reprinted from

PRTM Insight
Plugging Into the
Electric Car Opportunity
What the new business landscape will look like
and how to get ahead
Oliver Hazimeh, Aaron Tweadey, and Robert Chwalik

ARTICLE

| First Quarter 2010

Plugging into the Electric Car Opportunity

ARTICLE

reprinted from PRTM Insight, Q1 2010

Over the next 10 years, the electric car will exert a major impact on the
business landscape. As demand for battery-powered cars grows, we will
see the emergence of a new electricity-based value chain, with abundant
opportunities for some companies and major risks for others.

he year is 2020. You are driving your electric

car home from work. On the way, you decide
to stop at the health club for a workout,
figuring youll recharge your car battery at the same
time. Using your voice-enabled vehicle communications system, you reserve a charge spot at the station
next door to the gym. As you arrive, your vehicle
navigation system guides you to your reserved space.
The charge-spot control center communicates with
your vehicle electronics and confirms your reservation. You plug in your vehicle to the charge spot,
press the start charging button on the display, and
head over to the gym for an hour. When you return,
there are no payment hassles to deal with, since the
charge is covered by your electricity service plan.
You simply disconnect from the charge spot and are
on your way.
Various forces are converging to make this
scenario a reality well before 2020. As concerns
mount globally about climate change, oil depen-

dence, and urban traffic pollution, automotive

manufacturers and policymakers are intensifying their efforts to make battery-powered
vehicles a viable alternative to conventional
oil-fueled cars.
The price will soon be right. Depending on
government incentives, the total cost of ownership for an electric vehicle (EV) is approaching
the cost of owning and operating a car with
conventional internal combustion engine (ICE)
technology. EV technology and operations
advances will continue to bring the cost down
even after government incentives end. As this
gap closes, EV demand will grow. By our estimate, EVs and plug-in hybrids (PHEVs) could
account for nearly 10 percent of new vehicle sales
globally by 2020 (Figure 1). Less conservative
forecasts peg penetration at 20 percent.
Clearly the advent of the electric car will
have an enormous impact on automakers.

Key Terms
ICE: Internal combustion engine vehicle fueled by gasoline
HEV: Hybrid electric vehicle powered by internal combustion and supported by electric propulsion
PHEV: Plug-in hybrid powered by medium-sized battery
and supported by internal combustion engine
EV: Fully electric vehicle with electrical engine powered by
large lithium-ion battery

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100

ARTICLE

80

Plugging into the Electric Car Opportunity

60

reprinted from PRTM Insight, Q1 2010

40
20
0

Global vehicle sales

(millions of units)

Figure 1: Global Vehicle Forecast, 20102020

100

ICE

80

HEV

PHEV

4%
6%

EV

41%

60
40

49%

20
0

2010

2012

2014

But the implications go beyond just that. As

increasing numbers of cars come to rely on
electricity instead of oil, there will be a major
shift in revenue pools and the emergence of a
new US$300B value chain with its own roster
of players and one to one-and-a-half million new
jobs globally. There will be enormous opportunities for some companiesbut enormous challenges for others. The companies that proactively
identify new business models and operational
strategies will become leaders of entirely new
industry segments.
What follows is a brief glimpse of the
changes on the horizonand some of the ways
companies can capitalize on them.

2016

2018

2020

Shifting Revenue Pools

With the rise in EV end-user adoption,
revenue pools will shift dramatically downstream, from natural resources like oil to
high-tech components like the battery. Important revenue shifts will occur in the three chief
parts of the transportation value chain: energy
delivery; conversion and propulsion systems; and
public and private services (Figure 2). According
to our analysis, the revenue shift will amount to
$20,000 per vehicle.
Energy delivery. As vehicles shift from oil to
electricity, the utility companies that generate
and deliver the electricity will acquire the

Figure 2: Anticipated Changes in Revenue Pools by 2020

conversion and
propulsion systems

energy delivery
Energy
Generation and
Distribution

Fueling/Grid

Components

EV Vehicles

public and
private services
Service

+11

Electricity-based
value chain

+3

Oil-based
value chain

-1
-13

+4

+2

neutral
-3

-3

Shift in value as measured by total cost of

ownership per vehicle (in thousands of dollars)

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Plugging into the Electric Car Opportunity

