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Consulting firm PRTM's Hazimeh discusses challenges to EV market after Prius recall

How will Toyota's recent recall of the Prius affect the electric vehicle market? What job growth potential does the electric vehicle industry offer? During today's OnPoint, Oliver Hazimeh, director and head of the global e-Mobility practice at worldwide management consulting firm PRTM, discusses the state of the electric vehicle industry in the United States and abroad. He also talks about some of the key challenges facing the industry as it tries to broaden its reach.

Transcript

Monica Trauzzi: Welcome to the show. I'm Monica Trauzzi. Joining me today is Oliver Hazimeh, director and head of the Global e-Mobility Practice at worldwide management consulting firm PRTM. Oliveira is an expert on the automotive and electric vehicle marketplace. Oliver, thanks for coming on the show.

Oliver Hazimeh: Thanks for having me.

Monica Trauzzi: Oliver, all eyes are on Toyota this week as executives testify before Congress about the safety of Toyota vehicles. Recently the Toyota Prius was recalled, a very popular hybrid vehicle in the U.S. What impact does that recall have on the hybrid electric vehicle and electric vehicle marketplace?

Oliver Hazimeh: Yes, thanks again for having me and in our estimate we don't believe that the Toyota Prius will have a long-term negative impact on the electric vehicle adoption. It's a bump in the road and the issue that faces the Toyota Prius is very different than the other Toyota instances with the braking pedal and the accelerator pedal. It's about the regenerative braking system and as it interacts with the traditional braking system and it's a software issue. As far as we know, it is related more to the feel of the car as it is really a safety issue. But it's still, nevertheless, a concern for consumers and Toyota clearly needs to address it. And it's not only for Toyota an issue, but it's for the wider industry. As you have more and more electric complexity added to the vehicles, new capabilities need to be brought into the companies as they do system integration work, software engineering and OEMs are doing that already today. GM, Ford, has their basically hybrid ties to the vehicles, they're bringing these capabilities back into the cars. And we don't think long term, the drivers, the fundamental drivers for electrification are still well and alive and we still see an uptake by 2020 of at least 20 percent of hybrid electric vehicles and even an additional 10 percent of electric vehicles.

Monica Trauzzi: This is still a pretty big PR issue for Toyota and, as you mentioned, the electric vehicle industry as a whole. Are you expecting a short-term decline in sales and then when would you expect sort of the market to even out?

Oliver Hazimeh: Yeah, sure, I mean if you look at the Prius particularly, I mean that was really a high-selling, the most high-selling vehicle, very successful, improved a lot over the Prius of the second-generation. And, you know, when you look at the demographics of the early adopters right now it's about 3 percent adoption rate in the U.S. for these vehicles. In Japan it's already much higher, 10 percent, but with the 3 percent you get still the very green, conscious buyers. You get still very loyal Toyota buyers. So, what we will probably see is not people switching in large numbers to other vehicles per se, but they will maybe wait it out and see how Toyota reacts to these problems. And then it may be a delay of maybe three months and then we will see, probably by the end of the year, that the situation will have stabilized and it will pick up again.

Monica Trauzzi: You've been working with the Electrification Coalition on an electrification roadmap. What are the key hurdles that need to be overcome here in the U.S. and also internationally to sort of have mass adoption and broaden the scope and reach of electric vehicles?

Oliver Hazimeh: Right, well, we think we are really at a tipping point with the electrification of vehicles and it will become one of the dominant alternative propulsion technologies as OEMs look at reducing greenhouse gases and improving fuel-efficiency. It is not economically viable to do that with traditional technology. No, it will happen. There will be still clean diesel biofuel, but to really get there where we need to go electrification needs to happen. And when we talk electrification there's a whole spectrum. There's the Prius we talked about, which is a more traditional hybrid electric vehicle, powered by a combustion engine with some support from electricity. But then you have like what GM is introducing, a plug-in hybrid which is battery driven with support of an internal combustion engine to generate battery power. And then you have something like Nissan Leaf, which is a pure electric vehicle. Now, for the last two vehicles that I just mentioned, they require some support infrastructure, charging infrastructure, a different refueling system. And so that is, for example, one of the barriers that needs to be overcome. Who is actually putting the money out to actually invest in that infrastructure, roughly 1.5 charges home and in public per vehicle? For the U.S., we estimate that to be about $20 billion and by just selling electricity that is not a very attractive ROI, so there need to be other business models that need to be brought and integrated. So that's when we talk about it's not just about the charge, but it's about integrating the whole ecosystem. It requires the legislative, it requires the business, private/public partnerships to come together to create that type of business. Now, that is one of the biggest hurdles that need to be overcome. The second one is the cost of the vehicle. So, as you add these batteries to the cars today. For example, a Leaf vehicle that is about a 24 kW battery, it costs about today $15,000. Now, that cost needs to come down rapidly and we expect that cost will come down in the next 10 years by probably 50 percent. In the meantime, consumers still need to be enticed to buy these vehicles, so that's why you see incentives, innovative financial models, and OEMs and battery makers need to actually work hard to kind of, from an operational side, reduce the cost.

Monica Trauzzi: So, improving infrastructure means more jobs? What is the job growth potential through the electric vehicle industry?

Oliver Hazimeh: Yeah, so when you look globally, and that raises a lot of questions, but when you look globally this whole infrastructure to support electric vehicles is about a $300 billion business by 2020. With that comes about a million jobs that we think are related directly to this value chain and that includes from the utility providers to smart grid providers, battery manufacturing, vehicle manufacturing, new service provisioning. Now, the question is, who will actually benefit and who will participate in that 300 billion or, as you asked the question for the jobs, who will actually benefit and create these one million jobs worldwide? The U.S. can actually assume a leadership role if the right things are done and so far what we have seen, and, you know, in our report that you mentioned, Electrification Roadmap, many things are done. For example, for vehicle assembly money was provided for battery manufacturing, money was provided, but we still see there are some gaps that need to be filled quickly on the infrastructure provisioning. We still see too much of, you know, point solutions in the system and even on the battery side there's a lot of emphasis on the assembly side. But the real core technology, which is really residing in the cells is still mainly abroad in Asia and so that becomes critical to the quality of jobs and not just the quantity of jobs.

Monica Trauzzi: Right and this is something that the president has spoken about relating to the battery manufacturing. Where does the U.S. stand at this point in the push to manufacture its own batteries?

Oliver Hazimeh: Yeah, so if you look, what we really have to recognize this is now a strategic race that has been launched between China, Europe, and the U.S. China clearly sees electrification as a means to leapfrog the technology, you know, sidestep, not trying to catch up on an internal combustion technology, but leapfrog the West. And they're pouring a significant amount of money, not only in the raw materials that they own, but across the whole value chain in motor technology, battery technology, etc. So that's where I think the U.S. needs to look at this holistically from a portfolio perspective and say so where do we need to put the money where we also create basically high-tech jobs for the future? And, you know, this is a discussion that is currently going on. As the first wave of funding was provided, I think the administration and even private/public firms look at this and ask where is basically the next level of investment that needs to take place?

Monica Trauzzi: OK, we're going to end it right there. Thank you for coming on the show.

Oliver Hazimeh: OK, thank you very much.

Monica Trauzzi: And thanks for watching. We'll see back here tomorrow.

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