn't expecting to make a profit until the car has been
redesigned at least twice. "First-generation technology is expensive,
but you can't have a second generation without a first generation," said
GM vice chairman Bob Lutz, in one of his last statements before
retiring. "Volt will survive and prosper."
He didn't say anything about GM's doing the same.