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reprinted from PRTM Insight, Q1 2010

bigger share of the vehicle fueling revenue. As

measured by the total cost of ownership, the part
of the oil-based value chain focused on energy
generation and distribution will lose $13,000 of
revenue per vehicle, while the equivalent part
of the EV value chain will gain $3,000. And
building out the required charging infrastructure will add another $2,000 per vehicle, while
the infrastructure providers for the oil-based
value chain will lose $1,000 per vehicle.
Conversion and propulsion systems. A
similar development will occur in the components piece of the value chain, as the companies involved in the production of the internal
combustion engine give up revenue to the
producers of large lithium-ion batteries and
electrical components. This will likely cut
$3,000 of revenue per vehicle from the oil-based
value chain, while adding $11,000 per vehicle to
the electric value chain, most of which will be
battery-related.
Public and private services. The shift to
electricity and EV propulsion systems will
drive changes in the element of the value chain
focused on services. Companies that, to date,
have serviced cars with conventional internal
combustion engines will give up revenue to
companies able to service electrical drivetrain
systems as well as to companies that can provide
charging, maintenance, and driver-related
services. Overall, the oil-based value chain will
lose approximately $3,000 per vehicle, while the
electricity-based value chain will gain $4,000.
Positioning for Success
Theres little doubt that the evolution of the
electric vehicle value chain will create a major
upheaval for companies in transportation-related
industries, posing numerous opportunities and
risks (Figure 3). This makes it imperative for

every affected company to scrutinize its strategic

positioning. Companies that include EVs in their
business plans must identify the many products
and services customers across the entire EV
value chain will need, and build the operational
strategies required to support these offerings.
Conversely, companies in the oil-based value
chain that view growing EV demand as a threat
should reposition themselves to mitigate potential sales declines, lower asset utilization, and
technology obsolescence.
Energy Generation and Distribution
As electricity supplants gasoline as the fuel
of choice, utility companies will reap most of the
benefitsand oil companies will shoulder most
of the risk.
Utilities. This development will give utility
companies a major new revenue stream: the
charging provision market. Since every new EV
will require the same amount of electricity as
a household, the new revenue opportunity will
be substantial. But the rise in the number of
battery-powered vehicles could strain electricity
grids and require new capital investments.
Utilities can avoid making these investments
by developing the ability to manage their
customers charging needs. Recent advances in
smart grid technology as well as strategies that
encourage customers to charge their cars at offpeak hours should help.
German utility RWE AG is aggressively
entering the charging provision industry. The
company aims to create an extensive network
of charging stations powered by electricity
from sustainable energy sources and to spearhead critical standardization efforts. RWE is
currently launching test pilots in Berlin and
other cities in Germany.

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Plugging into the Electric Car Opportunity

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reprinted from PRTM Insight, Q1 2010

Figure 3: Opportunities and Risks Across

the Electric Vehicle Value Chain
Conversion
and Propulsion
Systems

Energy Delivery

Value Gains

Companies With
Opportunities

Incremental
electricity and
charge-point
sales

Utilities
Charge hardware
and software
providers

Reduced gasoline
sales
Underutilized
infrastructure
Oil companies
Fuel distribution
companies

Companies at
Risk

Sales of EV
cells and packs

Capital investment avoidance

Value Losses

Charging infrastructure start-ups. This

white space is also attracting entrepreneurs and
venture capitalists that want to capitalize on the
infrastructure build out and shape the industry
with innovative business models. A prominent
example is the start-up company Better Place,
which has attracted more than $400M in
venture funding to develop its novel concepts
around battery charging and swapping. Other
companies are also developing innovative business models, so its not yet clear which concept
will prevail.

Services

EV-based
suppliers
Battery
suppliers
OEMs

Technology
obsolescence
Underutilized
ICE assets

ICE-based
suppliers
Traditional
OEMs

New service/
content
channel
co-branding
Revenue white
spaces

Telecom
E-Mobility
service
providers
Municipalities

Reduced
vehicle service
demand
Underutilized
service assets

ICE-based
services

Oil companies. Without question, shrinking

demand for gasoline at the pump will hurt oil
companies. For example, in a scenario outlined
by the Electrification Coalition, where 2030 EV
sales in the U.S. constitute 90 percent of new
vehicle sales, the per-day U.S. oil consumption
would decrease from 8.2 million barrels to 4.2
million barrels. But the negative impact should
be somewhat reduced by overall vehicle growth
and by the opportunity to focus on producing
petrochemical products. These are more profitable than gasoline and in greater demand inter-

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Plugging into the Electric Car Opportunity

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reprinted from PRTM Insight, Q1 2010

nationally (5 to 6 percent annual petrochemical

growth compared with 2 percent annual growth
for gasoline).
Some oil companies will embrace EVs. They
will use the opportunity to build attractive new
adjacent businesses and move up the transportation value chain. Exxon-Mobil, for one, has developed a new battery film technology critical to
enhancing the power and reliability of lithiumion batteries, and expects it to be in electric cars
on the market in 2011. Oil companies may seek
to leverage its franchise network by including
fast-charging capabilities.
Conversion and Propulsion
The shift of the powertrain, the heart and
soul of the vehicle, from internal combustion to a
battery pack presents perhaps the greatest opportunities and challenges of the entire value chain.
EV manufacturers and component suppliers.
Companies that can design and produce largesized lithium batteries and related EV drivetrain
will be in a good position to capture these opportunities. Currently, firms across the value chain
are racing to develop a battery that delivers the
same performance at half the cost. Many of the
large automakers, already on the EV bandwagon,
are deploying a variety of strategies for tapping
into this new revenue stream. Daimler, for
example, is engaging in a high degree of vertical
integration. The company recently made a $50M
investment in EV-manufacturer Tesla Motors
and took a 90 percent ownership stake in a joint
venture with Evoniks energy division. Ford, by
contrast, is relying upon strategic suppliers to
develop technologies. Canadian supplier Magna,
for example, is playing a major role in developing
the drivetrain for the Focus, Fords widely anticipated battery-powered vehicle.

ICE component suppliers. Companies that

provide transmissions and other engine components to automakers are at risk as demand
for traditional products shrinks. To combat
declining sales and underutilized assets,
suppliers will need to leverage key assets and
core competencies like precision machining,
which will allow them to provide the equivalent
products and services for EVs.
Public and Private Services
Battery-powered vehicles present excellent opportunities for service providers in both
value chains.
EV service providers. Since electric cars
require less maintenance, service revenue
streams will come largely from other types of
services, such as construction, media, retail, and
advertising. Imagine ads informing drivers of
the nearest charge point and retail outlets like
Starbucks or Wal-Mart offering discounts on
charges via a green loyalty program. On the
domestic front, chargers could eventually be
part of every new-home construction, with the
general contractor offsetting initial installation
and service provisioning costs. And software
applications developed for iPod, BlackBerry, or
next generation smartphones could notify EV
owners when their charge was running low.
Nissan is already working with Apple to develop
an app that does just that.
Traditional service providers. Clearly, conventional car-service centers like Jiffy Lube will see
their core revenues decrease significantly. To
survive and thrive, these companies should take
the steps needed to be players in the EV value
chain. This will involve making enhancements
to current locations with the equipment and
competencies required for diagnosing, servicing,
and replacing batteries.

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Plugging into the Electric Car Opportunity

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reprinted from PRTM Insight, Q1 2010

Roadblocks Ahead
Despite the potential of the EV value chain,
some significant barriers stand in the way. Its a
classic chicken-and-egg situation. On one hand,
consumers wont buy EVs if they are not affordable and if the support infrastructure falls short.
On the other, infrastructure providers wont
make the needed capital investments unless
there is adequate financial potential, vehicle
supply, and regulatory stability.
Infrastructure. The charging stations and the
associated hardware used to distribute electricity
require an enormous infrastructure investment. We estimate that more than $35B will
be required over the next eight to ten years just
to install charging facilities globally. Given the
conservative rate of EV adoption and consumer
reluctance to pay much for charging services, the
ROI on the charging infrastructure will be low.
The payback period for a single charging station
could take six to seven years, which is a much
longer timeframe than typical private investors
and shareholders are willing to accept.
This scenario raises several questions. Who
will make the necessary investments? Are there
enough private companies or investors with the
required patient capital? Can utilities afford
the required infrastructure investment, given
current regulatory restraints? Will cash-rich
oil companies be able to reinvent themselves
and their operational models to deliver the new
infrastructure? Will vehicle manufacturers risk
expanding production without the required EV
infrastructure in place? What role will government assume going forward? The answers to
these and many other questions remain unclear.
Affordability and consumer expectations.
Electric cars require a high-performance battery.
Even with anticipated cost reductions, this type

of battery will remain expensive and will translate into a higher-priced vehicle. The first generation of medium-sized electric cars will cost at
least $15,000 more than a conventional car.
Historically, consumers have been very pricesensitive even when reduced energy consumption lowers overall costs. By 2020, battery prices
will come down by 50 percent. Yet no one knows
whether these different developments will be
sufficient to ensure widespread adoption of
electric cars. Additional battery finance models,
government incentives, mobility concepts, and
consumer education on the total cost advantage
will most likely be necessary.
Consumers will also have concerns about
performance, range, and charging requirements.
In our view, people will be willing to pay for new
services that enhance the driving experience to
offset some of the inherent challenges in electric
vehicles. Companies need to develop clear and
innovative business strategies to make the most
of these opportunities.
Integration and alignment. Given the enormous complexity of the EV value chain, a lot is
riding on how well the different pieces of the
value chain are integrated, from the electrical
grid to key vehicle systems. Integration is a tall
order, requiring the coordination of a wide array
of stakeholders that have not historically worked
closely together, including utilities, municipalities, OEMs, and energy distribution technology
providers.
To cite just two examples: The charging
infrastructure needs to be seamlessly integrated
with the grid so that, as the demand for electricity grows over time, its easier to manage the
grids charging loads. Only if the grid is able
communicate with the charging infrastructure
and the vehicles will it be able to anticipate peaks
of demand and adapt accordingly.

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Plugging into the Electric Car Opportunity

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reprinted from PRTM Insight, Q1 2010

Similarly, the charging infrastructure and

electric vehicles must be well integrated so
that the chargers can interface with cars of all
different automakers. That means standardizing charging connectors and communications
hardware, software, and interfaces across cities,
countries, and regions, which would require
substantial effort.
Perhaps most important, the integration
needs to ensure that consumer experiences
around reservations, charging, billing, and adjacent service and content delivery are hassle-free.
Driving Change
To make the EV a reality, organizations
across the value chain must thinkand, more
importantly, actoutside the proverbial box.
By our analysis, innovative approaches need to
occur on three levels: government, individual
company, and across the value chain.
Government. Since all levels of government
worldwide will play a vital role in electric vehicle
adoption, the dialogue between government and
industry must be expanded beyond tax breaks
and subsidies. Discussions need to focus on
how the electric vehicle will influence and shape
future transportation, energy, and environmental policy. This level of dialogue is critical
for ensuring the benefits of the new value chain
reach all of its constituents. Like cross-industry
coordination, it requires multi-party collaboration, robust information-sharing and portfolio
management capabilities, and well-defined
governance models.
The U.S., German, and Chinese governments have taken steps in this direction. For
example, the American Recovery and Reinvestment Act of 2009 allocates $2B to support U.S.based advanced battery system and component
manufacturing and supporting software devel-

opment. Germanys federal government, which

anticipates one million electric cars on its roads
by 2020, has adopted a National Electromobility
Development Plan to accelerate the development of EV batteries. Tied to the countrys
economic stimulus package, the comprehensive
plan includes multiple government agencies
and several industry associations. The Chinese
government, meanwhile, is providing significant
consumer and OEM incentives to fuel EV adoption. It is also planning large-scale test pilots in
13 cities by 2011. Various regulatory mandates to
discourage traditional fuel consumption are on
the table as well.
As the EV market gains traction with end
users, industry, and government, the value chain
landscape will evolve with a momentum all its
own. This young automotive niche, currently on
the fringe, will soon power into the mainstream,
affecting many consumer-facing sectors. Companies across the value chain that anticipate this
quickly-shifting dynamic and strategically plan
and deliver necessary new products and services
could reap emerging electromobility rewards.
Individual companies. A truly operative EV
value chain cannot evolve without the development of many new products and services
that cater to the EV owner. Any company that
wishes to participate must revisit its business
and operational models so it can determine
not only what offerings it will provide but also
how it will provide them. For product companies, this means developing technologies,
outlining product road maps, and defining
future operational footprints to meet or exceed
the performance levels consumers have come to
expect from their primary mode of transportation. Similarly, service providers must develop
offerings that meet the particular needs of the
electric vehicle driver. And, regardless of the
offering, companies must develop the R&D part-

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Plugging into the Electric Car Opportunity

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reprinted from PRTM Insight, Q1 2010

nerships and global supply chain that will enable

them to operate at the lowest cost and least risk.
General Motors is a good example. In a
departure from its usual practice of outsourcing
component development and production to
suppliers, GM has invested heavily in its own
operations so that it can develop and build
lithium-ion batteries for the Chevrolet Volt.
Even Toyota is bringing the core elements of EV
power electronics in-house.
Cross value chain. Actions taken by government and by individual companies, however,
will not be enough to make the EV value chain
a reality. Companies must collaborate across the
value chain to develop the integrated system
architecture that will provide the EV driver with
a standard set of products and services, instead
of solutions that vary from city to city. Only by
looking across the value chain can individual
companies find new opportunities and come

up with the innovations to leverage them. As a

first step, therefore, potential EV players must
start forging cross-industry partnerships and
improving their value chain visibility.
Consider McDonalds. The fast-food giant
recently began adding PHEV charging stations
to its restaurants in the U.S. and Sweden.
Coulomb Technologies is providing the charging
stations in the U.S., while Elforsk, a division
of Swedish energy supplier Svensk Energi, will
oversee the charging stations in Sweden with the
aid of the Swedish national grid.
The advent of the electric car is no longer in
questiononly the timetable is. Like any major
disruptive innovation, the new value chain will
bring numerous white-space opportunities as
well as risks. Companies that proactively stake
their claim in this new landscape will be the
ones leading the way in the next generation.

For more information, please contact:

Oliver Hazimeh, PRTM Director
ohazimeh@prtm.com, + 1 248.327.2500
Aaron Tweadey, PRTM Principal
atweadey@prtm.com, + 1 248.327.2500
Robert Chwalik, PRTM Principal
rchwalik@prtm.com, + 1 212.915.2600

Source for all data in charts: PRTM analysis

|9

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